By David Galland in Casey's Daily Dispatch:

... [L]ast week a friend sent me a copy of Mother Jones, an a unapologetically "progressive" mouthpiece with a cover story titled Glenn Beck's Golden Fleece,which you can read here.

Today, friend and correspondent Lowell sent along an article with an embedded video link to an lengthy ABC News "investigation" by Clintonista George Stephanopoulos that picks up on the Mother Jones story. You can, and should, watch it here.

Now that you’ve watched the video – and if you don't, some of what follows won’t make any sense – I'd like to share some observations based on personal experience.

About Coins

Years ago, I headed up the publishing division of a company (that will go unnamed) with a separate division selling coins. I was there when the coin business started, and while not involved, was impressed at its rapid growth in the heady days of the 1970s gold bull market.

Then something happened. While the founder was a strong advocate for hard money and sincere in his intent to do the right thing by his customers, as the coin business grew, he increasingly recruited "professional" managers to run the firm – hired guns whose sole focus was boosting the bottom line and, by so doing, their bonuses. And the business hired more and more "professional" salespeople – the sort of folks who know how to squeeze a client good and hard.

As the company's sales soared, fueled by hard-hitting marketing, the founder's good intentions began to weaken under the onrushing flood of cash that began to wash in. In time, the entire conversation at the coin division switched from "What’s good for the customer?" to "What coins can we sell with the biggest mark-up?"

On those occasions when I was invited to comment on what was going on, I did what I could to argue against the corporate culture that had developed, but my impassioned and increasingly angry fights with the managers of the coin division couldn’t win out over the millions in profits being made. As much as I enjoyed my job, the situation became so degraded, I had no choice but to resign.

Now, let me be clear. The company broke no laws and, in fact, did nothing that I suppose most businesses on to a good thing might not do... Marketing was generating lots of prospects, and the sales force was selling.

The problem was that the product line had moved from selling highly liquid government-issued gold and silver bullion coins to selling illiquid "modern rarities," an oxymoron if there ever was one. Whether "proof" Mexican silver dollars, "treasure" coins, or privately minted commemorative coins, the one thing you could be sure of was that the mark-ups were huge.

Which meant that, in the absence of an active collectors market – which, when it comes to "modern rarities," just doesn't exist, and never will – the coins were very unlikely to ever provide a reasonable return on investment, let alone be a good asset to preserve capital. Quite the opposite, they were almost certain losers.

Buyer Beware

In the ABC video, you'll hear a sound bite from a client of Goldline who spent $5,000 on "collectible" coins, saying that he wanted to buy bullion, but that the sales guy "kinda, sorta talked me into buying these other coins." Soon thereafter, the buyer decided to sell those coins and, when he did, he took a 42% loss. Which, he points out, was a big hit to his net worth.

You can probably spot all the things wrong in that paragraph, but I'll do it anyway.

First, the disgruntled former client says he was looking to buy bullion coins, but the sales guy switched him to a "collectible." Whose fault is it that he allowed himself to be swayed? Quoting Nancy Reagan, when dealing with a salesperson, often times the best thing to do is "just say no."

Second, if taking a loss of about 42% on an investment of $5,000 really hurts his net worth – he shouldn't have been buying illiquid coins in the first place.

Third, buying any "collectible," or pretty much any asset, at full retail and then turning right around and selling it, is invariably a sure-fire ticket to a quick loss.

Finally, who is to say that the coin dealer that bought the coins off the client didn't lowball him? That, too, is part of generating a profit in the coin business.

While I feel sorry for the former Goldline client, he really can't blame anyone but himself for that loss. He didn't do his homework or stick to his guns when the salesman tried to move him up to a higher-margin product line.

As for the company, I don't know them, but I do know that they spend a lot on marketing and celebrity endorsements. It doesn't take a genius to figure out that money has to be recouped from somewhere – specifically, the clients. Which is why I strongly suspect that, yes, the company's salesmen are especially aggressive. And that they try very hard to load their clients up with high-margin coins.

But my concern is not with an uninformed buyer or a hard-selling merchant – the world has plenty of both… always has, always will.

Rather, my concern is only for you, dear reader. And so I will recap some lessons from this article, and based on my own brush with the business.

First, if you're going to become a coin collector, don’t think you can stumble into it and enjoy any measure of success. Do your homework – then do some more – before actually laying out your hard-earned cash. Fortunately, there are a lot of useful resources out there for you to rely on… pricing guides, auction results, and numismatic groups, to name just a few.

More important, however, is that if you are not going to be a collector, then stay away from anything but U.S. or Canada-minted bullion coins, or bullion bars issued by the widely acknowledged mints such as Johnson Matthey.

Crux Note: Each day in Casey's Daily Dispatch, David Galland brings you an informative and entertaining overview of the markets, the economy, and politics... all from his unique and often contrarian perspective. Casey's Daily Dispatch is absolutely FREE and comes right to your inbox, five times a week. To sign up, click here.

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