An Entrepreneurial Story – Coins ’N Things

From BusinessWeek by Kathleen Miller

In 1973, Louis Oliari opened Coins ’N Things, a small storefront between a Dairy Queen and a hair salon in Brockton, Mass. His teenage son Mark had become obsessed with coin trading, and Louis, an engineer and a coin enthusiast himself, figured if he indulged the kid he’d eventually outgrow the hobby and go to college. “The whole idea was that I’d get bored and get this out of my system,” Mark, now 54, remembers.

Today, Coins ’N Things is the largest seller of raw gold to the federal government. In the fiscal year that just ended, the U.S. Mint, which has bars made into coins for collectors and investors, bought $1.86 billion worth of the metal from the Bridgewater (Mass.) company. Not too shabby, considering that Coins ’N Things and the Mint struck their first deal less than two years ago.

The family’s fondness for coins began when Louis Oliari was laid up with a knee injury and his wife gave him a book about coin collecting. Father and son began hoarding pennies from their local bank, assembling complete collections by decade. By age 13, Mark was attending trade shows. Then came the storefront. Business grew so quickly that after Mark finished high school, Louis let him trade coins full-time. It wasn’t long before Louis left his job at Honeywell (HON) to join him.

Several years later, Coins ’N Things expanded into the wholesale metals market, acquiring clients such as hedge funds as well as jewelers and manufacturers that use raw gold. That was Mark’s passion. His father preferred to help coin collectors and “had no conception of where this thing would go,” says Mark. “He’d look in our section where I’m wheeling and dealing, making probably 400 phone calls. He’d say, ‘Wow, you guys are probably doing three or four million dollars a year now.’ I’d say, ‘Dad, that is a good day.’”

The company developed contacts around the world, and Mark and his wife, Patty, also a partner, began thinking about the next step after their kids expressed interest in the business. Three years ago a credit line from Wells Fargo (WFC) gave the self-funded company the capital it needed to go after the ultimate customer: the U.S. Mint. In early 2010 the Oliaris won approval to sell gold to the Mint. “That relationship with the U.S. government—that’s about the biggest stamp of approval you can get,” says Mark.

Every weekday, Coins ’N Things faxes the Mint with the amount of gold it can furnish and the price it wants. The Oliaris compete against four other government-approved sellers, and the Mint orders from the one with enough stock on hand at the lowest price. The family says its extensive network of suppliers often means they win the day. Coins ’N Things gets roughly 40 percent of its gold from a refinery owned by the Canadian government. “You have to know everybody, everywhere,” Mark says.

Annual revenue is now about $6.5 billion, 65 percent of which comes from gold. Mark won’t reveal profits but says the company pockets about a quarter of a percent of its precious metal sales—less for the gold it sells to the government. With 50 employees, including Mark’s two daughters and a son, Coins ‘N Things is still a family affair.

In September, gold hit a record $1,921.15 an ounce, a long way from the $103 it sold for in 1973 when the storefront opened. When Louis died in 2008, Mark finally closed the retail business that sold to collectors. “My father, God love him—he wanted to stay a little coin shop.”

The bottom line: A family-owned metals business has capitalized on the international demand for gold, selling $1.86 billion worth to the U.S. Mint in 2011.

Storing Wealth in Uncertain Times

Charles Hugh Smith questions the whether gold is the best way to store wealth in the coming "Great Transformation", when oil becomes very scarce. (I remember how valuable gasoline was in the movie Mad Max 2: The Road Warrior). He suggests that having a convenient supply of energy and food are the most valuable sources of wealth in very hard times. Excerpts below.

Link: Of two minds: The Great Transformation: Trends and Cycles of History.

If we understand that "money" as a store of wealth is simply stored energy, then we reach another understanding of "the problem" and thus of the "solution."

Let's say that the fragile supply chain of remaining oil breaks down in a complex interaction of positive feedback loops. Oil would not just be costly; it would be unavailable to individuals. The government would undoubtedly ration what was left for essential services like agriculture, food distribution, police and hospitals, etc.

Let's say we anticipated this and responded not by hoarding gold but by buying a 100 KWhr/day solar power array, productive land in a mild climate, a store of fertilizer and a few electric vehicles to share with our family/community. We own zero gold but we own a power supply, the means to grow food and transportation that does not require petroleum.

Now would we sell these productive assets for gold? At what price, if they were essentially irreplaceable? What would we do with our pile of gold if we can't go anywhere, can't grow food and have no power source?

The holder of gold assumes that all goods can be purchased with a means of exchange holding a tangible value, i.e. gold or an equivalent commodity. But this may not be entirely true. Yes, we will sell some of our power/energy output for gold, but we will not sell our "wealth" i.e. the power plant for gold, which may or may not be able to buy a replacement. As a store of wealth, gold is no match for a productive source of energy.

The reason is "money" as a store of wealth is simply stored energy. From this point of view, fertilizer is stored energy. You may or may not be able to exchange "money" in any form for stored energy, for "wealth" is either stored energy or the capacity to generate energy sustainably. Everything else is merely a means of exchange.

Will gold hold more value as a means of exchange than paper money? If history is any guide, yes—but that's a different "problem" than building or storing wealth.

There are many other examples of "problems" whose solutions may well completely fail to address the structural challenges we face.