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Some comments on Coin Grading
By G.D. Prather, WINS#294

In my opinion far too many of us THINK we know what we are doing when it comes to grading. And I'd be willing to bet that of all the people who read this - a number of them will think that statement includes everybody except them. Well, I'll be the first to admit that the best I can ever hope for is an educated guess - and I started collecting coins over 40 yrs ago.

In my mind this is also a large part of the reason that many people do not like grading companies. They grade a coin themselves certain that they have a gem. Then they send it in to a grading company only to have it returned with a much lower grade than they expected. This results in cries of favoritism and biased grading. When in fact it is simply a matter of ego or greater faith in one's abilities than actually exist.

Grading coins is a skill - a trade - an art even - that takes more than just years of collecting coins. A coin grader in order to learn his craft does not merely look at thousands of coins. He looks at thousands of coins - in a single issue - in a single grade. And then he does the same thing for the next grade and so on & so on. And then he does the same for each and every coin out there. Only then does he become a coin grader.

So I would not say that the average collector cannot accurately grade coins - I would say that the vast majority of coin collectors cannot accurately grade coins. And that is not meant as a slam either.

Grading coins is no different from any other trade -whether it be a doctor, a lawyer, a master furniture maker - or even an auto mechanic. In order to learn a trade - and I mean really learn it not just know a little bit about it - you must do it for a living - day in and day out - for years. And even then you never stop learning.

All of you out there who have spent 20, 30 yrs or more learning a trade - you can think of a very similar experience. One day at work you meet a man or woman in the business and they act like they know it all !! They are the best that has ever been ! And you ask them - " how long have you been doing this ? " And their answer is 3 yrs - 5 yrs - whatever. And you walk away shaking your head. Well, it's no different when it comes to grading coins. The vast majority of us are just rank amateurs - no matter how much it hurts to admit it.

So what do you do if and when you can admit that to yourself ? Why you turn a grading company of course. But there is a problem that many have, myself included, with the grading and pricing structure of coins. And because I do not think that this subject can ever be discussed too much - I will reiterate what I have said before - that the entire grading industry needs to be revamped. That the grading companies need to be regulated in some manner so that a universal set of grading standards can be enforced. And so that grades for coins will be established on a technical basis rather than on the market basis that we have now.

But before anything can ever be changed it is necessary to understand just how the grading system was established in the first place and thereby understand the flaws within that system.

In the beginning when Sheldon first devised his system it was set up on a value basis - not a technical basis. In other words - grades were assigned to coins because of how much they were worth - not because of their condition. And to devise this system Sheldon only used 1 coin upon which to base it - the 1794 large cent. Sheldon described his system as a "quantities grading of condition. "

Sheldon observed that cents of that date in the lowest collectible condition--"identifiable and un-mutilated"--were selling for about one dollar apiece, so he established $1 as the basal value and assigned a grade of 1 to coins in that level of preservation. Noting that examples in Good condition were selling for about four dollars each, he assigned these a numerical grade of 4. Continuing in this manner, Sheldon came up with numerical grade of 7 to 10 for Very good, 12 to 15 for fine, 20 to 30 for very fine, 40 for extremely fine, 50 for About Uncirculated, 60 to 70 Mint State.

So over the years this method of grading coins based upon their market value has continued because that is how it was established to begin with. What the system does not take into account is that market values change over time. And when the market values change - so does the grade of the given coin because it is based upon the value and not the condition of the coin.

For a simplified example - say in year 1 a given coin in EF40 is selling for $40. But because of a rise in collector interest - by year 3 the very same coin is now selling for $50. Then by default - because the system is based on value and not condition the grade of the given coin now becomes AU50. And say that by year 6 collector interest wanes and the price of the given coin drops back to $40 - then it follows that the grade drops back to EF40 as well. I readily agree that this does not make sense - but nonetheless that is the way that Sheldon set it up.

Over the years as the Sheldon grading system became accepted in establishing the value and the grade of other types of coins it has been altered & changed by many. Because those who grade coins and thereby establish a value have seen that parts of the system work and parts do not. So what we have now is a hodgepodge of some people grading on a technical basis while others grade on a market basis. But when it comes to establishing the selling price of a given coin - it always seems to end up being based on a market basis.

The flaw in this system is obvious but it is what we have and what we are stuck with until we as the collector community as a whole decide to force a change to take place. For as long as we as collectors continue to pay the escalating prices - then the prices will continue to escalate.

And for a collector to say that a MS65 cost too much so I will buy a MS64 is not the answer. For the MS64 that you buy today was in actuality yesterdays MS63 and you have only perpetuated the problem.

What we need is system that establishes the grade of a given coin. And the grade of that given coin remains static - the grade never changes. And if over the years the value of that given coin increases or decreases for whatever reason - then so be it. But the grade remains the same. A system likes this makes sense - as well as cents !




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