Wednesday, November 21, 2012

What Makes a Good Investment in Stamps?

If you have collected stamps before you may think, “Well a high priced stamp should show more profit over the long term than a low priced stamp.” This statement is very true in essence, but we have to qualify it by determining what a high priced stamp actually is. For some people a stamp costing �500 may be highly priced, for others the figure may be nearer �5000 or more.

So if you have a small budget of around �500, is it feasible to invest it in stamps? The realistic answer is ‘no’. To understand this lets consider some facts.

Over a short term(5years) stamps in this range tend to fluctuate more than those at �1000+. They are uncommon stamps, but not truly rare, and so come on the market far more frequently than is ideal for investment. Even in fine condition there may not be enough demand for these stamps as they are relatively easy to obtain in many of the larger auction houses.

Stamps in this range tend to be the used high values in Queen Victoria(QV) – Jubilee issue, King Edward and George V. These issues do rise in value over time, and over a 10 year period will definitely increase in price. The major factor here is that they must be in perfect condition. For example the �1 green jubilee issue should have a single c.d.s. cancel, not be off center, and have few, if any, short perforations.

The price increase even with a ‘perfect’ stamp can be quite negligible. For example, in my own research I compared two QV �1 green stamps. One from an Grosvenor auction on December 17th, 2004. The other from an auction, again Grosvenor, on 17th June 2009. The lot numbers were 924 and 890 respectively. Both describe a fine used �1 Jubilee stamp, s.g. 212. The prices realised were �280 for the 2004 auction, and �190 for the 2009 auction(pictures are available for both these stamps on Grosvenor’s site).

Now while this seems contrary to the idea of investing in stamps, it highlights the need to understand what a good investment is.

To see a worthwhile profit in stamps over a short term period the initial investment has to be at a much higher level. For example a single stamp investment at �4000 will be much more likely to show a reasonable profit over the short term. The important factors here are the condition and the rarity.

Even in fine condition the stamps compared above are too common for investment purposes, unless held for a long time i.e. 20years. It then begs the question would the return be enough to warrant the investment in the first place? Or would an alternative be of more benefit?

With this understanding allow me to show another auction, this time with the exact stamps in question. This item was originally sold as part of the Sir Gawaine Bailey collection by Sotheby’s on 29th September 2004. In this auction it was lot 46, a block of 4 mint penny reds, plate 9.

It realised �4140 at that time, and came to auction again in Grosvenor’s auction on June 17th 2009, Lot 561.

This time it realised �5,500, an increase of �1,360 in just under 5years, or 32.85% return on investment. This equates to 6.57% per annum.

This highlights the fact that stamps can indeed be a good investment, even on a shorter term basis. On a basic level the rarity and condition are the key factors, the above block is a rare item and it is in fine condition, hence, highly desirable. The �1 green Jubilee issue, while uncommon is not rare enough for a short term investment.

Hopefully this article will highlight some dangers of uneducated investing in stamps, while at the same time providing solid evidence that stamps can and do provide a tangible asset which can add considerable value to your investment’s.

David Debalm is a writer on various subjects. His main business website provides information on investment in British stamps. A realistic investment plan can be discussed with interested clients. His writing specialities include Alternative Investments, Gemstones, World of Warcraft and Poker/Gambling. All articles are guaranteed original and accurate, and can be provided as required by any client.

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