Rare stamps investments are now 'better than the stock market'
We look at why collectible stamps offer a level of reliability the traditional financial markets can't match
Until now, you have probably never thought of investing in rare stamps. However in recent years, more and more investors have turned their attentions to diversifying their asset portfolio by investing in the stamp markets - and with good reason.
Merrill Lynch, the investment branch of The Bank of America, advises their high worth investors to seek a 10% investment of capital in alternative sources - an umbrella term that includes rare stamps. And when you look at the figures, it's easy to see why.
The GB30 Rarities index is a definitive guide to the value of the Top 30 rare British stamps recommended for investments. And it makes interesting reading for any investors looking towards the world of rare stamps for opportunities.
During the period of 2007-2008, the GB30 index showed an overall increase of 38.6% for the top 30 British rarities. The value of the list increased even further in 2009-2010, with a further 7% increase.
The updated GB30 rarities index for 2010 shows that over the past forty years, there has been a 6,403% increase in the value of the thirty rare stamps listed. Over the same period, the house price market has seen an increase of 3,559%.
The figures for this period also indicate the steady growth in the value of rare stamps, alongside the fluctuation experienced in the housing and gold markets.
If we analyse the five-year growth percentages of the market over the past forty years, the 1995 figures show that the value of house prices went down by 12% from £58,982-£51,633. During the same period, the GB30 rarities enjoyed an increase in value of 5% from £370,750 to £390,500.
Gold prices have fluctuated greatly during the past 40 years. In 1985, a 38% reduction in the value of Gold occurred with prices moving from £514 to £317. During this same period, the GB30 Rarities index enjoyed a 10% growth in value from £309,750 to £341,500.
More recently still, in the year 2000 as the e-commerce bubble burst, we also saw Gold prices dropping 29% from £385 to £275, and yet the GB Rarities list enjoyed a 29% value increase from £390,500 to £505,250 within this period.
The GB30 Rarities index has delivered average annual compound growth of 11%. To put this figure into perspective it beats inflation by an average 4.4% per annum.
Stamps investments are booming in Asia, with
big sales including this famous Red Revenue
While the gold, housing and stock markets continue to fluctuate, in the 40 year history of the GB30 Rarities index there has never been a decrease in the value of any stamps within the index.
Even during the last period of high inflation experienced in Britain - from 1975 to 1980 - the value of rare stamps rose by an incredible 593%.
This is because traditional investment sources are subject to variation depending on economic issues like inflation or a crash in the stock market.
The GB30 Rarities index and its values are underpinned by a western consumer market of some 30 million stamp collectors. Therefore, there is little chance of the values of any rare stamps, disappearing overnight.
The truth is that while traditional investment sources have been causing headaches for the financial world, the rare stamp market could not be healthier.
In June this year, Robert A Siegel held their annual World Rarities stamp auction, which has been running since 1964 in America. Overall, 352 lots were sold, bringing a number of substantial five-figure and even six-figure results.
Of the single piece lots, the two biggest sellers were both inverts from the Pan-American series, found in at least four different post offices around the United States.
And of the two, the first was to be one of the top lots: a strip of four green 1c imprints, which has a string of vignette plate letters in black and "1c" denomination imprint - the only known example for the 1c stamp.
The lot sold for almost exactly its estimate at $145,000. However, it was upstaged by a gem quality example of the 2c Pan-American invert. The stamp had an estimated price of $55,000 but in the end sold for $105,000.
In the United Kingdom, the market also continues to boom.
Just a month ago, stamp dealers Stanley Gibbons concluded a deal for one of Britain's rarest stamps: the 1904 Edward II 6d Pale Dull Purple, for £400,000.
Also known as the IR Official, the stamp was withdrawn almost immediately after it's issue on March 14, 1904.
According to experts, as little 19 sheets of the stamp were made, and all the sheets were destroyed once the official overprints were ceased. Other known examples of this stamp in circulation can be found in the Royal Collection and museums like the National Postal Museum.
Figures published by Stanley Gibbons show that since 2005, the 6d Pale Dull Purple has trebled in value. While since 2007 it has increased by 150%.
At the lower end of the market, rare stamps are enjoying success at auction. An extremely rare and colourful 1d orange-vermilion, with a straight left edge, went up for auction with a £3,500 presale estimate. The stamp, which had travelled on a letter from Sydney to Bologna, sold for £13,000, nearly four times the estimated price.
The rare stamp market is further endorsed through high profile collectors like, Bill Gross, co founder of Pacific Investment Management (PIMCO).
In 2007, Gross sold a collection of early British rare stamps for $10,500,000 at auction. In the New York Times, he described rare stamps as "better than the stock market." You could understand his point. Just seven years earlier, he had bought the collection of rare British Commonwealth stamps for just under $2,500,000 - turning a profit of just over 300% in less than a decade.
While interest in rare stamps as an investment vehicle continues to develop in the western world, the last decade has seen the development of rising markets in China and India fuelling the demand.
In the past decade, a new middle class collector base has emerged from Brazil, Russia, India, and China, otherwise known as the BRIC nations.
Jim O'Neil Head of Global Economic Research at Goldman Sachs first coined the term "BRIC" in 2001.
In the 2003 report "Dreaming with BRICs: The Path to 2050," Goldman Sachs surmised the following:
"Over the next 50 years, Brazil, Russia, India and China—the BRICs economies—could become a much larger force in the world economy. Using the latest demographic projections and a model of capital accumulation and productivity growth, we map out GDP growth, income per capita and currency movements in the BRICs economies until 2050.
If things go right, in less than 40 years, the BRICs economies together could be larger than the G6 in US dollar terms. By 2025, they could account for over half the size of the G6. Currently they are worth less than 15%. Of the current G6, only the US and Japan may be among the six largest economies in US dollar terms in 2050."
Of these BRIC Nations, China have emerged with a vast and quickly developing rare stamp collectors market which is estimated at around 18 million collectors.
The Chinese stamp market is creating world record prices too.
In September 2009, one Chinese collector, paid $331,671 for one Red Revenue stamp, which was one of 32 left from the 1897 Chinese Qing dynasty.
This was the World Record price for the sale a single Chinese stamp, but just over three months later, another example, sold for $711,600, over double the amount paid just four months earlier.
While the new Chinese market continues to grow, the Western rare stamp market may soon also experience an increase in the number of collectors.
In the US and UK, retirement figures are set to explode over the next decade, with approximately 95,000 of the 1950s baby boomer generation retiring every week from these countries alone. Collectibles experts anticipate an increased level of interest in hobbies and items of nostalgia amongst this group.
Add to this the high levels of disposable income available to this large group and you have the potential for further demand for rare stamps.
Museums and institutions are taking an interest in rare stamps too. Bill Gross recently donated $8,000,000 worth of rare stamps to a gallery at the Smithsonian's National Postal Museum that is to open in 2012.
Today, rare stamps also represent the most valuable commodity in the world by weight. This is due to the one of a kind "Treskilling Yellow" Stamp, which recently sold at auction for £1,600,000. The stamp had previously sold for $2,330,000 in 1996 and equated to being worth $71,000,000,000 per kilogram.
The renewed interest in rare stamps comes from newfound global wealth, a renewed interest in the market and the obvious financial appeal of possessing a highly portable and recognized store of wealth.
As any wise investor will tell you, it is still about making the right choice in your rare stamp investment. Buying up any stamps may leave you well prepared for next year's Christmas card list, but the key to any investment is to research your purchase. Try to get a second opinion from someone with knowledge of rare collectible stamps.
Adrian Roose, stamp investment expert at Paul Fraser Collectibles, explains: "it's the perfect supply and demand market. Demand is increasing especially from China and the supply is diminishing as more great collections are donated to museums."
With markets set to boom, an investment of this kind might just be your chance to find out just why Bill Gross views rare stamp investment as "better than the stock market."
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