The Good Life: Rare Coins Paved With Gold

"The history of money and the history of a country is usually found in their coins," he told me. "Coins are like holding history in your hands. Many of the best artists and sculptors of their times made coins. For instance, August St. Gaudens was hired by Teddy Roosevelt to redesign America's coins. At the time, he was America's top sculptor. In 1999, we bought and then resold a St. Gauden's 1907 $20 gold piece for $1.2 million."

Assessing the value of a rare coin does have similar characteristics to valuing a business. You use comparables and you make sure there is a significant margin of safety. The value of a coin depends in large part on its rarity, which is a function of both the particular time and place it was minted, as well as its current condition.

Depending on these two factors, there are various scales that will assign a grade based on the perceived rarity of the coin. Grades are between 1 and 70, with anything in the 60 to 70 range considered "rare." A coin that is graded a 69 might be significantly more expensive than a coin graded at 68.

The key to "value investing" in the coin space is to acquire coins that might have been graded too low or coins that are more rare than other similarly priced coins. For instance, a 1905 Liberty nickel with a 65 grade might cost $500 now, even though there might be only 157 other 1905 Liberty nickels with a 65 grade. This offers a better margin of safety than a Morgan Silver Dollar that might have a similar price but comes from a population of 3,000 to 7,000. In the long run, rarity of population is the best predictor of future price, much in the same way that cash flows are the best predictor of a company's stock price.