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Stamps lick the competition

FEATURE: Not just a hobby, philately is a serious alternative investment bearing little correlation to other asset classes. Mark Robinson reports
August 7, 2008

One of the more unusual stores of wealth for our Royal Family is the Royal Philatelic Collection, housed at St James's Palace. Apparently the collection has become so vast and unwieldy that it has never been fully catalogued, nor has its market value ever been definitively established. The latter point derives from the rarity (and in some cases uniqueness) of many of the items.

It is reputed to be the world's most comprehensive collection of postage stamps emanating from Great Britain and the Commonwealth. It must be a nightmare for insurers and curators alike.

Her Majesty's ancestors have been busy building up the collection since the 1840s; King George V was a noted enthusiast and personally set a number of purchase records during his lifetime. To the average commoner it might seem a trifle eccentric to collect images of the disembodied heads of family members, but the Royals are nothing, if not canny with their money. (And ours, for that matter).

The Rarities index

The Royal Family will be delighted to find that prices for the GB Rarities index, which is comprised of the UK's top-30 rare stamps, has grown by a compound figure of 245 per cent over the past 10 years. This is an annual increase of 13.2 per cent.

This index is cobbled together by The Stanley Gibbons Group, Aim-traded purveyors of rare postage stamps, autographs, records and other arcane collectibles.

Interestingly, the index has moved up by 38 per cent since the onset of the present economic malaise, which underlines the generally held view that prices for rare postage stamps bear little correlation to other asset classes. This is always a significant point when building an investment portfolio. By including non-correlated asset classes, you can effectively reduce volatility; diversification can assuage the cyclical falls associated with standard asset classes, such as equities or gilts.

The rampant inflationary pressures of the 1970s provided a mixed blessing for the status of stamps as a viable investment alternative. From 1975 to the end of the decade, inflation rose by 82 per cent, but the value of rare stamps grew seven-fold over the same period. The sharp price rise came about as a result of investors scurrying to protect their capital from the ravages of high inflation and an accompanying stock market crash.

The Stamp Bubble

Unfortunately, many opportunistic dealers entered the market during this period, and many inexperienced investors were left saddled with wholly inferior or virtually unsaleable items. This, predictably, led to a slump in the investment market for stamps during the 1980s. This pattern was repeated in the markets for a number of other collectibles - the obvious lesson is that runaway inflation tends to make investors panic and, in turn, vulnerable.

Stanley Gibbons is probably the best-known name within the world of British philately; they're certainly well established, having first opened their doors to collectors 150 years ago. Their Catalogue Pricing system is recognised as the industry standard and the company published its first catalogue back in 1865, just 25 years after the release of postage stamps to the general public. All this serves to highlight the bucolic nature of the trade, in spite of the aforementioned price bubble of the late 1970s. This must be reassuring for investors in an age of securitised debt obligations. In fact, the majority of active traders are in the 50-60 age bracket and there are estimated to be around 50m collectors worldwide. This number is growing rapidly, (in line with other alternative investments), as the global economic realignment continues apace. China already has 18m collectors and there is growing interest in Brazil and Russia.

A point worth making is that only a minuscule proportion of the half-a-million or so stamps that have been issued since 1840, are considered to be of investment grade. Admittedly, some collectors do profit by trading in commemorative or limited edition sets, but new issues from the post office can often take up to 30 years to appreciate beyond face value. In order to add investment grade stamps to your retirement fund, you will probably have to part with a minimum of £1,000, but obviously it makes sense to purchase a well-balanced portfolio in order to take advantage of movements within the market.

Storage and insurance

Valuable stamps, though easily transportable, are fragile by their very nature, so you will need to arrange specialist advice as to storage and insurance - it's not advisable to shove them down the back of your sock drawer, for instance. In fact, specialist advice is an absolute prerequisite in establishing a collection, as even minor imperfections such as paper thinness or missing perforations can reduce prices by up to 90 per cent. And in some cases the sheer number of variants of a particular series can be daunting to investors, as in the case of the Penny Black. Ideally, investors need to establish relationships with not only a reputable dealer, but also an independent philatelic expert, who doesn't have a vested interest.

A call to the Philatelic Traders Society is an option. They have around 450 member dealers in the UK who are signed up to the society's code of ethics. If you decide to undertake a transaction with one of their members, you will at least have recourse to the society if there are any problems.

It pays to take advice and to obtain quotes from several dealers; they should have a good idea of what will and won't sell, whether stamps should be sold individually or as a collection, and how to accurately catalogue items. Many dealers will also be able to give you advice as to how to minimise or negate any liability arising out of capital gains tax. Don't forget, most dealers are also collectors, so they might be tempted to line their own pockets at your expense.

Any successful market relies on reliable and transparent pricing information. Potential investors need to tread carefully when considering a purchase because quoted price gains are often based on the relative worth of stamps, or even on the list price of the dealer who publishes the data. The price data isn't always as straightforward as it may seem. It makes sense to ask your dealer if their quoted prices are based solely on recent sales, or simply on estimates or list prices. That said, detailed sale price records have been compiled since 1840 and there are numerous publications aimed at the industry and collectors.

You should be able to produce reasonable estimates of sale prices if you take the time to monitor the collections that come up for auction at major houses such as Christies or Bonhams. Not only will you get a clearer idea of prices, but you will also be able to discover which stamps elicit the most fevered bid activity.

As with any market, the question of liquidity is of paramount importance. After you decide to establish a collection, it is advisable that you concentrate on stamps that have a significant number of active collectors. This will ensure there is sufficient liquidity in the market when you come to sell. In recent times, stamps dating from the Victorian era to the start of World War II are considered to have been of particular interest to collectors. Adrian Roose, a director at Stanley Gibbons, insists that, not only are rare stamps readily tradable, but the market is truly global: "Rare stamps are traded worldwide. The highest price for a British Penny Black stamp was achieved in Denmark. The world's most expensive stamp was last auctioned in Switzerland. Bill Gross, the famous US investor, sold part of his collection for $10m in New York in 2007. It's a global, and very liquid, market. Investors will be able to achieve a very similar price should they decide to sell in Sydney, Hong Kong, London or New York".

Investors can access the world of rare stamps with upwards of £5,000. More information from Stanley Gibbons on 020 7557 4454, or www.stanleygibbons.co.uk

GB Rarities Index

DescriptionConditionCat 1998Cat 2008Increase% Inc
1840 2d. blueUnused£5,500£27,000£21,500390.9%
1851 2d. violet-blueUnused£7,500£20,000£12,500166.7%
1862 9d. Bistre (Hair lines, Plate 3)Unused£6,500£20,000£13,500207.7%
1862 1s dp green (Plate No. 2 = Plate 3)Unused£12,000£25,000£13,000108.3%
1867 10d. red-brown (Plate 1)Used£13,000£40,000£27,000207.7%
1869 6d. Mauve without hyphen (plate 10)Used£13,000£28,000£15,000115.4%
1867 10d. dp red-brown (Plate 2)Unused£13,000£35,000£22,000169.2%
1867 2s. cobaltUnused£5,500£14,000£8,500154.5%
1880 2s. Brown (Plate No. 1)Unused£7,500£20,000£12,500166.7%
1878 10s. greenish grey (Plate 1)Unused£21,000£50,000£29,000138.1%
1878 £1 brown-lilic (Plate 1)Unused£26,000£80,000£54,000207.7%
1882 5s. rose (Plate 4) Unused£6,000£28,000£22,000366.7%
1883 10s. grey-green (Plate 1)Unused£25,000£110,000£85,000340.0%
1882 £1 brown-lilic (Plate 1)Unused£31,000£125,000£94,000303.2%
1882 £5 orange (Plate 1)Unused£20,000£60,000£40,000200.0%
1882 5s. rose (Plate 4) - white paperUnused£6,000£25,000£19,000316.7%
1878 10s. greenish grey (Plate 1) - white paperUnused£25,000£120,000£95,000380.0%
1882 £1 brown-lilic (Plate 1) - white paperUnused£36,000£150,000£114,000316.7%
1873 2½d. rosy mauveUnused£8,000£18,000£10,000125.0%
1s. pale green (Plate 14)Used£12,000£30,000£18,000150.0%
1876 4d. vermilion (Plate 16)Used£12,000£28,000£16,000133.3%
1884 10s. UltramarineUnused£13,000£38,000£25,000192.3%
1884 10s. cobaltUnused£15,000£55,000£40,000266.7%
1884 10s. cobalt - white paperUnused£14,000£32,000£18,000128.6%
1884 1d. brown-lilicUnused£13,000£28,000£15,000115.4%
1888 £1 brown-lilicUnused£19,000£60,000£41,000215.8%
1840 1d. black officialUsed£6,000£28,000£22,000366.7%
1902 10s. ultramarine officialUnused£15,000£85,000£70,000466.7%
1902 £1 blue-green officialUnused£12,000£55,000£43,000358.3%
1903 10d. dull purple & carmine officialUnused£5,000£28,000£23,000460.0%
Average245.2%

Source: Stanley Gibbons