You
can look back to the 2014 sale of the British Guiana 1 cent magenta stamp for
$9.5 million as the wake- up call to the investment potential of
stamps. This stamp had not changed hands for 24 years, when it last sold
for $935,000, yielding a 913% increase or an average of 38% a year. It was
assumed that this was an exceptional rate of return since the stamp was unique
and had a great deal of provenance. But a closer examination demonstrates
that for investment grade stamps, its appreciation was hardly exceptional and
that the bigger story is how investors will be the salvation of this industry.
As far back as December 21, 1992 in an article titled “The Stamp Arbs” Forbes
magazine noted the investment opportunities in stamps and cited the research on
stamp values being promoted by myself as an investment adviser and
lifetime stamp collector. I used securities research metrics to evaluate
the investment potential of individual stamps. My company, StampFinder
then published a stamp selection guide titled “Best Buys in Postage Stamps”
wherein we selected over 7,000 stamps worldwide and predicted their investment
potential. Fast forward 25 years and let’s examine the results.
In a series of 3 articles in the ASDA’s publication The American Stamp Dealer & Collector, of which this is the
concluding article, I lay out the case for why stamps should be considered as
an investment alternative much as works of art and coins. In Part 1,
published in the February issue, there is a list of 6,144 recommended unused
stamps worth today $2,860,000 which had appreciated 195.5% or 7.8% a
year. In Part 2, published in March, a similar investment in 4,164 used
stamps now worth $13,807,210 had appreciated 255.5% or 10.2% per year. In
terms of the appreciation of individual used stamps during this time period,
the British Guiana at 913% ranked at only the 512th highest appreciating
stamp! Better yet; the price of the 511 higher ranked items cost an
average of only $470 and rose to $4,078, a 7,676% increase. Fewer than 1%
of my recommendations showed a loss. Few of my securities recommendations
to my clients showed similar results over that same time period. But can
stamps repeat such stellar results?
The stamp market has been
in decline, price wise, since the Internet became the principal vehicle for
stamp buying precisely because it has greatly improved price transparency and
broadened competition. Anyone can become a stamp dealer today with little
more than a computer and grandpa’s collection. But this is only the
beginning of the changes brought by the Internet. Changes which will take
decades to fully play out. Demographics also play a part since about four
collectors are dying for every new one. Today this creates an excess
supply problem which also drives down prices. But do these factors affect
the market in a uniform way? Let’s look at this problem in a more nuanced
fashion.
Over 40% of stamps in the market sell for less than $1 and about another 20%
below $5. This is the bulk of the stamp universe and what is in the hands
of collectors. The stamps that I qualify as investment grade were issued
before 1950 and are priced at $25 and above. Their quantities are very
small compared to stamps issued since 1950, but they probably represent 80% of
the total value of stamps in the market place. 1950 is used as a cutoff
since it marks a point in time when stamp usage began to decline while postal
authorities worldwide cranked up new stamp issuance to exploit the hobby.
This resulted in new stamps being issued in such large quantities that they
will never appreciate in value. I use $25 as a cutoff since stamps that
have been outstanding from 68 to 170 years and have achieved this value thereby
establish a minimum of provenance. In short, the stamp industry is
a bifurcated market where the vast majority of the participants are hobbyists
dealing with a bloated inventory and an excess of new issuance versus a
smaller, wealthier group of investment oriented collectors with a shrinking
inventory but growing participation.
Looking at appreciation potential for stamps, we see that the hobbyist
collectors are in a market where there are close to a million different postage
stamps most of which were issued in excessive quantities and face a declining
base of participants. In contrast, the investor group face a static
population of about 50,000 different stamps, issued in much more limited
quantities. Quantities that are constantly declining due to decades of
poor storage, mishandling and loss. Investor demand is not driven by
demographics, but by wealth. They are fewer in numbers, but they purchase
stamps in quantity because they considers them a good investment. The
fact that investment rated stamps are of high unit value is an attraction to
these investor, but a constraint for the collector with limited means.
Who are these investors and why would they want to buy stamps? There are
today millions of individuals worldwide with more money than they will ever
need. Such people are looking to diversify their assets into different
type of investments including tangible collectibles like art, coins or antique
cars. This may be due to living in a country with an unstable economy,
limited investment options, a volatile currency or repressive politics.
They may be facing foreign exchange control problems which limit their use of
the banking system or they may be engaged in activities, legal and illegal,
where the banking system or cash is a hindrance. These are people whose
main interested is preserving what they already have rather than growing it. Hence,
for these investors, price appreciation is not even a requirement.
Yes, such investors are also seeking safety and what is safer than an
investment with a century or more of positive returns. It also doesn’t
hurt that stamps are such a portable collectible and of unknown worth to
non-collectors, i.e. 98% of the universe.
The growth of investor participation in the stamp market is held back mainly by
their lack of information of how good an investment option it can be and by the
difficulty of putting together a sizable portfolio of other than trophy
caliber stamps. The appreciation potential here is huge given the
trillions of investment dollars sitting in banks worldwide. Given the
size of the investment stamp market, as little as one billion dollars would
have a huge impact on the prices of investment caliber stamps. Making
these stamps more available in quantity will be remedied over time by
information transparency and through the advent of blockchain technology for
this industry. Information transparency is also in the works to make
stamp selection and buying by non-collectors easier. USID, Inc. through
its website StampFinder.com is providing its guidance of which stamps to consider
for investment purposes. Selection is based on metrics that take into
consideration not just philatelic metrics but also, the currency, population,
politics and economics of the countries of issuance. Certified
identification and grading of stamps is also essential and becoming more
common. Professional Stamp Experts, a stamp identification and grading
service is working with some of the more popular Internet sales site to
streamline the availability of genuine, graded material.
Many dealers in the stamp industry disparage the idea of promoting stamps as an
investment. This bias is not driven by their understanding of investing
but rather, by emotions driven by their love of the hobby. But others may
just resent having to compete with investors at stamp auctions where an
investor can always afford to bid more since he doesn’t have to consider
immediate markup and resale. To the stamp dealer community I have a clear
message – WAKE UP! Your well-being is not in attracting children and new
adult hobbyists. Most will never find a need to buy other than cheap
stamps. One new investment buyer is worth a hundred new
collectors to you. Don’t risk facing a retirement trying to sell-off
your bloated inventory of cheap stamps on the Internet in competition with
retired collectors for who this is all great fun.
To the stamp investor I
have an equally clear message – BUY TODAY! The price appreciation by
investment grade stamps for the last 25 years is only the beginning of a
massive worldwide search for alternative investments. The fact that
investors are so willing to pour billions of dollars into crypto currencies or
accept negative yields on European bonds demonstrates just how good an
alternative investment stamps can be. Prices today reflect a buying opportunity
the likes of which you will not see again in this lifetime. At the right
price, even buy them from a dealer who still doesn’t know the difference
between an investment and an infatuation.