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Investing in Stamps

Stamps is a Long Term Investment

Companies that claim to 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 actually 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 particular example works out at an investment return of just under 12% per annum. (This percentage does not take into consideration any insurance costs incurred over the intervening 33 years.)

Another quoted example is "Bill Gross bought a plate block of four Inverted Jenny airmail stamps for $2.97m in 2006 - the highest price ever paid for a US stamp item. It had last sold for $1.1m in 1989 - a 6% pa rise." This quote does not give any details of buyers and sellers premiums. What was the insurance cost for the 16 years or so? By the time these factors are taken into consideration the net return is going to be a lot less then 6% pa.

Caculation based on the claims that prices of stamps are going up at the rate of 10% per annum produce the table shown below. 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%. If this 10,000 lot is sold soon after the purchase the buyer would receive just 8,000, a loss of 4,000

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 very important consideration 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, they can make mistakes and miss minor faults. On the above example this could easily 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 made a purchase would almost certainly be to late to do anything about it. As an example - in 2006 two very large "stamp investment" companies in Spain collapsed amid claims of pyramid selling, false pricing and fraud. See the following report in The Guardian on this case.

The Guardian May 13 2006

Another example is the story of Paul Singer and Shanahan Stamp Auctions.

Paul Singer and the bad luck of the Irish

Important 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.

This is one page you MUST read if you are considering investing in stamps.


Useful Sites

If you are still keen to invest in stamps there are a few more sites for you to look at before you make up your mind.

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

Philatelic investment
From Wikipedia, the free encyclopedia

Investing in Stamps
by Robert Murray of Robert Murray Stamp Shop, Edinburgh
Robert Murray writes
"Some of the investment portfolios I have seen were shameful. On rare occasions stamps were included that were simply wrongly identified, or that were damaged (but sold as fine). More often it has been common to see that the items included were to some extent overpriced at the time of sale - sometimes by just ten or twenty percent, sometimes double or more the price you would normally have expected to pay in auction or through a dealer."
The Selection of Investment Grade Stamps
by Gary Watson of Prestige Philately


Books

There are also a number of books on the subject, most of them are now out of print, but they can be found.

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.

Stamps for the Investor, by T N Trikilis, published by Cornerstone Library, 1981, ISBN 034612512X


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.