Re: Whats a better investment?Charter, Specimen...

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Hi everyone

Im new here, and this is my first post.

Anyways my question was what is a better investment, Charter Bank, Specimen, Replacements, Bank of Canada or Dominion of Canada Notes?

I would just like to hear everyones opinions

Dcollector111

I'm sure there will some debate on this topic.  

You have used the word "investment".  An investment is a commodity which increases in value; one which you buy at a lower price... and sell at a higher price.  

With the marked boom in interest in Canadian paper, it is hard to buy anything at a low price, and for it to appreciate you need a shift in the supply/demand ratio.  The supply amongst collector notes stays somewhat constant - although some notes get stolen and some get destroyed in fires, and occassionally stashes of previously unknown notes are found.  Demand increases only when there is growth in the net number of collectors.  

Some younger collectors entering the hobby may limit their collecting interests to what they can reasonably afford, and they may not contribute to increasing the demand for the rarities.

So to answer your question - I think "all of the above" have good investment potential as long as you are willing to hang onto them for 10 to 20 years.  In general, the rarities - if you can afford them - will fare well.  Also any of the notes from 1935 and back in UNC - if you can afford them - will also fare well.

Hi dcollector11 and welcome to the forum.

While you may be new your question is definitely among the best questions to start with.

I should start by saying that this is a very rich and complex topic that answering correctly is difficult even for the Grand Masters of Canadian Paper.

Within each of the 5 areas you indentified I believe there are outstanding investment opportunities, you must first understand which issues in each area carry the greatest potential for price appreciation.

It would be most helpful if you disclosed which of the 5 areas you understand the most heading into what I promise you will be a thread with long legs that will carry this topic for days.

I ask this question of you as a starting point as the more you know about a particular area in Canadian Paper the more able you will be able to understand the market landscape and recognize opportunities and market inefficiencies that you can take advantage of.

I should also ask you about "proofs" which is a 6th area all to itself. Did you forget to include that as a potential investment area or have you excluded it, if so why may I gently ask?

If you are seeking a quick answer you will not find one here, however if forced to answer your question in a single sentence it would go something like this: the most well rounded and strategic investment approach is actually to include a mix in your portfolio consisting of notes (of great potential) from each of the 5 areas you indentified, how you weight each area will depend on many factors including your budget, tolerance to risk, desired rate of return, investment time horizon of your portfolio and need for liquidity.  

If you are interested I will tell you that I have done some investment modeling for myself, identifying which issues in each of the areas have what I believe to be the greatest potential for price appreciation; a dream portfolio of my perception of the most attractive investment opportunities in Canadian Paper and I found myself pulling from all 6 areas in the process. For example this model could be hypothetically weighted by area as follows:

27.5% Dominion of Canada
25% Canadian Chartered
17.5% Bank of Canada (excluding replacements)
15% Bank of Canada Replacements
15% Specimens and Proofs (from any of the above areas)


Troy.

Interesting....

Typically an investment portfolio in the "money markets" (not paper money) is diversifed so as to reduce risk and to even out the peaks and troughs as typically when stocks fare well, bonds do not and vice versa.  This does not happen in paper money - replacements don't peak this year while dominion notes trough and vice versa next year.

I think a better strategy is to develop a niche and become an expert in that niche which the goal of having as complete a collection as is possible.  The added knowledge will make you a more wise investor and collector making more sound investing/collecting decisions.  

Using myself as an example,  my knowledge base in chartered notes is exceedingly limited.... The handful of chartered notes that I have were purchased for their esthetic appearance only.... Bank of Toronto - neat yellow colour; Bank of Commerce for the allegorical designs.  As an investment strategy this equates to betting on "Bob's My Uncle" in the 8th race only because I have an uncle named Bob.

However in other areas I am more knowledgable and have a relatively complete sets, and in these areas I can make knowledgeble decisions which balance between wise investment and raw collecting instinct that inspires me to fill that gap in my collection.

Portfolio's are diversified for numerous reasons, one of which is a hedge against loss of capital.

Another reason to play in multiple markets or market niches is if one is uncertain which will produce the greatest positive rate of return. The Canadian Paper Money market is itself a very small niche in the big picture.

I have actually contemplated, and still am, creating the 1st numismatic private pooled (mutual) fund I know of, with the help of some hedge fund friends on Bay Street, so I am extremely interested in this topic. I spent 3 years at the Private Investment Counsel of TD Canada Trust where we had 7 Billion under management and had lots of fun raising lots of money to inject into the private pooled funds. I have been thinking about how numismatics can fit into this world since then and I believe I have come up with a workable model. The legislative landscape appears to be the largest hurdle. I bring up this topic because those who are in it for the investment element (like the poster) may have a few interesting choices in how to go about investing in the future.

When I asked about what area of interest within Canadian Paper the poster knew the most about it was in the same spirit of what eyevet said without abondoning the notion of participating in each of the key areas for investment performance diversification. One may choose to overweight an area you know the most about, it doesn't therefore follow that you should turn your back on all other remaining markets.

Troy

Oh! How about two other interesting notes, Solid numbers and Error notes?

Dcollector111

Dc,

If you want my best foot forward you are going to have to spend a little more time than that addressing some of the issues already raised before I go any further!  

Troy.

Well yes, that Is exactly what forum are for. We have gotten a little off topic on this issue, but nonetheless here is my point of view on this issue. It is always better to invest in what you know best. Here is my understanding from what I know about each of these different types of paper money.

Charter Bank Notes- Very interesting for it contains many banks, each with a historical background. I believe charters are for older collectors that very much enjoy the banking history.

Replacements Notes- Younger and serious collectors will like replacements notes better for they are newer and prices have been increasing substantially for recent years. For example BC39aA-i. In 1998, it was $175 (UNC), and in 2004 it was $500 (approximately). In addition timing is very important because the same note dropped to $400 (UNC) the next year (2005).

Specimen Notes- From my understanding specimen notes are very expensive, like the US specimens; does anybody own a US specimen note, as a matter of fact, did anyone see one for sale? But in Canada they are undervalued. Also, for those collectors who can’t get a very rare note that they always wanted, they can own the specimen note, an alternate choice that will satisfy their needs.  

Bank Of Canada Notes- The notes we are using today to trade. Therefore, many beginner and novice collector starts collecting BOC notes.

Dominion of Canada notes- I find very little interest in Dominion of Canada notes therefore my opinion will be absent on this.

From my point, all Canadian notes, are great “hobby investment” though Replacement notes have shown that they have the quickest ‘boom’. (Although it can be risky)



Dcollector111

Thank you for sharing your perspective on the market landscape and hobby as you see it.

Tomorrow I will post a detailed follow up that you may decide to take away as food for thought.

Troy.

DC, if you're trying to see which types of banknotes appreciate best over time, the simplest way may be to compare Charlton's or other "trends" prices from previous years to the current year and then figuring out the rates of return.  You could probably get back-issues of Charlton's catalogue or other pricing guides and then do the math yourself with an Excel spreadsheet.  Myself, I have only Charlton's 4th (printed 1991) and 17th (printed 2004) editions, and it's remarkable how prices have [generally] increased between these two editions!

I have, so far, restricted myself to collecting Bank of Canada notes, I guess mostly because I grew up with BofC notes, so I have pretty much stuck to notes from 1937 and onward [the 1935's are currently out of my price range, at least in UNC!].  I am 30-something years old and grew up with the Multicolour series, so I am fondest of those notes, mostly for nostalgic reasons, even if they may not all be aesthetic masterpieces (however don't say a 1975 $50 note is unattractive; you may have a fight on your hands!)

I don't think I'll live long enough for the Journey series notes to appreciate substantially, so the most recent series in my collection are the Birds notes, but only replacement notes.  Now that there are no longer such things as "replacement notes", but only "insert" notes, I see no reason to collect Journey notes.  I don't give a flying DUCK about "insert" notes!  There is no easy way to identify them except by poring through extensive lists of "known ranges" for inserts published in Charlton's or other publications.  So for me, since there are no longer asterisks or X's in the serial numbers to easily tip you off, replacement notes are dead

Anyway, strictly speaking about BofC notes, I am hesitant to consider them as "investments", as this word would tend to imply assets where the principal is protected and some minimum rate of return should be expected.  I suppose holding a banknote could best be compared to the speculation involved in holding common stock - your principal is not guaranteed and you could lose money in the short run or even the long run.

For example, a 1937 $100 Osborne-Towers note is worth $3,000 in UNC condition.  Sounds good, but this is really an average return of 5.13% for each of the 68 years that someone might have held this note!

As another example, a 1954 Modified portrait $50 note with the Lawson-Bouey signatures is worth $275 in UNC.  The subsequent 50's came out in March 1975, so let's say the last of the 1954 50's were printed 29 years ago.  That results in a 6.05% average annual rate of return.

It would seem to me that as "investments", BofC notes - both regular and replacement notes - are worth collecting only in UNC condition, and only in the lower denominations.  It appears that in most cases, it is better to have $1 and $2 bills than the larger denominations: 20 $1 bills seem to appreciate better than one $20 bill for any given series.

As for Specimen notes, I just bought a Multicolour specimen set in June.  Charlton's value for 2005 was $1,950 and for 2006 I'm told it is $2,150.  I paid about $1,700 for my set.  Another lesson - try to buy your notes before the new Charlton's catalogues come out each July and the prices go up...

However I collect Canadian banknotes mostly as a HOBBY, since to look at them strictly as "investments" may prove disappointing.  I do own $50 and $100 bills even though it might have made more sense, financially, to put this money into a good mutual fund or stock.

Hi Venga50,
Thanks for your opinion.

 So for me, since there are no longer asterisks or X's in the serial numbers to easily tip you off, replacement notes are dead

As you metioned you have purchased the multicolor specimen notes. You may ignore the replacement and insert notes. But the BOC regular collectors, need these notes to complete their collection.

Anyway, strictly speaking about BofC notes, I am hesitant to consider them as "investments", as this word would tend to imply assets where the principal is protected and some minimum rate of return should be expected.  I suppose holding a banknote could best be compared to the speculation involved in holding common stock - your principal is not guaranteed and you could lose money in the short run or even the long run.

For the stocks or Mutual funds , I consider them as financial investments, while for  the paper money, I treat  them as a part of my HOBBY investments. I  also collect scripophily, stamps...
dcollector111

Dominion of Canada notes with eye appeal and  in top grades have probably the greatest investment potential. They have rarity and broad international interest. Collectors of British Colonials and British Commonwealth around the world include Canadian Government notes as part of  thier collection.

Let me jump quickly in by saying that I agree with the last post 100%; that is if I had to pick just one area with the greatest future price appreciation and long term potential. The fact that I consider the poster to be the top collector/investor of British Commonwealth Paper in the World brings instant credibility to his opinion, at least for me.

To think that great early Dominion notes like DC-3 and its varieties have less than doubled (according to Charlton) in 14 years is ridiculous when comparing to DC-17a which is up 10x in the same period of time. There are other early Dominion notes of similar situation. Then when you compare our early notes to other countries like the USA and Australia you really start to think about just how under valued Dominion notes really are.

As the worlds growing base of commonwealth and USA collectors zero in on Canada, things are going to change in a very big way.

I have further analysis to further support this conclusion on just how undervalued many Dominion of Canada notes are, however I am waiting for a break from this heat wave before I bang away at the keys at any great length, wicked weather here in the east, and time is best spent trying to stay cool.

Couple of other quick thoughts before I run off to find a large body of water to jump in:

Bank of Canada

1935 $25-$1000 notes (also lower denominations in AU to UNC only), in high grade French & English varieties are both very attractive from an investment standpoint. In English notes in the last 90 days I have sold 3 UNC $1000's at $9500-$10,000 US each and an AU at $7300 US. Clearly the market is much better for this note than Charlton gives it credit for. Same with the french $25 ( I just sold an AU for $10K US and can sell at least 3 more at the same price), 7x less made vs English and not yet properly reflected in the price guide. Similar logic on some other french vs english notes.

1937 $1000 and 1954 $1000 Devil, also excellent investment quality notes. I have sold 3 1937 $1000's in the last 90 days and at approx 2x book.

All this at a time of the year when traditionally dealers pull out of the market to wait for cooler weather and buyers to return; me, I hope summer never ends.

So what? So this I say, it's the Americans who are buying the material for the most part, look out for dramatic changes in the Canadian market as online dealers work tirelessly to introduce the entire world to Canadian Paper and growing the market in the process. The serious international buyers are seeking the following attributes in Canadian Paper: Rarity, High Denominations, Eye Appeal, Investment Grade Notes.

While some people may think of grocery money when they think of Bank of Canada and "new collectors" I think about a dozen (specimens, proofs, replacements/test notes excluded) or so of the truly great issues instantly and why the whole paper money collecting/dealing/investing world should care that they exist.

Chartered:

Don't get me started on this market, it's too hot.....literally.  I will leave you with one thought however, it isn't older people who like banks and banking history who are responsible for the intense heat under this market, that I can assure you of. The demographic is much, much broader than that. A single buyer injecting nearly a million dollars into this niche market in less than a year, and "calling" the market on the rare notes has really set the ball in motion with no signs of slowing down.

Troy.

Hi All

Commonwealth collectors are net sellers when prices move up to fast. They show little interest in Canadian collectible. On the other hand, they are more fascinated in collectibles from their own country. (I got this experience from the stamp collection).

Being able to make a profit on these collectibles depends on:

-Timing, timing is very important for every investment as when to get in the market (buy low, sell high). For me, now the market is too hot, and the chance of obtaining rare items is very slim. Perhaps, it is time to sell the duplicates.
-Economy, with a strong growth economy, low interest rate, and low unemployment rate, the price of collectible items will rise as people have spare money to chase their envy.
-Luck, Self explanatory

In fact, my ideal portfolio allocation is:
-65 % Chartered Banks & its Specimen notes (no proofs and broken banks)
-15% BOC Specimen notes (complete from 1935 to recent)
-5% error notes
-5% solid # notes
-10% replacement & Chartered Bank notes for trading purposes.


Dcollector111

Revised as below:

Good luck DC with that portfolio, 65% chartered.....hmm.....a man after my own heart.   Is is doubtful that chartered will let you down if you focus on high quality, rare, redeemable pieces, with eye-appeal; especially ones that are misunderstood/overlooked by the market or have what I call broken pricing logic. You can also consider adding Provincial Government issues in with your Chartered porfolio too, many of these also carry solid potential.  

An example of a chartered note that was overlooked by the market is a Dominion Bank $100 1931 note that booked for $1200 CDN (2002) that sold very recently in a very competitive auction contest for more than 4x that amount. The market had not fully contemplated it's rarity (7 now confirmed to exist) and the fact it is the only $100 issued note available in any year by any Bank in the TD Canada Trust family of banks (Bank of Toronto & Dominion Bank). Add in the fact it is an attractive high denomination redeemable chartered and you have a Grand Slam Chartered Note. I have a long list of similar examples. It seems that a large percentage of the people involved in this market, including large B&M dealers only have surface deep knowledge and that is easily exploited by a highly informed buyer. Consider not accepting the logic of the 2002 price guide even within the context of that year, it was prepared on a best efforts basis and in my opinion some considerations were overlooked by the pricing panel, they were probably not as significant at the time as they appear to be now as the market is a different animal these days. My approach has been to challenge everything and everyone within the chartered market and this approach has provided significant rewards. Never have I seen a numismatic market with such potential seemingly just sitting there waiting for vision and leadership to show it the way to prosperity.

One of the reasons this market needed a wake up call is the fact that the price guide that is relied upon by collectors & dealers comes out approx every 4 years, what a marvelous opportunity it was and still is to exploit some notes still being sold today based on 2001/2002 prices, or an extremely modest markup over them. Then you have some international sellers knowing nothing about our "in country" price guides and selling based on PICK catalogue prices, again another wonderful buying opportunity.

The next significant event in the growth of the Chartered market will likely be the release of the registers when those who maintain them are ready to commercialize them. Whether or not people realize it they carry obvious intellectual property value and I am sure they are proceeding with caution as to how the information will be presented to the public who anxiously awaits their arrival. This will launch yet another wave of aggressive buying as people will have increased peace of mind as to which issues are truly rare and which are not. This will be a large part of the foundation on which this super hot market will sit as the market soars to new heights.

The information and opinions presented in this thread were provided for your benefit and of course whether or not you decide to act on any of it is completely up to you.

If the "Market Makers" decide that Dominion of Canada is under-valued and the best investment, they can easily affect the course of history by acting on their beliefs and setting the market on fire through aggressive buying, like has and is happening with Chartered. I can give you an small inside tip that I know of, that is that aggressive buying of early Dominion of Canada notes is increasing and a similar infusion of cash is about to hit this area of the market over the next 12-16 months (focussing on certain key Dominion issues) as has happened with Chartered. The Dominion of Canada market likely won't be as sensitive to the cash infusion but it will heat things up.

The opinions provided were from some of the most knowledgable people about the market landscape of Canadian paper and among its most active traders, who also have professional capital markets investment experience in advisory roles. That doesn't make the opinions matter of fact, but it is food for serious thought.

You put your hand up in the right place and once again good luck growing your "hobby investment portfolio".  


Troy

Troy, I agree with you, Dominion of Canada notes are undervalued. But my philosophy is to collect notes that I favor, instead of going with market trends. Some day I may change, who knows.

Dcollector111

P.S. I am very interested in your numismatic private pooled mutual fund concept; I hope to hear from you about it.

Sounds like you have a good approach to the hobby aspect of Canadian Paper Money.

My analysis was to address the issue you tabled of what is the best investment (your original question) and commentary on key areas within Canadian Paper. To answer this question correctly requires a large amount of analysis and awareness of market trends which cannot be ignored, I have only touched on it in this thread.

Had the original question been what it appears to be now, what should I collect?  I could have saved us both some time and effort and said collect what you "like", which is what you have said you are going to do anyway  

I will keep you posted on the Numismatic Private Pooled Fund, if I believe I can get through the legislative hurdles in a cost effective manner it is likely to become a reality in the next 24 months.

Have a good one.

Troy.

Very well, all that now remains is for Dcollector111 to tell us which notes he likes, so that we can tell him which of those are the best investments.

MonetaryMan, your Numismatic mutual fund idea has me intrigued...would it be a closed-end fund where a certain number of private investors ante up and then no further sales, or a true open-ended mutual fund, where the fund itself continuously sells and buys units of the fund to and from the public, like (for example) a CIBC mutual fund?

What types of investments would comprise your fund?  Would it just be an ever-changing portfolio of banknotes that are bought and sold daily, or would some other types of assets be included also?

The fund would be comprised primarily of paper money from different British Commonwealth Countries and USA paper. Canada would have a strong component because the lead manager is strongest in Canadian Paper and Canada is a true Bull Market.  Other managers and advisors would be involved to assist in the International component. I also have not ruled out a potential Gold Coin component.

The neutral weighting would be something like 30% CDN Paper (with a up to an additional 10% swing either way depending on the managers view of the market) and the remainder would be International Paper and a cash component so the fund would have liquidity for large acquisitions. The fund will also require additional financial instruments for optimal overall performance.

The fund would close once a certain amount of cash was raised as having too much cash will be too difficult to invest wisely in high performing numismatic investments and overall rates of return would dimish as quality investments become more difficult to obtain.

Fund managers would have flexibility to buy and sell as outlined in the prospectus which would be tabled.  The managers will look for investments with long term potential but will be quick and extremely active to capitalize on short term plays as well to grow the funds asset base internally.

Managers would be paid for performance above and beyond a comparitively modest Management fee of 1% and a 20% (tenative) of the share on returns on eveything over a 10% (tenative) annual return.

I would essentially like to turn myself over to the service of the market and have everyone benefit from my ability to generate large profits in the marketplace. Investors would be up over 100% during the last 12 months if my results belonged to to them.

I will bring in a highly skilled & experienced team to augment my skills and experience to create a world class fund.

It should be a win-win for everyone involved if I can get it off the ground legislatively.

I would prefer to not introduce further details on how this is going to happen as new business models and innovative ideas with real commercial value need to be protected against people who may be looking for "how to guides".

Thanks.
Troy.

my, my. so this is the bunch of collectors/ speculators/investors who drive up the market building their portfolios, and drive out the amateur for-fun collectors. It almost reminds me of earlier plans/funds for rare coins, baseball cards.  I am not very smart but when cabbies, Tom and Harry think it is almost a sure thing, i think it is time to leave the market. Good luck with your investment plans. Just remember, speculation could be very expensive. You think you can still enjoy those notes, if things don't work out ?
BTW, i have a few good notes i am ready to sell. My favourite dealer was wondering out loud about the market just yesterday.
Don

If you are ready to sell this infant Canadian market eagerly awaits the arrival of your material.

A consequence of prosperity is that not everyone can afford to grow with the market on quality rare notes so they will often adjust their appetite to less expensive material. As for me I am doing what I can to bring Canadian Pricing in line with the rest of world currency where USA and Australian notes (and other existing and former commonwealth countries for example) trade for six figures in cases where only a few are known of a particular sample. Our market will have to appreciate exponentially just to keep up (5-10+ fold). I am sure there are some people who would love to see the international markets and the CDN suffer through deflation, I am not one of those people.

Price sensitivity and an appetitie for collecting the rarest, most collectable & desirable notes Canada has ever issued do not and will not coorelate well together. If this is not your appetite then you have very little to worry about.

We are quite backwards here in Canada, it's almost a dirty thing to say that I am collecting for investment reasons. The slogan of Australia's dealer with the best inventory (likely its most successful) is "Specialist's in superb quality investment portfolios for advanced collectors and superannuation funds".  It is routine and very much out of the closest that the rest of the developed world is investing for financial return in paper money, and it is time we give our collective heads a shake, its ok, it doesn't make you a bad person. Without the pursuit of profit we would be 3rd world at best.

I suppose if free material is the desired outcome then there are plenty of beach rocks and beautiful tree leafs that can be collected at no cost. But if you are a collector and gasp, an in the closet "investor" too, it is unlikely that the rocks and leafs you acquired for free are going to have significant commercial value even if you hold them for a long time. However there is the possibility that if you got people excited about your new line of collectables new collectors might join in, but alas with a migration of new collectors the foundation for commerce would once again exist; and with commerce comes supply and demand, and with supply and demand comes the notion of price elasticity.  After all it is Condition, Scarcity (Supply) & Demand which are the valuation drivers in essentially any collectable; numismatics is no exception. It has always been this way since, the 1st Roman Emperor Augustus 63 B.C. - 14 A.D, (1st known collector of numismatics) gave birth to the seed of our hobby approx 2045 years ago commencing with Gold Coins. Our niche in numismatics (Paper Money) wasn't born until 650 A.D (China produced the 1st known note some 450 years after paper was invented in the same country in 200 A.D.). A small piece of trivia for you: the oldest note you could ever actually hope to get your hands on would be a 1368 Ming Dynasty (9"x13"!). Handle with care as its paper is made from the inner bark of a mulberry tree!

On the matter of "things not working out"...I don't know about the others but the fear of the possibility and the reality of actually incurring a capital loss is not a foreign concept to me and a fact of life as ones pushes forward in a capitalist system.

I have grown up with many collectors who are closet investors who once in a while let it slip they too are hoping to reap a return on their portfolio one day, be it for themselves, or for their loved ones via their estate when the times comes. Then again I know someone who loves their collection so much he has said "If I can't take it with me, I ain't goin!"

Collectors, Dealers and Investors all have one common bond and that is we all owe thanks to the Chinese and Augustus before them for giving birth to what we all enjoy so much.

Troy.

Hello dc,
I think it best that you familiarize yourself with the market in general as I assume you would prior to "investing" in any other commodity. I'm talking about the real market, not only the Charlton Catalogue or CCN. Major Auctions, shows and cautiously, ebay. Then you can get a better feel for what price range you're looking at for the notes you decide to collect or "invest" in.
Also, it might be an idea to become proficient in the grading of bank notes prior to stepping out too big. Over-grading is rampant.
Keep in mind that if you're simply looking to throw money at something, someone is always willing to catch and run with it.
Good luck.

Hi All,

I just came back a vacation, and I am happy to see that there is still discussion in this thread.

I have already mentioned what notes I prefer, in my ideal portfolio, in reply #13. Anyways here it is again:

-65 % Chartered Banks & its Specimen notes (no proofs and broken banks)
-15% BOC Specimen notes (complete from 1935 to recent)
-5% error notes
-5% solid # notes
-10% replacement & Chartered Bank notes for trading purposes.

From my point of view specimens (1935 and prior) are undervalue, especially the 1935 French $500 (specimen)

As for common items, they follow similar trends in the stock market, up and down. However, in the long run, their value appreciates.

It seems in a hot market, a lot of rare items will appear, and that’s the opportunity for “rare item collectors”. They also need luck.

Dcollector111