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Investing in Rare and Valuable Stamps

Penny Black Plate 6 BF
MY BACKGROUND
I have been  involved with stamps in many different ways for well over 50 years. When I started  I was just a general collector. I happened to live in the Southampton area which is where the first experimental graphite-lined  stamps were issued and then the phosphor-graphite and the phosphor issues. I did not at the time realise that these would subsequently have more value. I just purchased all the new issues as they came out and I accumulated used stamps, many of them having been posted in the Southampton area. I never paid any attention to the value of these stamps until many years later, sometime in the early 1970's, I discovered these issues were in great demand and that I had made a good investment. I was able to sell my accumulation to a local dealer for a huge profit. I just happened to be in the right place at the right time.

About this same time, 1969,  I began to specialise in Poland and to dispose of my other stamps. I had decided to go into the Stamp Approval business (just part time). I was now buying and selling stamps. This lasted till about 1975, when, due to my changing circumstances, which reduced the time I had for my "business", I decided to give up. I sold everything, except my Poland collection (which I had decided to keep as an investment), to a dealer. This was the period when stamp prices were going up at the highest rate in history. My investment over this period proved profitable.

In the late 1980's I again caught the philatelic bug to buy, sell and continue with my investment effort. This time I bought large collections at auction, broke them down into smaller lots and then resold them at auction (after extracting items for my own collection). Based on what I bought and sold I made a loss, but if I take into consideration what I put into my collection then I made a little profit.  I gave this up after some 5 years, mainly because of lack of time.

In 1985, I was then in printing, and got involved in the printing of stamp auction catalogues for Southampton Philatelic Auctions. This led to work from other stamp auctioneers, Embassy Stamps, Tony Lester, Worthing Stamp Auctions and others. In total I was eventually involved in the production of stamp auction catalogues for some 12 different auction businesses. I gave up being directly involved in printing,  in 2005, to pursue other business interests.

Starting in 2001 for three years or so I was selling postal history on Ebay. When I first started I was getting a small return on the time I expended for the items I sold. But I bought much more than I sold and to this day I have been unable to recover the money I spent. I gave up Ebay and changed over to Delcampe (no listing fees, lower fees for sold items, automatic relisting of unsold lots etc). You will find a link to Delcampe at the bottom of this page.

So what am I doing now? -  Since 2002 I have been "investing" in newspaper wrappers. This is an area which at the moment does not appear to have many followers. I have discovered that there are many rare item being offered at very low prices. Maybe this investment will give me, one day, a better return than stamps.


STAMPS IS A LONG TERM INVESTMENT
Companies that specialise in stamp investment point to the fact that between 1907 and 1990 stamps gave an average return of 10% per annum (according to a study by Salomon Brothers Investment Bank, published in 1997). They never mention whether the buyers and sellers premiums have been taken into consideration in making the calculation. I would guess that it hasn't.

One well documented case is a block of 10 one penny blacks postmarked 6 May 1840 on a cover. In 1968 the item sold for £4,800 at Harmer's auction. In 2001 the same item was sold, to Her Majesty the Queen, by Stanley Gibbons for a quarter of a million pounds. Allowing for buyers and sellers premiums this works out at an investment return of just under 12% per annum. (This percentage does not take into consideration any insurance costs over the intervening 33 years.)

I have made a caculation based on the claims that prices of stamps are going up at the rate of 10% per annum. Now the typical cost of acquiring stamps (the buyers premium) is about about 20%, so a £10,000 value of stamps would cost about £12,000. When selling stamps there is a cost (sellers premium) involved which is also about 20%. Using these figures to calculate the profit on investment as an Annual Percentage Rate (APR) you arrive at the figures in the table below. These clearly shows that stamps is not a short term investment (except perhaps in boom times as occurred in the 1970's).  Into these figures I have also factored in the cost of insurance when working out the APR, which over the period of 20 years in this example would be about £1,700. (Nominal Value is the the price for which the "collection" would sell before deducting the Buyers Premium of 20%)


Years
Nominal
Value
Value
if Sold
Profit / Loss
on Investment
APR
1 £10,000 £8,000 -33.5%
2 £11,000 £8,800 -14.6%
3 £12,100 £9,680 -7.1%
4 £13,310 £10,648 -3.2%
5 £14,641 £11,713 -0.7%
6 £16,105 £12,884 0.9%
7 £17,716 £14,172 2.2%
8 £19,487 £15,590 3.1%
9 £21,436 £17,149 3.8%
10 £23,579 £18,864 4.4%
11 £25,937 £20,750 4.8%
12 £28,531 £22,825 5.2%
13 £31,384 £25,107 5.6%
14 £34,523 £27,618 5.9%
15 £37,975 £30,380 6.1%
16 £41,772 £33,418 6.3%
17 £45,950 £36,760 6.5%
18 £50,545 £40,436 6.7%
19 £55,599 £44,479 6.9%
20 £61,159 £48,927 7.0%


CONDITION OF STAMPS
One problem with stamps when it comes to investing in stamps is the actual condition of the stamp. Two apparantly identical stamps could have a difference in value of 10% or more. Only an experienced person would be able to spot minor imperfections which could give rise to a large difference in price. Most dealers are honest to point out imperfections and adjust their price accordingly. It should be remembered that stamp dealers are human and they also can miss minor faults. On the above example this could mean a difference of some £5,000 when you sell after 20 years.


DISHONEST DEALERS
As in most businesses there are a small number of dealers who are dishonest. To discover this 20 years after you make a purchase would almost certainly be to late to do anything about it.
As an example - in 2006 two large "stamp investment" companies in Spain collapsed amid claims of  pyramid selling, false pricing and fraud. See the following links for more details
The Guardian May 13 2006
Investing in Stamps: a Spanish Scandal



ADVICE
The American Stamp Dealers Association (ASDA) has produced an excellent guide  - The Stamp Dealer’s Obligations and Responsibilities When Selling Stamps as an Investment  for investors to use when selecting a stamp dealer to make purchases of rare and valuable stamps for investment.


USEFUL SITES
I have selected a few sites which I think will be useful for someone who may be considering in investing in stamps

How to Buy and Sell Stamps for a Profit
By Dr. Thomas P. Singer

So you want to invest in stamps?
by Clinton Jones
"First and foremost, stamp collecting, like all collecting hobbies relies heavily on the meeting of a shrewd seller and a generous buyer in the realisation of maximum prices....."

Philatelic investment
From Wikipedia, the free encyclopedia

The Selection of Investment Grade Stamps
by Gary Watson of Prestige Philately


BOOKS
How To Invest In Stamps And Coins, 2008. ISBN 1606206613

Stamps For Investment, by Kenneth R Lake, 1970. ISBN 0330024558

Stamp Investment Guidelines, by Bill Hornadege,1979. ISBN 0909895147

The £.S.D. of Stamp Collecting, by Richard Rossall, 1939.


FINAL WORD
If you have never collected stamps and have no interest in stamps then don't invest in them - there are too many pitfalls.

© Jan Kosniowski 2008-2011