Philatelic Investment:Myths and Realities

\"\"Philatelic investment is investment   in collectible postage stamps for the purpose of realizing a profit. Philatelic investment was popular during the 1970s but then fell out of favour following a speculative bubble and prices of rare stamps took many years to recover. Investing in rare stamps requires a high degree of expertise and can be very risky for the novice. Rare stamps are among the most portable of tangible investment , take up little space but require careful storage as condition is one of the most important factors in determining the value of a stamp. Interest in stamps as an investment has increased recently as traditional investments have faltered and investors have sought alternatives. The increasing age of the population in western countries has also been credited with a resurgence in interest in stamps.

Before Investing:A stamp investor should have a good knowledge of Classification,Condition grading,Authentication,Handling and storage,Stamp market and Philatelic literature.The prospective investor will also benefit from attending stamp clubs, auctions, philatelic shows and having a relationship with a knowledgeable dealer.

The value of a stamp:The value of a stamp is determined by a number of factors\"\" including:

  • The number available on the philatelic market.
  • Demand from collectors inside and outside the country of origin.
  • Condition-A damaged stamp is worth only a fraction of one in fine condition.
  • Thematic appeal.
  • Perceptions as to current or future value.
  • Current events. A news event may temporarily increase values, for instance the death of Diana, Princess of Wales.
  • The place of purchase or sale. Values vary according to where the transaction takes place. Prices vary from country to country for the same stamp and prices realised at an auction may be different to those charged by a dealer or in a private sale between collectors.
  • There are a number of places where a prospective investor can buy stamps
  • The internet.
  • Auctions.
  • Stamp dealers.
  • A few specialised stamp investment firms.
  • From a collector in a private sale.

Buying stamps

Stamps purchased for investment are usually old classic stamps in fine condition, such as Gandhi 1948, British Victorian stamps or American stamps from before 1900.  As long as there is a hobby of stamp collecting there is likely to be good demand for these stamps.Stamps typically included in an investment portfolio will be rare and priced in the thousands of dollars or pounds but they will probably not be the greatest rarities as those unique items are typically sold at public auctions and may reach prices approaching or exceeding $1 million US.

Some collectors and investors also try to anticipate future trends and buy low now, this however, is difficult to get right and may take a long time to pay off. Investors may try to identify a developing country with an expanding middle class who may have the time and money to pursue a hobby like stamp collecting as the developing domestic demand may help to force prices up. Recent examples have been India and China. Some firms are developing collective or mutual funds  where money from many investors is pooled and each investor owns shares or units in the fund. The fund then invests the money in stamps.

Size of the market:Unlike stocks and shares, the majority of transactions in the philatelic  or stamp market take place informally, by mail order or in retail environments, and therefore the size of the market is hard to determine. The market is certainly much smaller than the financial markets but it is not trivial. It has been estimated at £5 Billion. The majority of these transactions, however, are likely to be low value items rather than investments. In a 2007 interview, Mike Hall of Stanley Gibbons  estimated that \”About $1 billion of rare stamps trade annually in the $10 billion-a-year stamp market.\” The number of collectors worldwide was estimated at 30 million in 2004. In 2009, Adrian Roose of Stanley Gibbons estimated the figure at 48 million including 18 million in China. It is not known how many of these are serious collectors.

The Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report 2003, based on 2002 data, showed high net worth individuals, as defined in the report, to have 10% of their financial assets in alternative investments. For the purposes of the report, alternative investments included \”structured products, luxury valuables and collectibles, hedge funds, managed futures, and precious metals\”. By 2007 this had reduced to 9%. No recommendations were made in either report about the amount of money investors should place in alternative investments, nor were stamps specifically mentioned.

Stamp catalogue prices are not considered reliable as they are nothing more than estimates at the top end and represent a retail selling price at the bottom end of the market. Auction realisations may be more reliable but are difficult to use as the investor has to personally analyse the realisations from many auctions over a long period of time in order to come to any useful conclusions. While most trading in shares is on a recognised stock exchange and takes place transparently in public, that is not the case with stamps where only auction transactions take place in public view.

Selling stamps:There are a number of ways to sell stamps, as there are to buy, and each has its own advantages and disadvantages.

  • Auctions may achieve the highest prices but the costs are also high.
  • Dealers may be able to act quickly or pay cash but are likely to offer a price at least one third below the normal retail sale price for the stamp as the dealer needs to make a profit on the transaction. Some dealers aim to double their money on every transaction.
  • Private sales. Many sales take place between collectors, however, an investor who is not a collector is unlikely to have the personal contacts to secure such a sale.

There is no equivalent of the stock exchange  for stamps.

Risks and disadvantages:Investing successfully in stamps requires a high degree of specialised knowledge. This takes time to acquire and there are many pitfalls for the inexperienced investor. Some of the risks and disadvantages are:

  • The return is not guaranteed.
  • The cost of buying is high compared to most other forms of investment.
  • The cost of selling is also relatively high.
  • Purchases may be liable to a sales tax , for instance VAT in the European Union,which the buyer may not be able to reclaim.
  • Stamps may need to be expertised, for a fee, to ensure that they are what they appear to be.
  • As tangible items, stamps may need to be insured and are at risk of physical damage or deterioration.
  • The future market for the sale of philatelic items is uncertain. The demand for philatelic items comes principally from collectors, not investors, and the majority of collectors are aged over 50 in western countries. There are relatively few younger collectors in Europe and North America that would be expected to be the buyers of the future, although anecdotal evidence suggest that may not be the case in India, China and other developing countries.
  • In the longer term, the future existence of postage stamps may be in doubt as people use electronic communications more and more and send fewer letters. If stamps are no longer sold for postage they may cease to be collected and if they are not collected, the vital collector demand that underpins the investment market may disappear.
  • Stamps have little intrinsic value, they do not have the raw material value of a gold coin, they do not represent a share in a business like equities, and they usually lack the enduring visual appeal of a great work of art.
  • Stamp investment is relatively unregulated compared with, for instance, investments in a mutual fund  and investors may have little protection if things go wrong.
  • The size of the philatelic market is small compared to the value of the stock market and vulnerable to aggressive buying by speculators which may distort prices. This happened in the 1970s when a speculative bubble was followed by a collapse in prices.
  • Stamps do not generate any interest or dividends.
  • It may be impossible to determine the current market value of your stamps without selling them.
  • Stamps packaged as \”investment portfolios\” may be charged at prices higher than their normal market value.
  • Stamps may be relatively illiquid as finding a buyer may take time.
  • There is very little reliable historical information about the performance of stamps as investments.
  • A long term view is necessary. A quick purchase and sale is unlikely to be profitable.
  • When more traditional investments are doing well, interest in alternative investments like stamps may quickly wane.
  • Special instructions will need to be given to spouses or executors in the event of the owner\’s incapacity or death as they may be unfamiliar with philatelic items.
  • Stamps may take time to be sold unlike cash, equities or mutual funds which can usually be realised with minimal delay.
  • Stamps are not highly correlated  with other forms of investment and may therefore represent a valuable diversification within a wider portfolio.
  • Stamps are highly portable stores of wealth and are easily transported over national borders.
  • An ageing population in western countries means that investors approaching retirement may resume childhood hobbies.
  • There are millions of enthusiastic stamp collectors around the world creating a global marketplace.
  • There is a finite supply of classic stamps.
  • Stamps are not a financial asset and so may perform better than cash in times of high inflation.
  • As a tangible asset, a stamp cannot go out of business like a company quoted on the stock market.
  • Stamps are a relatively confidential investment. Unless bought at a public auction, ownership is private and there is no public register as there is for many investments in equities .
  • The investor is able to hold and admire his investment, and enjoy its aesthetic  aspects.
  • Many stamps have an interesting historical background.(source-wikipedia)

 

 

 

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2 Responses to Philatelic Investment:Myths and Realities

  1. Pingback: Philatelic Investment:Myths and Realities | Phila-Mirror | Stamp Collecting

  2. KP says:

    Hello,

    Thanks for detail explaination.

    I would also like to add one more thing in this.

    When you buy it from auction site like ebay or delcampe you might end up paying more as some non-offical dealer will try to increase price of certain philatelic material so they can increase their collection value.

    You have to be very careful when you are buying otherwise you end up having nightmare.!!

    Thanks
    KP.

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