Why Were Uncirculated Coins So Overvalued In The 80s/90s?

I saw a book from 1986 at my campus library that was meant to give advice on which coins to buy in order to make good investments. It was one of the most ridiculous books I've ever gone through. For ever denomination, the advice was, "sell your ms60/63 coins and buy ms65", because no "real" collector would ever settle for an average uncirculated coin. Looking back, I think it was pretty lousy advice.

I see nothing but wisdom in that advice. Don't buy a 61 when you can afford a 63, and don't touch a 63 when a 65 is within reach. As the value goes up, so does the coin's sellability in a difficult market. It's the low end that gets abandoned first when times get rough, unless (as we discussed above) the market at that grade is artificially-propped by transient demand.

Internet in every home has brought a lot of new collectors:)

Same advise you hear today, only today they are saying don't settle for 65's or 67's, sell them and buy 69's and 70's.

One reason why everyone was so sure the Wall Street money would come flooding into coins was because Solomon Brothers had been publishing a claim that rare coins had been going up on an annual percentage better than just about anything else, and that the new advent of the slabbing services meant that coins were now fungible!

Yes that is something that is never talked about any more, that slabbing would make coins fungible. What does that mean? Something is fungible if one of them is interchangeable with any other one of the same item. Any share of GM common stock is like any other share and it doesn't matter which share you own. One oz of gold is like any other oz. And in theory one of the advantages of slabbing was that it would make it possible for people who didn't have a lot of numismatic knowlede to be able to buy and sell coins sight unseen because say any MS-65 1890 Morgan dollar was just like any other MS-65 1890 Morgan. So if you bought one it didn't matter which one you got. (Something you need to understand, sight unseen does NOT mean that you are buying something you haven't seen and if you don't like it you can send it back. Sight unseen means if you buy a PCGS MS-65 1890 Morgan, when it arrives if it is in a Morgan dollar in a PCGS slab labeled MS-65 it is YOURS, no returns, exchanges, or refunds. It doesn't matter if it is overgraded, scratched, ugly toned etc, it is yours period.) An the American Numismatic Exchange ANE was set up just for such sight unseen trading.

And of course it failed, because even with slabbing coins are NOT fungible and one MS-65 1890 Morgan is NOT like any other MS-65 1890 Morgan. Coin dealers knew this and knowing they could get stuck with some pretty low quality coins on the ANE they adjusted their bids accordingly. Bids on the ANE eventually dropped to about a quarter of those on the Graysheet.