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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.

Words by Ben Robertson

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 USD$2.5m the collection’s final sale price topped USD$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 GeorgeV and creator of the “bible for stamp collectors”, the annual Stanley Gibbons stamp catalogue, they last year opened an office in Hong Kong to service growing international interest, including an estimated 18 million Chinese philatelists.

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.

“Stanley Gibbons has over three million stamps in its stock. At any given point in time. Only around 500 of them would be investment grade,” says Marco Kaster, the investment director for Stanley Gibbons in Hong Kong. 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 (early stamps were cut by postmasters and had no perforations), freshness of colour, perforations for later stamps, 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.

To find out more about the market, interested buyers can first peruse the various investment indices tracking stamp prices. The Bloomberg listed GB30 Rarities Index, which tracks the thirty most expensive rare British stamps available on the open market, grew by 68% in the last 5 years and has shown an average compound annual growth rate of 10.8% for the last 40 years. The more recently published GB250 index, which is also listed on Bloomberg and which tracks prices of all British stamps with individual values of GBP10, 000 or more, has shown an average annual compound increase of 13.4% for the last 10 years.

Compared against 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.

As if to prove the point, during the recent market crash of 2008, when the value of most traditional asset classes plummeted, the GB30 Rarities Index increased in value by 38.6% year-on-year with the GB250 index not far behind at 32.7%.

The principle focus for investors remains British stamps. They make up approximately 80% of investment grade stamps traded by Stanley Gibbons, with stamps from the Commonwealth, USA and China making up the remaining 20%. Particular favourites are those from the reigns of Queen Victoria, George V, and Edward VIII.

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 PRCYear 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.

A QUICK GUIDE TO STAMP INVESTING

1. RARITY
Invest where there is a small number of surviving examples or they are unique.

2. CONDITION
Invest in the best quality examples. Many factors influence the condition of a stamp, from the margins around it to the gum on the back.

3. AUTHENTICITY
Ensure authenticity can be proven. Seek items with documented history and provenance.

4. LIQUIDITY
Invest in areas where there are a healthy number of collectors.

5. PRICE
Seek to buy at below fair value.

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