Philatelic investment


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.

Overview

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 investments, take up little space but require careful storage as condition is one of the most important factors in determining the value of a stamp. Other tangible investments include art, antiques, precious metals, rare coins and many others that are all termed alternative investments. Interest in stamps as an investment tends to increase when traditional investments are not doing well, causing investors to seek alternatives. The increasing age of the population in western countries has also been credited with a resurgence in interest in stamps.
A British auctioneer warned: "Unless you know what you are doing – and this only comes with many years of experience – it is very difficult to buy sensibly and at the right prices. When you buy on a retail basis, you have to overcome the profit margins the dealer has built into his selling price, plus VAT. When you sell, you also have to overcome dealing charges, whether you sell to an auction house or a dealer. That would consume an awful lot of value. To overcome that mark-up and sell at a profit would require quite a few years of appreciation."

Before investing

A stamp investor should have a good knowledge of:
The prospective investor will also benefit from attending stamp clubs, auctions, philatelic shows and having a relationship with a knowledgeable dealer.
Very subtle differences in colour, perforation, overprinting, and the like may be what differentiates a valuable stamp from a common one. The investor not only has to be very knowledgeable of these issues but also know whether alterations have been made to make an inexpensive stamp look like a valuable one, or indeed, whether the stamp itself is simply a counterfeit.

The value of a stamp

The value of a stamp is determined by a number of factors including:
There are a number of places where a prospective investor can buy stamps:
Stamps purchased for investment are usually old classic stamps in fine condition, such as British Victorian stamps or American stamps from before 1900. These may be thought of as the equivalent of buying a blue chip share. Although future prices may vary, 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.

Historical data

While there are long term records of retail stamp prices, the first catalogue being prepared in 1862, there is little objective historical data about the past performance of stamps as investments. No long term indices like the Dow Jones or FTSE Index exist, although some figures have been compiled by Stanley Gibbons and Stamp Magazine in the UK.
From 2002, Stanley Gibbons compiled a SG100 Stamp Index based on retail and auction prices for the "top 100 most frequently traded stamps" in the world. The index appears on the Bloomberg Terminal but was discontinued and given heritage status. In 2004 they also launched an index of 30 rare British stamps. In 2012 the company launched the GB250 Rare Stamp Index 'to provide a broad view of the investment market for Great Britain stamps', listing the type of stamps they would recommend for investment purposes. The GB30 and GB250 indices are listed on both the Bloomberg Professional service and Thomson Reuters. According to Stanley Gibbons, rare stamps have averaged an annual compound return of 10 per cent over the past 50 years, however, it is important to remember that this figure has been calculated using backtesting as stamp price indexes are a recent innovation. In addition, the prices in the indexes are based in part on Stanley Gibbon's own retail price lists and frequently traded but low value stamps have been excluded from the index.
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.
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:
Stamps purchased for investment do not normally have any special regulatory protection for the purchaser. In the United Kingdom there is no regulation of this area at all from the Financial Conduct Authority. Rules elsewhere may vary. Where investment is collective through a mutual fund there may be some regulation of the activities of the fund depending on its location.

Stamp investment scandals

There have been a number of scandals in this area over the years.
In Ireland in the 1950s, Paul Singer, a Bratislavian Doctor of Philosophy, ran a Ponzi scheme under the name Shanahan Stamp Auctions. The scheme collapsed when a mysterious robbery took place at the company's office on 9 May 1959, the eve of a major auction, when more than £300,000 worth of stamps went missing. Singer was charged with fraud, but was acquitted and vanished.
In the 1970s, the bursting of a speculative bubble left investors unable to realise their investment at the price they had paid. Prices took decades to recover.
In 2006, two Spanish firms Afinsa and Forum Filatelico collapsed and left around 350,000 investors with investments worth as little as 10% of the price they had paid.
In November 2017 it was announced that Stanley Gibbons' stamp investment subsidiary in Guernsey had been placed in administration. The company was reported to have £12.6 million of philatelic stock but over £70m of liabilities, made up of £54m of "buy-back" guarantees, £6.5m owed to its parent company, and £11m of sundry liabilities.