The grading revolution, in which more than 1,700 dealers sell coins that are lab graded by NGC or PCGS, is now ten years old. To date, these two services have graded more than $8 billion in rare coins. With many coins at historically low prices, that’s a lot of coins.

NGC and PCGS guarantee in writing the grade and authenticity of every coin they inspect, except for copper coins, and have introduced widely accepted industry standards. The grading services have also increased overall liquidity and protection by encapsulating each coin with its grading certificate in a tamper-resistant hard plastic case. These encapsulated coins are so secure that even Wall Street now sells them to its investment clients.

So what’s wrong with this picture? Only that the grading experts employed by NGC and PCGS are human, and nothing done by man or machine is perfect.

I point out this lack of perfection because some buyers believe that a lab certified MS-65 US $20 gold piece is identical to any other lab certified MS-65 US $20 gold piece. That’s not true. To understand the grading process, you must know how dealers buy coins for their customers. There are two basic ways: “Sight-seen” or “sight-unseen.”

“Sight-Unseen Buying”

The many dealers who buy in this fashion post bids on a national computer buy/sell network. They offer to buy a certain number of a particular coin in a specific grade. Other dealers who want to sell their coins “hit their bids” to make the sale. There is nothing wrong with this, and it shows how liquid the rare coin market has become thanks to NGC and PCGS.

However, the dealer who blind bids must accept the coins that he buys even if they have spots, are dark, or are otherwise unattractive. Now he has to find a buyer for the unattractive coins. So how can non-experts know whether they are buying the cream or the skim milk?

“Sight-Seen Buying”

In a sight-seen bid, a dealer posts a bid as in sight-unseen buying, with one major difference: the dealer offers to pay a premium to see the coin first. Once he sees the coin, the dealer decides if it has the appropriate look or appeal for his customer. Factors such as luster, toning, and location of marks may play a role in the desirability of the coin. A dealer may want his customers to have coins with excellent visual appeal for the grade and type of coin they are purchasing. The trend is now towards “sight-seen” buying.

Tech Talk

Let’s get technical for a bit. All US coins are graded according to a numerical grading system which was originally developed by William H. Sheldon for grading our large cents (circa 1793-1857). The worst quality coin is grade 1; a perfect coin is grade 70. All uncirculated coins are in the range MS60-MS70 with “MS” meaning mint state or never having been spent. All proof coins fall into the range of Proof 60-Proof 70. “Proof” refers to a special high quality coin produced for collectors; it is not a grade. All coins not graded MS67 or Proof 67 and higher have visible imperfections. The lower the grade, the greater the number of imperfections. Most uncirculated coins have bag marks because they were delivered and stored in canvas bags.

Since all uncirculated and proof coins fall into the grading range of 60-70, there are only eleven numbers to accommodate grading. Therefore, coins that barely grade MS-65 can be almost indistinguishable from a really nice MS-64. But other MS-65 specimens are solid MS-65s. They would be MS-65.5s, except that decimal gradings don’t exist. A premium quality coin may be a “MS-65.8” or “MS-65.9” and be almost impossible to differentiate from an average MS-66 coin. There is a large price difference between grades, so your expert better know what he is doing when he selects coins for you.

Quality over Quantity

Higher quality costs more, but it’s your best bet. Today, a better coin commands a relatively small premium. In a hot market the premium for high quality coins grows, but the most important reason for spending more for premium quality, hand selected specimens is that when you want to sell, there will be no question about quality. This is true whether you are selling to a dealer or placing rarities in an auction in the hopes that competitive bidding will drive the price higher.

If you want absolute proof that high quality is the way to go when buying rare coins, look at how prices rise along with grade. When buying at the bottom of the cycle, as prices are staring to rise-which is where we currently are-high quality coins have far more upside potential.

In parting, allow me to share some timeless wisdom with you. Always buy the best that you can afford. You are better off with fewer but higher quality coins. Since I first started collecting coins in 1958, I have learned one lesson over and over again: Quality doesn’t cost, it pays.

Ed Lee, frequently quoted in Newsweek and Time, has been a numismatist and monetary analyst since 1958. He can also be heard on radio & TV from Boston to CA.