The Flipping Of Coin Fortunes

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New England Rare Coin Galleries Inc., whose fortunes were described in "The Solid-Gold Roller Coaster" (see INC., April 1982), is proving that the rare coin market is no place for those who are fainthearted.

The company's sales zoomed from $22 million in 1979 to almost $50 million in 1980, returned abruptly to $22 million the following year, and, still in a free-fall, hit about $15 million in 1982. James Halperin, the 30-year-old founder and president, began cutting back in 1981 by slashing the number of employees, in a series of layoffs, from 175 to about 30 at the company's lowest point.

West Coast offices were closed and operations were "skinnied down," says Dana Willis, a consultant who has taken over day-to-day management of the company while Halperin hits the coin shows. The company was not profitable for the first three quarters of 1982, but Willis expects a leaner, tougher company to stay in the black in 1983.

Has the rare coin market hit bottom yet? Yes, says Willis. Tangible assets traditionally do well when inflation is high and interest rates are low, driving investors to things they think will hold value. In 1979-80, investors simply were unable to keep up with the rapid pace of inflation, and they sought refuge in such hard assets as gold' silver' and rare coins When inflation began dropping and interest rates stayed at historically high levels, investors deserted the rare coin market for money market funds and other more lucrative opportunities. Willis and Halperin maintain that the relationship of inflation to interest rates has changed and, furthermore, that coins have now reached the bottom of their own three-to-five-year cycle and that the market has picked up.

Taking advantage of the lull, Halperin joined forces with another famous name in coin circles, Steve Ivy of Dallas. In Ivy Financial Corp., Ivy and Halperin are consolidating on coin auctions, hoping to reduce overhead, and they will also coordinate their financial planning businesses and European buying operations.

And in Boston, where NERCG is headquartered, the company's huge -- if brief -- success has inspired a host of imitators, which Halperin has begun to consider less than flattering. Many former numismatists from NERCG have gone off on their own, evaluating and selling coins. Former president of NERCG Alan Hershon gathered seven employees while still under NERCG's roof and set up a competitive company across town, Rare Coin Galleries of America. NERCG promptly sued.

NERCG claimed in Boston Superior Court that the executives of Rare Coin Galleries of America had violated a "non-competition agreement" that they had signed when the employees were originally hired at NERCG. The agreement stipulated that the employees would not compete with NERCG -- should they decide to leave the company -- for at least 24 months. When one customer mistakenly mailed back a copy of an agreement to NERCG instead of to Rare Coin Galleries of America, NERCG discovered that its new competitor was wooing its customers.

The judge decided that NERCG had a right to protect its "lifeline" -- mailing lists, pricing information, research -- for at least two years, and ordered Rare Coin Galleries of America to haIt operations in the United States.

It seems there is never a dull moment in the rare coin market. And Willis is hinting that 1983 will bring even more excitement. Investment-minded readers will remember that Halperin created a partnership fund in 1976 -- the year of the last market trough -- by hand-picking $348,000 worth of coins he thought were undervalued. By 1979, when that collection was sold, the coins were worth nearly $2.2 million -- a 390% net profit in three years for the lucky investors. That kind of return, suggests Halperin, shows where the real action continues to be in the rare coin market, "skinnying down" and lawsuits aside.

CORRECTION-DATE: May, 1983

CORRECTION:

In "The Flipping of Coin fortunes" (Update, February) INC. erroneously reported that "former president of New England Rare Coin Galleries Alan Hershon gathered seven employees while still under NERCG's roof and set up a competitive company [Rare Coin Galleries of America] across town. "Mr Hershon denies this, and the allegation in INC.'s story went beyond what NERCG claimed in a lawsuit filed to restrain Hershon and his colleagues from operating RCGA. Secondly, contrary to what was reported, a judge did not rule that HERCG had established a "confidential information interest" pertaining to its mailing lists, pricing information, and research. The judge did, however, find that HERCG had a "goodwill" interest, which warranted protection against four of the founders of RCGA, all of whom had signed noncompetition agreements while employed by NERCG. Finally, the article erroneously stated that RCGA had been enjoined from doing business in the United States. Mr. Hershon and three other defendants, but not the company, were enjoined from competing with NERCG, pending a final decision in the case, a point that was clarified on appeal after our issue had gone to press. Repeated attempts to reach Mr. Hershon during the process of checking the facts of the story were unsuccessful, and Mr. Hershon himself would not comment on the case prior to the story's publication. INC. regrets the errors.

In "Pint-size Computers" (March) Portia Isaacson should have been identified as the president of Future Computing.