Philatelic investment

From Wikipedia, the free encyclopedia

 This article may require cleanup to meet Wikipedia's quality standards.
Please improve this article if you can. (January 2008)
This article or section may contain original research or unverified claims.
Please improve the article by adding references. See the talk page for details. (September 2007)

Philatelic Investment, the investment of funds in collectable postage stamps for the purpose of realizing a profit, is a recent phenomenon when compared to other traditional investment endeavours. Investing in rare stamps is not for the novice, in fact, it can be very unprofitable for new collectors; nevertheless, investing in stamps is possible among sophisticated and well informed collectors. Rare stamps are among the most portable of tangible investments, and are easy to store, however care should be given to house valuable rare stamps in a relatively moisture and heat free environment. Rare stamps can offer an attractive alternative to art, other collectible investments, and precious metals. In addition, for those wary of investing in single-country mutual funds or individual stocks of developing nations, stamps may provide the advanced collector/investor with a means to profit from a nations growing wealth.

Contents

[edit] Requisites for the Philatelic Investor

There is little in the way of safeguards or government regulation when considering rare stamps as an investment. Investing in stamps should never be conducted by a novice. For those interested in investing in stamps, the acquisition of knowledge is essential. Since gaining knowledge requires a significant outlay in terms of time, although not necessarily money, the prospective philatelic investor is at an advantage if they actually collect stamps. A stamp investor should have substantial knowledge of classification, condition grading, authentication, handling and storage, stamp dealers, clubs, auctions, philatelic shows and importantly, the stamp market. A trusted relationship with a knowledgable professional philatelist (who has no vested interest in what the investor purchases!) can help guide the prospective investor before embarking on a program of investing in stamps. However many professionals are hesitant in offering such advice, as the values of stamps have fallen in the past.

[edit] Stamps as Commodities

Like all collectibles, the value of a rare stamp is determined by its desirability by other collectors, investors and dealers. At its most basic level, the factors which determine a particular stamp's rarity are the initial number printed and the number used and or destroyed once the stamp was no longer in circulation. Since many collectors prefer to collect unused and undamaged stamps, the quantity used and the quantity damaged also affect collectable supply. Printing quantities of stamps are not always available, the quantities used, damaged, or destroyed over time are never known. Generally, the printing quantity is the only reliable information and a low printing quantity for a stamp can be an attractive feature for the investor to consider. However printing quantity of a stamp is only a rough guide to the scarcity of a particular stamp. Condition, except for the rarest of stamps, is the biggest factor determining a stamps value.

For example, in 1847, the U.S. issued its first stamps, a 5 cent stamp and a 10 cent stamp. The 5 cent stamp, or Scott catalog #1, has a catalogue price is about $650.00 used, and $6,500.00 in unused condition. Either are desirable and condition drives the retail price. If a used example has a small tear or crease with a heavy cancellation it might sell for as little as $45.00. If a used example has a light cancellation, fresh beautiful color, and a certificate of authenticity from a respected source, it might sell for as much as $1,250.00 and even more. If the cancellation is of special interest, for example a "railroad cancel" and the stamp is in superb condition, the stamp could sell for more than $1,250.00.

Likewise an unused Scott #1. If the stamp in question has no gum on the reverse of the stamp, is soiled with a slight tear, it may sell for as little as $250.00. If, on the other hand, the stamp has a certificate of authenticity from a reliable source, original gum, and is fresh and bright with a solid printing impression, the stamp might sell for as much as $12,000.00. Condition, authenticity, and overall desirability has a tremendous impact on a rare stamps value and are some of the many factors to consider when contemplating philatelic investment.

[edit] Demand

Demand for a stamp depends largely on the stamp's country (or area) of issue, topical or thematic appeal, and collectors' or investors' perceptions as to its current or future value.

  • Country (or area) of issuance: most stamp collectors within any given country collect their own country's stamps; for instance, most American collectors collect U.Setc. Some collectors collect areas (such as the Netherlands and Colonies, or British Commonwealth, or regions such as Latin America.
  • Perceptions of value: these influence demand for stamps in the same way that perceptions influence demand in the stock market. Increasingly, the perceptions of collectors/investors as to a stamp's future value play a part, as well.

Given all of this information, how does the investor make a judgment as to whether to focus on a particular stamp? The main questions that the investor should ask are:

  • Which countries or collecting areas will experience an increase in demand over the long term?
  • Within these collecting areas and given the available knowledge concerning supply (printing quantities), which stamps are undervalued, and should be targeted for investment?

Two types of trends of increasing demand are relevant to philatelic investing: country/regional trends, and topical demand trends.

Country/regional trends are largely dependent upon economic development. Historically, stamps of countries which have experienced long-term economic growth and an expansion of their middle classes have risen in value accordingly.

[edit] Cultural factors

To an extent, however, cultural factors come into play: for various reasons, certain countries have higher proportions of their populations who collect stamps than other countries, although the stamp collecting proportion of a country's population is often very difficult to measure, due to widely varying degrees of dedication to the hobby. Is anyone who ever saves a single stamp a stamp collector? If so, then there are probably about 20 million stamp collectors in the USA. If, however, one wishes to account for only "serious" stamp collectors (those spending $150 or more per year on their hobby), there may be only about 200,000. In terms of proportion of the population, this compares unfavorably with most European countries, notably Germany, in which there are probably 1 million to 2 million serious collectors, and perhaps 8 million to 10 million "not-so-serious" collectors.

Since cultural factors are difficult to gauge or project, and demand trends for various topical or thematic categories must be analyzed individually (because they follow no consistent, general pattern), the investor initially should focus on the country (or region) of issue, its prospects for long-term economic development, and growth of a middle class.

[edit] Topical categories

Demand trends for various topical categories are based on a wide variety of factors, some of which are demographic, and some of which relate specifically to an individual topical, or group of topicals. An example of a demographic trend which might affect a topical category is a trend toward upward mobility among a particular ethnic or racial group. If, for instance, Polish Americans experienced an upwardly mobile trend, stamps featuring famous Poles or Polish themes might increase in value. Factors which relate individually to topical categories which can influence demand are numerous, and may include: anniversaries, media spectacles (such as blockbuster films), moral crusades, etc. Such factors have a short-term effect, or they may be elements of long-term trends.

An example of such a short-term fluctuation in the demand for a topical category was the brief boom in Diana, Princess of Wales issues which occurred following the popular British royal's sudden death. For about a year or two after the tragedy, Diana stamps issued by various British Commonwealth nations often sold for up to ten times their catalogue value. Most of the buyers of these popular issues were not, of course, "serious" stamp collectors. To experienced collectors, the interest in these issues was driven by the popular media and non-collectors wishing to commemorate Diana's death, the rise in prices was a temporary anomaly.

[edit] Historical Trends

The lesson from the above examples is obvious. First, find countries which have good prospects for long-term economic growth. Once this task is accomplished, the investor's focus must narrow, in order to determine which stamps within the selected country or countries should be targeted for investment.

Following their defeat in World War II, the economies of both Germany and Japan were in a shambles. Most Germans and Japanese were very poor; consequently, very few could afford to spend money which they needed to survive on collecting stamps, and most of the unused stamps collected from these countries during the postwar period were sold to collectors in other countries and American GIs. As their economies grew, German and Japanese collectors bought back their own stamps, and prices for these early postwar stamps rose dramatically.

In the People's Republic of China, Maoists despised stamp collectors as reactionary counter-revolutionaries, so stamp collecting was illegal in mainland China while Mao was in power. Most stamps collected from the in mainland China during this period were sold overseas to American and European collectors in order to generate foreign exchange, and the printing quantities of some issues were very low (100,000 or fewer). For many years, demand for stamps of the in mainland China was also low, however; most Chinese collectors outside of China weren't collecting them, those inside weren't allowed to, and interest among non-Chinese was minimal. PRC issues were considered "wallpaper." All of this changed after Mao died, the prohibition against stamp collecting was repealed, and Mainland China became more capitalistic. Current estimates of the number of stamp collectors in China range from 10 to 50 million. As always, this is impossible to gauge, but what is clear is that many issues of the PRC, have risen in price.

Certain Asian nations, namely the "Asian Tigers", have experienced rapid economic growth in recent decades, along with a corresponding increase in value of their stamps. These include: South Korea, Thailand, Taiwan (the Republic of China), and Singapore; other territories that have experienced similar price appreciation in their stamps are Hong Kong and Macau.

[edit] Comparison to normal stamp collecting

Unlike a normal stamp collector, who generally tries to "fill the spaces" in his album, and obtain as many different stamps of the country that he collects as he can afford, the philatelic investor endeavors to find those stamps within his chosen collecting area which will increase in value the most over time. He will frequently be looking for only a few different issues of a particular country, and will buy multiple copies of those issues. If the supply of these targeted stamp issues is small enough, such hoarding by the investor may very well deplete the supply sufficiently in order to accelerate price increases, even without overt attempts to manipulate the market (such as advertised buy lists), by the investor.

Once the investor has selected a country or countries, he must then "hit the books" - researching printing quantities of the various stamps issued by that country, comparing these quantities issued to current catalogue and market values, possibly making guesses as to the proportion of stamps remaining in collectible condition, and assessing the topical (or other) appeal of various issues that he's analyzing.

[edit] Illustrative example

This is a complex, arduous, but often interesting and rewarding process. An illustrative example of how such research might proceed is in order:

For various reasons, a philatelic investor might decide that Latin America (Central and South America, and the "Latin West Indies"- Cuba, Dominican Republic, Haiti) will undergo a "democratizing" trend—significantly reforming its corrupt and oligarchical political/economic systems and undergoing accelerated economic development in the coming decades.

He knows that the population base of Latin American stamp collectors is largely derived from two groups—single country and Latin American region collectors within Latin America, and Latin American émigrés, most of whom are in the U.S.. Hence, the population bases and economic fortunes of individual countries within the group, while significant, are not of overriding concern.

He focuses on Venezuela, a nation of about 20 million people, immense wealth from oil and other natural resources, and an affluent, educated elite class pretty much riding atop the other 95% of the population. A political and economic situation which is currently problematic, to say the least, but which probably can't get much worse, and which he believes will be more or less resolved for the better in the coming decades.

Thumbing through a Michel South America Catalogue (Michel is a German catalogue firm which produces fine stamp catalogues which frequently list printing quantities for stamps), the investor comes up with a list of Venezuelan issues which have what he believes are low printing quantities in relation to their current catalogue values- in other words, undervalued stamps.

Among others on the list, he finds the following:

Venezuela 1944 World Amateur Baseball Championship Games, Airmail Set (Scott # C189-97)
Printing: 10,000

He concludes that this set is probably grossly undervalued, given its very low printing, low catalogue value, projected number of future collectors of Venezuela and Latin America, and the growing popularity of Baseball topicals. He decides to aggressively buy as many of these sets that he can find at a reasonable price. If he manages to accumulate several hundred sets, which is extremely unlikely, he may attempt to overtly stimulate demand by advertising to buy them.

During his research and analysis, the investor may find 10 or 20 Venezuelan issues that he wishes to target in this manner, as well as a number of issues from other Latin American countries. Each country and issue has its own "story," its own set of relevant data, and its own prospects. Will certain Cuban stamp issues appreciate rapidly in value after Castro dies and Havana embraces decadent and hedonistic capitalism again? As soccer becomes more popular worldwide, will a Costa Rican Soccer topical set with a minuscule printing shoot up in value? Such questions are the domain of the philatelic investor, a once rare but increasingly prolific breed of stamp collector.

[edit] Vagaries of condition and supply

[edit] Postally used stamps

While it is true that, worldwide, most collectors prefer unused stamps, many will also collect used, and some collect used stamps exclusively. Generally, unused stamps of an issue are worth more than the used stamps, and often, considerably more. There are some major exceptions to this rule, however: in some cases, legitimate and contemporary postally used stamps are rarer and more valuable than the same stamps unused. For instance, many stamps issued by Germany during its infamous inflation period are worth far more used than unused, because they could only be used for a short time, after which they became virtually worthless, due to runaway inflation.

Usage rates vary widely from stamp to stamp, and, of course, some stamps purchased by collectors from the post office may be saved for a few years, and then used. Generally, unless a stamp is heavily speculated upon or popularly collected when it is issued, I would estimate that at least 98% will ultimately be used. I differ with the U.S.P.S. on this question; the Postal Service once estimated that 15% of the stamps issued by them are collected, but I disagree with this estimate because I believe that most of those collected for a brief period after issue are eventually being used.

[edit] Concerning supply

In many cases, inexpensive stamps increase in value at a greater rate than expensive stamps of the same issue, over time. This paradoxical fact flies in the face of conventional thinking regarding investing in collectibles: that one should try to buy the rarest and most valuable items and hold onto them. There is a logic to such a trend, however: if a stamp is valuable, great care will be taken in handling and storing it, and if it is very valuable, there won't be many collectors who can afford it. If a stamp is inexpensive, however, more will be damaged or destroyed over time, and the high rate of attrition of supply coupled with its affordability to most collectors will contribute to a faster growth in value.

For examples of this, one need only look to some of the early U.S. issues, and compare the catalogue values as multiples of original face values in the low and high values of the set (which have a much lower printing quantity than the low values, and are therefore much scarcer) as follows:

ISSUE/ DENOMINATION............ Scott '01 CV.....CV as multiple of FV

1869 Pictorials -

                 1¢, Unused     700.00          70,000
                 2¢, Unused     650.00          32,500
                 30¢, Unused  6,500.00          21,666
                 90¢, Unused  8,750.00           9,722

1890-93 Definitives -

                     1¢, Unused  27.50           2,750
                     2¢, Unused  22.50           1,125
                       (most common type of 2c)
                     3¢, Unused  72.50           2,416
                     30¢, Unused 325.00          1,083
                     90¢, Unused 500.00            555

1893 Columbians -

                      1¢, Unused  25.00          2,500
                      2¢, Unused  22.50          1,125
                      3¢, Unused  62.50          2,075
                      $4, Unused 3,250.00          812
                      $5, Unused 3,750.00          750

1898 Trans-Mississippi-

                       1¢ Unused    30.00        3,000
                       2¢, Unused   27.50        1,375
                       4¢, Unused  150.00        3,750
                       $1, Unused  1,250.00      1,250
                       $2, Unused  2,100.00      1,050

[edit] Damaged stamps

Most collectors endeavor to collect undamaged stamps in the best condition attainable. However, an increasing number are also willing to accept damaged stamps, also known as "seconds." The reasons for this are economic. If a collector wishes to purchase a scarce stamp which has a catalogue value of $2,000, he may expect to pay about 70% to 100% of catalogue value for it if it is in premium condition. If, however, he is willing to accept a VF-appearing example of the same stamp, with a minor defect, he may have to pay only 10%-20% of catalogue value. If he's willing to accept a "space-filler" of the same stamp—an uglier example with a major defect, he may be able to find one for 4%-6%, or less, depending upon how horrible it looks.

The trend toward collector acceptance of seconds implies an unexpected and counter-intuitive prospect, in terms of their investment potential. The value of seconds of scarce and valuable stamps may increase more rapidly than premium examples of the same stamps; in other words, they may prove to be better investments! How, one might ask, could the author make such an apparently insane hypothesis? One example is as follows:

Felix Unger, stamp collector, has $3,000 to invest. He purchases a very nice example of a stamp with a catalogue value of $4,000 (paying 75% of catalogue value), at Royal Hindquarters Stamp Auctions.

His apartment-mate, Oscar Madison, the stamp slob, also has $3,000 hanging around. His dealer-pal, Rip, sells him six VF-appearing but slightly defective examples of the same stamp that Felix bought, for $480 each (12% of Cat. value), and then Oscar uses the remaining $120 in change to take Rip out to a game.

Five years later, the stamp's catalogue value has doubled, to $8,000. Felix and Oscar both decide to sell, because they need the money for alimony.

Since even fewer people can now afford Felix's premium quality stamp than could afford it 5 years ago, he sells it though Royal Hindquarters for 70% of catalogue value, minus commission (about 10%), realizing $ 5,040 ($8,000 CV X 70% = $5,600 -$560= $ 5,040).

Since the increased catalogue value has made the premium quality stamp less attainable, demand for the "second" has risen faster. Oscar dribbles out his six seconds via eBay at 13% to 17% of catalogue value apiece, averaging 15%, minus eBay's commission and the cost of lazy Oscar's labor in typing the things up and mailing them- say, 10% commission total. His final take is $6,600 [15% X total catalogue value of $48,000 = $7,200 - 10% commission= $6,480 + $120 in change from orig. purchase, used to take dealer-friend to game]. Oscar's got more money in his pocket than Felix, can annoy Felix with an "I told you so", and Rip is indebted to him for life.

[edit] Suggested supplies and resources

Supplies:

Publications:

  • "Scott Catalogs" : Published in the U.S., Scott catalogs are the accepted standard classification for U.S. and foreign issued stamps. These catalogs are published annually and contain a depiction and price for each stamp listed in the catalog. Many local libraries have recent editions
  • "Foreign Stamp Catalogues" : these often list varieties that Scott omits; also some (notably Michel), contain valuable info. re: printing quantities
  • "Linn's Stamp News" : the largest stamp newspaper in the U.S.; published weekly, and well worth the subscription price; some libraries may carry it

Local stamp clubs:

  • The American Philatelic Society : all advanced collectors should join; members receive the APS monthly magazine, American Philatelist, and it helps one's reputation to be an APS member in good standing; APS has a disciplinary committee, and if a member cheats someone, the victim can complain to the APS, which can then suspend or expel the offender, if culpable.
  • Specialty societies / organizations : if one decides to concentrate on a particular country or area, it may be worth joining the organization of collectors which collect that particular area, if one exists
  • Various online stamp auctions (including eBay) are available, as well as more prestigious auction houses such as Robert A. Siegel located in New York City.
  • Philatelic museums
  • Philatelic libraries
  • Expertization / Authentication Services : for a fee, these organizations issue well informed and experienced opinions or certificates on rare stamps; a certificate is well worth obtaining if a stamp is of value and purchased as an investment. It is really, the only objective source the rare stamp investor has about any given stamp. In the United States, there are three well known organizations offering certificates of authenticity; the Philatelic Foundation (PF) is the most prestigious and has issued certificates since the 1940s, and the American Philatelic Society (APS) also well known. Both of these organizations are "not for profit" organizations which should have no monetary interest in the outcome of the expertization of any given stamp. The Professional Stamp Experts (PSE), also offers expertization services, but, is owned by a for profit that offers rare stamps to investors, and is essentially "in business" to serve investors. There is some controversy surrounding the PSE. There are many other expert services internationally; some have areas of specialization, and are better at their chosen areas than others. When purchasing a rare stamp, if the stamp has not been previously expertized, it is routine to request from the dealer or auction house from which the purchase has been made for an "extension of the return privilege" for the purpose of getting the stamp expertized--most auctions and better dealers will grant this privilege, and will also refund the cost of the rare stamp, the stamp certificate plus all postage and insurance costs in the event of an opinion that negatively effects the value of the stamp being certified.

[edit] Further Reading

  • Kenneth R. Lake. Stamps For Investment (1969)