MAIL ATTENTION: INVESTING IN STAMPS

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The humble postage stamp may not seem the archetypal investable asset but a growing number of collectors and investors are saying otherwise.

It was June 2007 and bond fund legend Bill Gross had just auctioned off his collection of rare British stamps. Bought by Gross over several years for a total of US$2.5m the collection’s final sale price topped US$10m. “It’s beyond my expectations. It is four times profit. It is better than the stock market,” a jubilant Gross told the media.

It is a story that has become legend in the growing world of stamp investments. Once easily dismissed as a whimsical pastime, stamps are now accepted as a viable member of the alternative asset class club. The move towards tangible assets, such as art, wine, and vintage cars, with a track record of inflation beating performance has been a common investment theme in recent years. All once enigmatic and impenetrable realms of the investment universe, the expansion of professional money managers and advisory firms into this space has been the key to creating products and services accessible to a wider market.

Trading in collectable stamps since 1856, Stanley Gibbons is the only firm to actively advise on investment in rare stamps. Awarded the Royal Warrant for services to philately in 1914 by King George V and creator of the “bible for stamp collectors”, the annual Stanley Gibbons stamp catalogue, they opened an office in Hong Kong in 2012 to service growing international interest, including an estimated 18 million Chinese philatelists.

Stamps are now accepted as a viable
member of the alternative asset class

There is now a huge world of stamps available since the first stamp was issued by Great Britain back in 1840 – the iconic Penny Black bearing a side portraiture of a young Queen Victoria. However, like fine wine or art, only a very small percentage of stamps on the market are classified as investment grade. Choosing the right ones are where the experts come in.

“At any given point in time, Stanley Gibbons has over three million stamps in its stock. Only around 500 of them would be investment grade,” says Marco Kaster, the investment director for Stanley Gibbons in Asia. Factors that determine the investment potential of a stamp include rarity, condition, market demand, and liquidity. “When selecting stamps for investment the first thing to do is look at these criteria,” says Mr. Kaster.

Most rare investment grade stamps are in perfect unused condition with the margins around the stamp for early stamps, perforations for later stamps, freshness of colour and gum on the back all immaculate. “Stamps will be graded according to their condition and there is a considerable difference in value between stamps in fine condition and those that are classified as superb,” says Mr. Kaster. This is not to say that used stamps have no value, but there are significantly less used stamps that are rare and that can appeal to collectors and investors.

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To find out more about the market, interested buyers can first peruse the various investment indices tracking stamp prices. The Bloomberg and Thomson Reuters listed GB30 Rarities Index, which tracks the 30 most expensive rare British stamps available on the open market, grew by 56% since the end of 2008, after increasing by 38.6% during the financial crisis in 2008 alone demonstrating a total lack of correlation to traditional asset classes. Over the longer terms the index has shown an average compound annual growth rate of 10.1% for the last 40 years with no volatility.

The more recently published GB250 index, which is also listed on Bloomberg and Thomson Reuters and tracks prices of all British stamps priced at GBP10,000 or more, has shown an average annual compound increase of 10.3% for the last 10 years and, similar to the GB30, grew by 32.7% during 2008 when the value of most other asset classes plummeted.

Compared to other asset classes, academic research by Elroy Dimson & Spaenjers in 2009 and released under, ‘The Investment Performance of Collectible Stamps (1900-2008)’ found that stamps had, “an annualized return of 7.0% in nominal terms, or 2.9% in real terms higher than those on bonds but below those on equities.”

It concluded that stamps do offer a partial hedge against inflation and could rival equities in terms of realised performance. This is the totality of GB stamps though, not investment grade stamps, which have performed considerably better as demonstrated by the performance of both the GB30 and GB250 stamp indices.

The principle focus for investors remains British stamps. They make up approximately 75% of investment grade stamps traded by Stanley Gibbons, with stamps from the Commonwealth, USA and China making up the remaining 25%. Particular favourites are those from the reigns of Queen Victoria, George V, and Edward VIII, as well as from the period of the Dowager Empress (Empress Cixi) in China at the end of the 19th century.

It is also important to pay attention to potential short term fads such as a recent surge of interest in stamps from the People’s Republic of China. A particular case in the point is the 1980 PRC Year of the Monkey stamp. Now selling for GBP1,600, it was trading for GBP275 as little as five years ago. However, with over eight million in circulation it is not rare enough to be considered an investment item.

Stamps, though, are fragile things and it is vital that they are stored in an appropriate and secure environment. The ambient humidity and temperature of Hong Kong and South East Asia is a stamp’s worst enemy. Without due care, the stamp will curl and the gum will erode. A humidor at home may help but it is best to leave them with the professionals. Stanley Gibbons store at the Hong Kong airport and in the UK and provide this service including insurance at market values free of charge to investors who buy through them. Otherwise, a badly looked after stamp will simply become a very expensive
dinner party joke.

Finally, when it comes to selling the portfolio, Stanley Gibbons offers a number of contractually documented exit strategies, including selling on behalf of the investor where it charges a commission on achieved profits, selling through an auction where vendor commission is waived, a guaranteed buy-back among others.

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Marco Kaster, Investment Director at Stanley Gibbons (Asia) Ltd, is available for personal consultations with members of The Reserve. To find out more or to request an introduction, please contact us today at member@thereserve-asia.com.

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16/F Chao's Building  |  143-145 Bonham Strand  |  Sheung Wan  |  Hong Kong
T: +852 33620 3157  |  F: +852 3753 1811  |  thereserve@infonation-asia.com  |  Data Policy  

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