The Investment Side of Philately - Part 2

Author - Richard Lehmann | Wednesday, 06 March 2019

Last month began a series of three articles designed to prove that stamps were a good investment in collectibles.  The analysis is based on a comparison of the stamp purchase recommendations made in my 1994 guide titled  “Best Buys In Postage Stamps.”  That book addressed over 16,000 stamps giving their appreciation histories and assigning an appreciation potential based on past results.  My first article showed that mint stamps recommended in 1994 appreciated 195.5% or 7.8% per year over the 25 year from 1993 to 2018.  The items not recommended appreciated 155% or 6.2% per year.  These results validated two of my assumption. First it proved that stamp appreciation for stamps valued at $25 or more and issued prior to 1950 were more likely to appreciate than those issued subsequently.  Secondly, it proved that analytic metrics could be applied to such stamps to find stamps that will do better than the average.  What is particularly encouraging is that this took place during a time when, by all accounts, prices were assumed to have come down due to the Internet and collector demographics.  We now see that this was not true for investment caliber stamps.

This article deals with the investment performance of used stamps during this same 1993 to 2018 time period.  The analysis covered some 11,552 items ($29,026,877) with the following performance results:

1.      The recommended items, 4,164 now valued at $13,807,210, returned 255.5% or 10.2% per year. 

2.      Of the 5242 (45.4%) items with an average return of 5% or higher each year for 25 years, the recommended totaled 1797 (43.2% of our recommendations).  Contrast this with the 575 (5.0%) items with a negative rate of return of which I recommended only 179 (4.3% of our recommendations)

3.      Some 7,388 items were not recommended, they returned an average of 8.8% per year.  This demonstrates just how strong the stamp market has been over the last 25 years despite recent declines.  Their lower average return versus that for the recommended stamps is clear testimony that using financial analysis metrics on stamps does produce more positive results.

4.      The stamp universe we reviewed (11,552) broke down to annual average return percentages as follows:

0%                           3.3%

>0% to 2%              20.9%

2% to 5%                25.4%

5% to 10%              24.0%

10% to 20%            13.6%

20%+                       7.8%

Negative %               0.5%

5.      The 5 highest appreciation stamps in the last 25 years were the following:

a.      Two Sicilies #3e went from $12 to $9,000 (74,900%)

b.       Wurttemberg #O146a went from $20 to $13,400 (66,900%)

c.       New Britain #29F went from $90 to $30,000 (33,233%)

d.      Russia #31a went from $375 to $62,500 (16,566%)

e.      Two Sicilies #5d went from $100 to $15,000 (14,900%)

6.      While used stamps outperformed mint by a significant amount, they also showed more sizeable declines by certain countries.  Below are the countries with the highest percentages of stamps showing declines, which may be an indication of the overall strength of that country (note the USA showed only 3.1% of issues declining):

a.      Greece – 13.2%

b.      Monaco – 27.2%

c.      Japan – 23.3%

d.      Belgium – 13.2%

e.      Germany including states & colonies – 11.4%

             The overall performance of used stamps exceeded that of mint stamps (10.2% versus 7.8% as did the aggregate value of stamps in the over $25 category ($29,026,877 for used versus $19,512,244 for mint).  This reflect the fact that collecting used stamps has a much longer history than for mint ones.  However, it stands to reason that mint stamps from these early years must generally be much rarer and have many more quality issues, making mint never hinged or mint with decent gum a much more difficult find.  Hence, over time, it is likely that mint stamps will significantly outperform used ones.

One of the vulnerabilities for the catalog companies in the past has been their dependence on the integrity of the dealers providing them with price guidance for stamps that are not frequently traded.  In addition, collectors are vulnerable to changes in the listing policies of the catalogues, which can lead to serious market mis-pricing.  Two examples will illustrate this point.  The #1 issue of St. Vincent in the 1993 Scott cataloged was priced at $8,000 mint and $500 used and continued at this level until 1998.  Then in the 1999 catalog it suddenly showed no price, which continued to be the policy until 2005 when the prices suddenly appeared as $50 mint and $15 used, a whopping price decline of -93.7% and -97% respectively.  The Stanley Gibbons Catalogue or as they prefer, price list since they are also a dealer in such stamps, showed a similar change, however they reported the price drop as early as 1998.  The reason for the change was that the stamp existed with 2 perforation varieties; an 1861 clean cut or intermediate perf 14 and 16 and an 1862 rough perf 14 and 16.  I was advised by a specialist in these stamps that identification and certification of the perforations proved too difficult, so it was decided that this was a distinction without a difference and the cheaper version became the new #1.   A second example of catalogue confusion is Switzerland #195c which is assumed to be a redrawing print variety of #195 and is priced at $3,100 mint and $7,500 used.  The printing variety they are pricing, however, is something entirely different and is clearly illustrated in the Zumstein Swiss catalog.  At least two dealers have jumped on this discrepancy and offer this $.75 stamp on eBay; one for $500, and a second for a mere $2,925 with 24 month financing available, but with interest.  To top it off, both dealers were too cheap to buy the current Scott Catalogue since they show it at a previous $4,500 value versus the current $7,500.  What is discouraging is that this discrepancy has existed for over two decade and no one alerted Scott.  The lesson here is, when buying such high priced items, get them certified.       

The Internet is a great transparency guide, so I expect such occurrences will be fewer and far between.   Note, however, that dependence on auction results still leaves an opening for sham sales to drive up listed prices, a practice which is hard to detect.   

Note that I use the excellent Scott Classic Specialized Catalogues for much of my research and am astounded by the fact that this catalogue, which reports on all stamps issued from 1840 to 1940, has grown from 878 pages in 1995 to 1334 in the 2019 edition, a 52% growth for a universe of stamps that has had no new issues in 79 years!  The growth has been in mint never hinged listings, more forerunner (‘A’ prefix) listings, more covers being assigned numbers and in a larger type size for our ageing eyes.  Also, the SCADTA and China Treaty Port issues have finally been recognized.  Now if they would only recognize the Mexico provincial overprints, the Spanish civil war local issues, and telegraph stamps, life would be complete.  Who says there’s no growth left in stamp collecting!

Next month I will wrap up this analysis of stamps as investments with a summary of findings and conclusions which will cement the case for even the most die-hard sceptic.  

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