The Investment Market

Buying stamps and postal history for investment purposes is not a new concept. However, in recent years, it has started to receive greater attention and consideration as a viable alternative to traditional investment vehicles such as stocks and shares.

Press coverage of the potential returns to be made, underperformance of shares and the desire to diversify portfolios are just some of the reasons that stamp investment is now starting to be considered as a realistic means of increasing wealth.

As with most investments there are downsides as well as upsides. Reliable, double digit growth has been achievable for a number of years in the investment grade stamp market but there are no guarantees. However, there are a number of contributing factors which would indicate that the demand for investment quality items is likely to continue for the foreseeable future:

Changing Demographics

The demographic mix of stamp collectors has taken a dramatic shift in western markets over the past thirty years. For many years stamp collecting would encompass every generation; from the schoolboy exploring the hobby for the first time through to the octogenarian with a significant and valuable collection acquired over a lifetime.

The schoolboy (or girl) collector is virtually no more, despite the efforts of the philatelic community to lure them back. There are simply too many other distractions in the 21st century for the stamp collecting movement to prove attractive once again to a large group of young people.

However, those that did collect stamps when younger but are now entering middle age and upwards are in a position of wealth unseen in any previous generation. Despite the turmoil experienced in financial markets, ‘Baby Boomers’ and retirees have more disposable income than ever before and are looking for leisure pursuits to fill their time. For many, a return to a childhood passion is the answer – except this time, they have the funds to indulge in acquiring items that would have been a distant dream in their earlier years. Ultimately, it is this availability of disposable wealth coupled with increased demand that is continuing to drive the price of stamps higher. And probably will for the next thirty to forty years.

New Markets

Alongside the changing demographic patterns in the west are the emerging and recently established markets across the world. China, India, Russia and Brazil (amongst others) are markets that are developing wealth and asserting their national identities. The age mix of collectors is different to that in western markets and the demand for material, particularly for the home nation, adds to the overall worldwide requirement for good investment grade stock.

Underlying Demand

Philatelic Investor does not focus on the hobby of stamp collecting per se but it is important to stress the importance of the collector market on the value of investment grade stamps. Unlike traditional investment vehicles, stamp investment is underpinned by a global collector base of millions of people (quoted figures vary from around 20 million to 50 million, although to what degree these numbers constitute active collectors is open to question). If prices for a particular philatelic item were to drop then, unlike shares where stock can become worthless overnight, the collector base will acquire the material once a price point is reached that make the stamp affordable. There are many more collectors that cannot afford what they would dearly love to own than investor/collectors that are the current custodians. In other words, valuable stamps have a ‘floor’ below which they are very unlikely to fall.

Collectors become very attached to their stamps. Many stamps will remain in collections for decades, probably not being brought back to market until after the death of the owner. Collectors will buy in good times and in bad, regardless of economic conditions. There is no corellation with stock market performance and hence the investment stamp market tends to remain very stable, irrespective of fluctuations in economic markets.

Rare stamps have a distinct advantage over other commodities such as gold and diamonds. Put simply, there is a finite supply and it is not possible for the market to be flooded with new issues. Quantities of many of the world's truely rare stamps are generally well known and it would be highly unlikely for many other examples to suddenly come to light. It is this rarity factor combined with high demand that dictates the steady upward trajectory of market prices.

Historic Performance

Investors in any market should not rely on past performance to guarantee future returns; but it has to be said that stamp investment has provided a consistently good rate of return over a very long period. A report produced by Salomon Brothers in the late 1990’s identified stamps as being in the top four investments of the twentieth century, averaging an annual return of 10.1% (the other three, incidentally, were Chinese ceramics, old masters and diamonds).

Auction records continue to be broken and stamp indexes that illustrate the year on year growth of a pool of valuable stamps, continue to rise. Although it cannot be guaranteed that this will continue ad infinitum, as the concept of stamp investment becomes more widely accepted and understood the interest and demand is likely to grow.

Perhaps unique to stamps is the ability to track prices over the very long term. Price based catalogues have been annually produced since the nineteenth century, providing historical trend data unmatched in any other alternative asset class.

Stamp investment also provides a number of additional benefits:

Diversification

Stamp investment provides an alternative asset class in which in which to invest. Importantly, there is very little correlation between the performance of other assets such as stocks and bonds and the performance of stamps and postal history. This enables the investor to benefit from risk diversification but also from a class of investment that is not tied to the fortunes of the stock market, thus reducing overall portfolio volatility.

Portability

An often quoted phrase is that, by weight, investment grade stamps are the most valuable commodity on earth. Whilst this may not necessarily be a primary consideration for many, the ability to easily transport and trade philatelic items around the world can be very beneficial to those that need this flexibility.

Liquidity

The underlying collector base, discussed above, virtually guarantees that there will always be a buyer for good quality stock and that disposal can be rapid if needs be.

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