Well, we’ve already covered one non-stock idea this week (that was the “Phi Account” pitch about philatelic investments) … so we might as well jump right in and look at another. This time, it’s a lot easier and is based on pocket change.
And no, it’s not the same pitch for pre-1965 coins that have silver content, or for the oddball 40% “magic” silver half dollars that were teased by Dr. David Eifrig a few months ago … this is a tease for Addison Wiggins’ Apogee Advisory newsletter about coins that are actually in heavy circulation right now and easily available.
So what’s the story? Well, here’s a little taste to get you started …
“Simply holding on to these coins could be the safest (and easiest) investment idea we’ve found in the 32-year history of our business.
“And it turns out that it’s an idea that’s been hiding in our pockets the whole time.
“Here’s the thing… Chances are — if you’ve purchased anything in the past 24 hours — you’ve probably laid your hands on this coin.
“Looking in my own pockets, for example, I have three of these coins right now. You probably have a similar number in your pockets. Or underneath your couch cushion.
“And I bet you have dozens, even hundreds, sitting in piggybanks and coin jars around your house.
“What you may not know is how valuable this coin could soon become.
“In fact, when I first heard the projections of how it could double my money in the coming months, I laughed out loud.”
The basic idea is that you should start hoarding these coins because the current ones will be revalued in the marketplace after a projected future event that they think will happen soon — and they go back in history to give a few examples of this happening.
The examples you might remember are two fairly clear ones …
… in 1964, they changed the makeup of coins and effectively stopped backing the dollar with silver. Starting in 1965 quarters, half dollars and dimes were no longer made of 90% silver, and right away people started hoarding them, hoarding that continues to this day if you ever happen to come across one of these older coins. A beat-up 1964 dime is worth about two bucks, a similarly well-used 1965 dime is worth ten cents, so it just makes sense that you don’t see these coins in circulation any more unless you find an old piggy bank in the basement — almost all of them are being held and traded for their silver content, and this so-called “Junk Silver” has fueled many newsletter teases in the past. It is often the cheapest way to buy physical silver.
And in 1982, they changed the makeup of pennies to make them 97.5% zinc — they had previously been 95% copper. So as copper prices rose, some people started hoarding pennies. This wasn’t quite as dramatic as the silver switchover in 1965, but a 1982 penny does have enough copper in it that if you melted it down it would be worth about two cents — so people do hoard these and trade them as a play on copper. Actually, from time to time zinc prices spike, too, and have meant that sometimes the modern penny is worth more as a hunk of metal than it is as currency, though now the zinc value is down to about half a cent per coin.
The other example he gives is good ol’ Emperor Nero, who apparently secretly cut the silver percentage in Roman coins and spurred what may have been the first “coin hoarding” episode in history, in case you’re curious. Stock Gumshoe has an audience that tends to be relatively advanced in age compared to other websites, but even so I expect none of you remember that one.
So what’s next? Here’s a bit more from the ad:
“… the unique U.S. Mint “error” that I’d like to tell you about today…
“Unlike any other investment opportunity I’ve ever found, this one is the safest.
“There’s virtually no way to lose money on this.
“Next, it’s also 100% free of any costs.
“No commissions. No transaction fees. Totally free.
“Finally, it’s 100% anonymous….
“And best of all, this little-known “error” allows you to potentially make an instant 14% gain.
“In the coming years, the gains could run as high as 228%-plus….
“And some of America’s wealthiest investors are piling in, too…
“Take Kyle B., for example.
“Kyle B. manages a hedge fund in Texas. He was one of the few that got the housing market bubble correct… making his investors 440%.
“What’s he doing with his money now…?
“You guessed it.
“He’s hoarding the coins I’ve been telling you about in this letter.
“He recently walked into his local bank… and exchanged dollars for 20 million of these coins.
“‘You really ought to call your bank and buy some now,’ says Kyle B.”
“The last time this loophole existed – more than 30 years ago – taking advantage of it could have made you a fortune…
“As Newsweek reported, ‘In every case, the [‘error’] caused the value of the original coin to skyrocket…”
So which coin is he talking about? Well, it’s the one that we almost never mention: the nickel.
Nickels are actually mostly copper these days, but there is meaningful nickel in those coins too — the modern nickel, minted from 1946 to the present, is 75% copper, 25% nickel. And it’s pretty large and heavy relative to its value, so that metal is worth just over a nickel now if you were to melt the coin down (which is not legal).
So right now, if you buy up 4,000 nickels for $200 you’ll actually be getting $207 (roughly) worth of “melt value.” That number has been both higher and lower in the past, as the price of those metals fluctuates on the commodities exchanges, but the “error” that they’re talking about is the mistake that the Mint has tried to rectify in the past: that they’re minting coins that are worth more than their face value, so they don’t get circulated, which goes against what the Mint is trying to do (maintain an effective and orderly set of official circulating coinage that’s useful to society).
Plus, it costs the government more money to buy the blanks to make the coins. Pennies and nickels have often cost more to mint than they are worth, though that can be justified by the fact that these coins easily last decades in circulation, but that “extra” cost is occasionally looked at a way to potentially save some money with relative ease.
So it is possible that at some point the government could change the makeup of the nickel — but I would absolutely not buy up a huge pile of nickels based on your hope that this would happen soon, it almost certainly won’t. They have studied alternative formulations for all coins over the last several years, and the last official report from the Mint asked for more time … meaning that the current formulations are pretty much going to continue indefinitely unless they make a hard decision. For nickels, that decision in part rests on whether or not you want them to work in vending machines — they could easily move to a 95% zinc nickel and save a bunch of money and make them worth just a penny or so in melt value, but that would mean they would have a different electromagnet signature and wouldn’t work for vending machines in the same way, which would cost hundreds of millions of dollars for the vending industry.
Since the metals prices have fallen a bit in recent years from their peak, the impetus to change the makeup is not as strong as it was a couple years ago when a nickel was actually worth about ten cents — so since there’s a relatively low motivation to change, and a barrier to change, it’s hard to see this becoming a priority for the Mint or Congress this year. That doesn’t mean nickels aren’t worth setting aside as you get them, since copper and nickel are valuable metals that may well increase in value over time, and they’re “trading” for slightly under their melt value right now, but don’t go expecting that you’ll be able to sell the nickels you get for ten cents in July.
My guess is that the relatively low values for each coin mean that we’re not going to see rabid hoarding, and that even if the nickel composition is changed the current (then “old”) nickels will not disappear from circulation nearly as fast as the silver coins did in 1965 — I’d guess it would be more similar to the case of the copper pennies in 1982, there are folks who have stockpiled tons of pennies (they’ll sell ’em to you on ebay), but you have to have a lot of time on your hands and good eyes to make it worthwhile to sift your pocket change and set aside the coins that are worth two cents. I just grabbed a handful of change from the top of my dresser, and of the pennies in that handful a third were still pre-1982 copper pennies. So the laws of economics tell us that as copper remains valuable they will gradually recede from circulation, but thirty years later they’re still quite plentiful according to my completely non-scientific spot check.
It would take far higher commodity prices to bring actual hoarding that has any impact on the number of nickels in circulation, I’d guess — but still, you can set aside a bin in the basement and throw your nickels in, and they’ll always at least be worth a nickel so it doesn’t cost you anything but space and time.
By way of example with the 1982 pennies situation, which I think is far more similar to the potential nickel change than is the silver switchover in the 1960s, I tried to measure the gain of finding the buried treasures. It took probably half a minute for me to squint at 15 worn pennies long enough to read the dates and set aside the pre-83 pennies, and I found five copper pennies. So that means if I can monetize those pennies, which are worth about two cents, I earned five cents for my 30 seconds of work. Which is $6 an hour. My time may not be that valuable, but it’s more valuable than that … maybe it’s worth having the little Gumshoes squint at these little copper disks for an hour or two and sift through them, but it’s neither an investment strategy nor a likely windfall maker in my book.
With nickels, the numbers on the coins are a little bigger so you can read ’em a little faster … but if you’re imagining a world of nickel hoarding and sorting the current payoff is much lower per coin, each nickel is currently only worth 5.2 cents in melt value so at current metal prices the future you would need to “find” five of them to make a penny, which means the motivation to sort them out might be lower … and which means the folks who stockpiled current nickels might find them less valuable than they hoped. But, of course, the current you doesn’t need to sift them out by year, all nickels are the same now (save for the relatively few silver wartime nickels that are still around — and hoarded just like the other pre-1965 silver coins) so just setting them aside or stockpiling a few rolls each time you go to the bank requires little labor.
If there is a change in the next few years then your pile of nickels could provide a meaningful return, assuming copper and nickel prices rise, but the strategy comes with quite a lot of friction compared to your typical investment strategy — or even your “junk silver” coin investing. $1,000 face value in nickels weighs about 220 pounds and takes up a fair amount of space, so you can get them from your bank easily enough, and at no real cost, but if you’re counting on this to pay the rent in 20 years you’ll need to work those back muscles and find a place to store those coins. And know that if there isn’t someday a change in the makeup of the nickel, or if copper and nickel prices remain at current levels or fall, there’s essentially no chance that this big heavy bag of coins will be worth more in ten years than it is today. It won’t be worth less either, at least in nominal terms, so there is a backstop of sorts … it will be worth a little bit less with inflation, of course, but so will those twenty-dollar bills you taped to the bottom of your sock drawer for a rainy day. And odds are that if inflation is really meaningful over that period of time, then melt values will probably rise, too, possibly providing more impetus for a change in the coin’s makeup in the future.
Bottom line? If you need something to do with five minutes of your day, sure, set aside your nickels or buy a roll or few now and then, they might be worth more someday. But the nickel isn’t going to change in the next year, by all accounts, and even if it did you’d have to have both the coin ingredients change and copper and nickel prices roughly double to make the current nickel be worth ten cents. Unless and until it changes (and they didn’t change it when copper and nickel prices were twice current levels, so they’re clearly not in a huge rush) you’ll find it hard to get more than five cents per nickel. You may not ever be forced to take four cents for your nickel, but you also might never get six cents … so it may not be as much of a waste of time as reading my blather, but I think the likelihood of “doubling your money in a couple months” with nickels is approximately zero.
P.S. There has been meaningful (and headline-generating) interest from investors in these nickels, by the way — the “K. Bass” that they tease in this ad is Kyle Bass, who runs a major hedge fund, and he did reportedly buy a million dollars worth of nickels in 2011 because he said the value of the metal in the coins was 6.8 cents, so nickels were available at a discount. They’re no longer at as meaningful a discount and I don’t know if he still holds them, but it’s also worth noting that he has something approaching a billion dollars under management in his fund ($740 million as of the last numbers I saw), so this nickel buying was roughly 1% of his fund. If he still holds them, he can still sell them for a million dollars. I don’t know if he had a particular catalyst in mind, or just thought he’d park some of his cash in nickels since there was potential for the discount to eventually lead to them being worth more than five cents, so far that bet has neither gained nor lost anything (other than whatever it cost him to transport and store 20 million nickels (which would weigh about 100 tons).