James Halperin started buying and selling coins when he was 15 years old. One of his current partners, Greg Rohan, got a jump on him and started at the tender age of 8, selling pennies to his classmates in school.

Now the two of them, along with five partners and a staff of nearly 400, operate Heritage Auction Galleries, a collectibles auctioneer headquartered in Dallas.

Heritage Auction's services are in high demand these days. After the markets collapsed in 2008, wealthy investors turned to tangible assets such as valuable collectibles to help them get through the financial crisis, as well as to bring stability to their portfolios.

Heritage Auctions started modestly, with Halperin and Steve Ivy buying and selling collectible coins in the 1960s. They merged their businesses in 1982 and the next year dealt between $75 million and $100 million in coins with fewer than 100 employees. Rohan joined the firm in 1987.

"Then the Internet changed everything," says Rohan, president and now co-owner of Heritage Auctions. "We put $2 million into building our Web site, HA.com, to make it a resource for collectors. It is free but you have to be a member to access it. Now we have a mailing list of more than 1 million people, with 500,000 of them in 181 countries being members of our online community. We cover most of the world."

By the late 1990s, Heritage was the largest coin auction firm in existence, but Halperin kept pushing his partners to expand. "I felt that if our Web platform could make us number one in the highly competitive field of rare coins, other collectibles fields might be underserved and thus ripe for the sort of liquidity and transparency we could provide." So he put part of his personal collection of rare comic books online to see if they could tap into a profitable market for more than just coins.

"At that time, Sotheby's and Christie's had combined annual sales in comic books of $3 million to $5 million. Our first comic book auction was just under $1 million in 2001, which was respectable," says Halperin, who is now Heritage's co-chairman. "Our second, a few months later, was $2.3 million. In the first year, we did $15 million in comics auction business, so we knew we were onto something. We spun off a movie poster category and then an illustration art category and now do $50 million a year in those three categories alone."

A 1939 comic book (Figure 1) auctioned by Heritage last year that contained the first appearance of Batman recently brought $1.075 million, which at the time was the highest price any comic ever sold for at auction. Heritage also handled the sale of the original handwritten manuscript by Clement Clarke Moore of "Twas the Night Before Christmas," which sold for $280,000, as well as a rare 1913 Liberty Head nickel (Figure 2) that brought over $3.7 million earlier this year.

The auction firm now has 29 categories and is anticipating expanding to more. In addition to the offices in Dallas, there is one in Houston, and a Beverly Hills showroom was opened in February. A New York street-level location at 445 Park Avenue will open in September.

The Web site and the programming developed for Heritage Auctions is what has led to the remarkable growth, according to the partners. Halperin, an author of two futuristic novels, helped design the site using some of those futuristic ideas about the Internet.

"The excitement of being at an auction gets the juices flowing and the competition increases the bids," Rohan said. "But most people do not want to spend 20 hours on an airplane and $10,000 in expenses to come here from abroad. So they can bid online, either with proxy bids at HA.com or in real time using HA.com/live.

"We offered a wonderful Russian painting, 'Pushkin at the Water's Edge,' for sale and three people traveled from Russia to bid on it, but in the end, it was sold for $1.6 million to a man bidding from his sofa in Moscow."

After the Web site attracts people, the way to build business in a particular category is to find an expert to fairly appraise items, which then builds credibility and draws quality items to the auction, says Mark Prendergast, who as the company's director of trusts and estates, advises fiduciaries on how to appraise and liquidate their clients' tangible assets.

Heritage is now the third-largest art and collectibles auction house by sales volume in the world behind Sotheby's and Christie's. According to Compete.com (the Internet equivalent of the Nielsen ratings), HA.com gets more than twice as much traffic as Christies.com and Sothebys.com combined.

Heritage did $675 million in business last year. In addition to Rohan and Halperin, its principals include Paul Minshull, chief operating officer, and Steve Ivy, co-chairman and CEO.

"I think each of us has a genetic disposition for collecting and that helps us understand the mindset of the clients," says Rohan. "We have cutting-edge technology and get 30,000 unique visitors a day to the Web site, where we publish millions of past auction results so that collectors can do research on values before they bid. We have been able to make bidding on collectibles accessible to people worldwide, with no limit on the top or the bottom investment."

Investments in collectibles fluctuate like the rest of the market and people buy and sell for a variety of reasons. When the stock market was at the bottom in 2008 and the first half of 2009, collectibles prices were down 30% or more, on average, because people who needed money were forced to sell their prize possessions and the market was flooded with sellers. Now prices have almost fully rebounded.  

"At the same time during the last couple of years, some big investors who sold equities bought collectibles. Collectibles may go down in value temporarily, but over the long run they usually go up, although there are individual exceptions," says Rohan. "Items that people bought in 2008 were stable or went down for a while, but the investors had hedged themselves and diversified."

"Coins are the most fungible collectibles-the easiest to track prices and easiest of the categories to get in and out of," Halperin adds.

Fashion trends play some role in collecting, exemplified by the record sales in modern art a couple of years ago, which have now leveled off.
During the financial crisis, some who did not have to sell did so anyway.

"There were a lot of people who we thought would never sell their coin collections, but they did," explains Halperin. "They used the money to buy up stocks in their own companies at ridiculously low levels. Then they sold the stock back recently, made a big profit and are back buying coins again. They are paying more for the coins now than they got when they sold them, but nothing compared to the money they leveraged from those stocks."

"Few of our clients were as wealthy after 2008 as before, but many people understood that collectibles should hold their value, so they felt confident about continuing to buy," Rohan says. "Others sold their collections and bought real estate or stocks at low prices. Many of the common items for sale went down in price during this time, but the best items usually held their value. Some even increased."

The difference between buying stocks or hedge funds and buying collectibles is that most of the investors, although they care about the value of the items, are passionate about the collectibles themselves.

"Some people will pay almost any amount if it is a once-in-a-lifetime opportunity to buy something they truly want," Halperin said, "but most times, the price is also considered because it is also at least partially an investment."

"We sell what people want, not what they need," adds Rohan. "We want the prices to be fair because if they are not, people will get soured on collecting and quit. At the very least, if someone overpays, we want them to do so knowingly because they really care about the object they are buying and don't want to miss the opportunity to acquire it-never as a result of being misled in any way."

For those entering the collectibles market in any category on the lower end of the price, financing of the purchase is possible. Heritage offers to split payments over a four-month period for a nominal interest rate.

"Those are usually the $50,000 to $250,000 purchases, or less. People buying something for a million dollars usually have the money ready," Halperin says.

Collections offered for sale often come from estates, which is why Heritage has developed a strong back bench of appraisal and legal strength, says Prendergast, who handles this area for the auction.

"You have to be sure the appraiser knows what you need the appraisal for. If it is for tax purposes, you would use fair market value. If it is for insurance, you might want to use a higher valuation because cost to replace it at retail might be higher," he advises.

"We have to warn people involved in estate sales that an item selling at auction may bring more or less than the appraised value at auction. If two heirs each accept paintings appraised at equal value, the paintings may not bring equal value at auction. You never know for sure what is going to happen at auction," Prendergast warns.

Heritage usually works with the collectors themselves, after assuring the authenticity of their collection. Prendergast also works with financial advisors who are handling estate sales for families or who are having items appraised for various purposes in the hopes of establishing a long-term relationship that can weather any market.

"The years 2006 and 2007 were heady times for antiques and art, but then many people took a step back in 2008 to the middle of 2009 and were not participating as much," Prendergast says. "But art, collectibles and coins have a more consistent growth record. People want to have tangible assets because they were gun-shy of stocks. The price of gold attests to that fact and has brought even more attention to the strong rare coin market in particular.

"The collectibles market is a nontraditional area of investment, but it is looked on by many as a significant part of their portfolio," he adds. "The buyer sees it as a good potential that will hold its value, so it can be both fun and profitable."