Philatelic investment

Philatelic investment, the investment of funds in collectible postage stamps for the purpose of realizing capital gains, is a relatively recent phenomena. Stamp collecting has long had the reputation of being an unprofitable hobby for most beginning collectors; nevertheless, investing in stamps is growing in popularity among more advanced collectors. Rare stamps are among the most portable of tangible investments, and are easy to store. They offer an attractive alternative to art, other collectible investments, and precious metals. In addition, for those wary of investing in single-country mutual funds or individual stocks of developing nations, stamps may provide the advanced collector/investor with a means of profiting from their economic growth.

For those interested in investing in stamps (or in any collectible, for that matter), the acquisition of knowledge is the most essential and most valuable investment. Since this endeavor requires a significant outlay in terms of time, although not necessarily money, the prospective philatelic investor is at an advantage if he actually collects stamps, or is a former stamp collector. A stamp investor should have substantial knowledge of classification, condition grading, authentication, handling and storage, stamp dealers, clubs, auctions (including online auctions, such as ebay ), and shows, the stamp market, as well as a general knowledge of worldwide stamps and a deeper knowledge of his chosen areas of specialization, among a host of other things too numerous to list. In other words, he should have many years of previous experience as a stamp collector or dealer behind him before embarking on a program of investing in stamps. Philatelic investment is not a game for dilettantes.

Like all commodities, the value of a stamp is determined by supply and demand. The factors which determine a particular stamp's supply are the stamp's printing quantity and the quantity of stamps destroyed. Since many collectors prefer to collect unused and undamaged stamps, the quantity used and the quantity damaged also affect supply. Printing quantities of stamps are not always known, although some stamp catalogues list printing quantities, when they are known. Quantities used, damaged, or destroyed over time are never known. Generally, the printing quantity, if known, is the only reliable information one has. For this reason, a low printing quantity for a stamp can be an attractive feature for the investor to consider.

Demand for a stamp depends largely on the following factors: the stamp's country (or area) of issuance, topical or thematic appeal, and collectors' or investors' perceptions as to its current or future value. These factors are summarized as follows:

• Country (or area )of issuance- most stamp collectors within any given country collect their country's stamps; for instance, most American collectors collect U.S, most Swiss collectors collect Switzerland, etc. Some collectors collect areas (such as the Netherlands and Colonies, or British Asia) or regions (such as Latin America).

• Topical appeal - many stamp collectors focus on stamps which picture particular popular topics, such as Sports, Nature, Art, Religion, Space Exploration, etc.

• Perceptions of value - these influence demand for stamps in the same way that perceptions influence demand in the stock market. Increasingly, the perceptions of collectors/investors as to a stamp's future value play a part, as well.

Given all of this information, how does the investor make a judgment as to whether to focus on a particular stamp? The main questions that the investor should ask are:

• Which countries or collecting areas will experience an increase in demand over the long term? and
• Within these collecting areas and given the available knowledge concerning supply (printing quantities), which stamps are undervalued, and should be targeted for investment?

Two types of trends of increasing demand are relevant to philatelic investing: country/regional trends, and topical demand trends.

Country/regional trends are largely dependent upon economic development. Historically, stamps of countries which have experienced long-term economic growth and an expansion of their middle classes have risen in value accordingly.

To an extent, however, cultural factors come into play: for various reasons, certain countries have higher proportions of their populations which collect stamps than other countries, although the stamp collecting proportion of a country's population is often very difficult to measure, due to widely varying degrees of dedication to the hobby. Is anyone who ever saves a single stamp a stamp collector? If so, then there are probably about 5 million stamp collectors in the U.S.. If, however, one wishes to account for only "serious" stamp collectors (those spending $150 or more per year on their hobby), there may be only about 200,000. In terms of proportion of the population, this compares unfavorably with most European countries, notably Germany, in which there are probably 1 - 2 million serious collectors, and perhaps 8 - 10 million "unserious" collectors.

Since cultural factors are difficult to gauge or project, the focus should be upon a country's prospects for economic development. A few lessons from history will be instructive:

• Following their defeat in World War II, the economies of both Germany and Japan were in a shambles. Most Germans and Japanese were very poor; consequently, very few could afford to spend money which they needed to survive on collecting stamps, and most of the unused stamps collected from these countries during the postwar period were sold to collectors in other countries and American GIs. As their economies grew, German and Japanese collectors

bought back their own stamps, and prices for these early postwar stamps rose dramatically.

• Mainland China (or the People's Rep. of China)- because Maoists despised stamp collectors as reactionary counter-revolutionaries, stamp collecting was illegal in the P.R.C. while Mao was alive. Most stamps collected from the P.R.C. during this period were sold overseas to American and European collectors in order to

generate foreign exchange, and the printing quantities of some issues were very low (100,000 or fewer). For many years, demand for stamps of the P.R.C. was also low, however; most Chinese collectors outside of China weren't collecting them, those inside weren't allowed to, and interest among non-Chinese was minimal. P.R.C. issues were considered "wallpaper." All of this changed after Mao died, the prohibition against stamp collecting was repealed, and Mainland China became more capitalistic. Current estimates of the number of stamp collectors in China range from 10 to 50 million. As always, this is impossible to gauge, but what is clear is that many issues of the P.R.C., especially some of those issued during the Cultural Revolution period, have risen 10- to 100-fold.

• the Asian "Tigers" - certain Asian nations have experienced rapid economic growth in recent decades, along with a corresponding increase in value of their stamps. These include: South Korea, Thailand, Taiwan, and Singapore; others which are not nations but have experienced similar price appreciation in their stamps are Hong Kong and Macao.

The lesson from these examples is obvious: first, find countries which have good prospects for long-term economic growth. Once this task is accomplished, the investor's focus must narrow, in order to determine which stamps within the selected country or countries should be targeted for investment.

Unlike a normal stamp collector, who generally tries to "fill the spaces" in his album, and obtain as many different stamps of the country that he collects as he can afford, the philatelic investor desires to find those stamps within his chosen collecting area which will increase in value the most over time. He will frequently be looking for only a few different issues of a particular country, and will buy multiple copies of those issues. If the supply of these targeted stamp issues is small enough, such hoarding by the investor may very well deplete the supply sufficiently in order to accelerate price increases, even without overt price manipulations (such as advertised buy lists), by the investor.

Once the investor has selected a country or countries, he must then "hit the books"- researching printing quantities of the various stamps issued by that country, comparing these quantities issued to current catalogue and market values, possibly making guesses as to the proportion of stamps remaining in collectible condition, and assessing the topical (or other)appeal of various issues that he's analyzing.

This is a complex, arduous, but often interesting and rewarding process. An illustrative example of how such research might proceed is in order:

For various reasons, a philatelic investor might decide that Latin America (Central and South America, and the "Latin West Indies"- Cuba, Dominican Rep., Haiti) will undergo a "democratizing" trend - significantly reforming its corrupt and oligarchical political/economic systems and undergoing accelerated economic development in the coming decades.

He knows that the population base of Latin American stamp collectors are largely derived from two groups - single country and Latin American region collectors within Latin America, and Latin American emigres, most of whom are in the U.S.. Hence, the population bases and economic fortunes of individual countries within the group, while significant, are not of overriding concern.

He focuses on Venezuela, a nation of about 20 million people, immense wealth from oil and other natural resources, and an affluent, educated elite class pretty much riding atop the other 95% of the population. A political and economic situation which is currently problematic, to say the least, but which probably can't get much worse, and which he believes will be more or less resolved for the better in the coming decades.

Thumbing through a Michel South America Catalogue (Michel is a German catalogue firm which produces fine stamp catalogues which frequently list printing quantities for stamps), the investor comes up with a list of Venezuelan issues which have what he believes are low printing quantities in relation to their current catalogue values- in other words, undervalued stamps.

Among others on the list, he finds the following:

• Venezuela 1944 World Amateur Baseball Championship Games,

Airmail Set (Scott # C189-97) - Printing: 10,000

(Note: since the writer of this article has only a 10-year-old Scott Catalogue on hand, the catalogue value of this set is quoted as $ 49)

He concludes that this set is probably grossly undervalued, given its very low printing, low catalogue value, projected number of future collectors of Venezuela and Latin America, and the growing popularity of Baseball topicals. He decides to aggressively buy as many of these sets that he can find at a reasonable price. If he manages to accumulate several hundred sets, which is extremely unlikely, he may attempt to overtly stimulate demand by advertising to buy them.

During his research and analysis, the investor may find 10 or 20 Venezuelan issues that he wishes to target in this manner, as well as a number of issues from other Latin American countries. Each country and issue has its own "story," its own set of relevant data, and its own prospects. Will certain Cuban stamp issues appreciate rapidly in value after Castro dies and Havana embraces decadent and hedonistic capitalism again? As soccer becomes more popular worldwide, will a Costa Rican Soccer topical set with a miniscule printing shoot up in value? Such questions are the domain of the philatelic investor, a once rare but increasingly prolific breed of stamp collector.

.................... Appendix A

Summary of Author's Analyses/Views of Investment Potential of Various Countries/Areas and Topicals

• U.S. and Possessions:
  • U.S.- for decades, stamp collecting has gradually declined in the U.S., due, in part, to declining educational standards, TV, and the rise of alternative collectibles and pastimes; better U.S. stamps had a boom period in the 1970s, when double-digit inflation made many collectibles hot; there was a "bust" in

1980, when Congress made it more difficult to put IRA money into stamps; despite indications of declining numbers of "serious" collectors (falling subscription rates to the major philatelic publications), prices for better U.S. have gradually risen since the "bust" period; I believe that the downward trend inthe number of U.S. collectors will bottom out and reverse; the Postal Service spends billions to promote stamp collecting, and have gotten wise to the fact that popular stamp subjects, such as Elvis and Marilyn Monroe, attract attention, although certain inept USPS policies have demonstrated a tendency to "shoot themselves in the foot" as far as collectors are concerned; Ebay (and the Internet as a whole) have revolutionized the collectibles market, stimulating new interest in stamps; as far as which U.S. areas I'd recommend, the following are worthy of consideration:

• • • Regular Issues/Commemoratives through 1920: most should enjoy a steady, unspectacular, rise
    • '20s through '40s- the low premium and non-premium stuff is still v. common, although it might pay to dig through dealer's stocks and discreetly pick out exceptional, Superb, wide-margined singles from this period; eventually, enough of the non-premium will get used up as postage (though this might take a century or two!), and what is now considered junk will rise
    • Airmails/Back-of-Book- Airmails, especially the Zepps, are overvalued (although the Zepps are subject to speculative spikes, now and then), in my opinion; Back-of-Book isn't, and certain collecting areas, such as revenues, are increasing in popularity;
    • Possessions/Offices- I like these; printing quantities on many Canal Zone, U.S. in Cuba, Guam,Hawaii,U.S.-Philippines,some Ryukyus (esp. the Provisionals- get certs.!), and Offices in China are low; Canal Zone and U.S.-Cuba will benefit from a rising L. American market, and the Pacific-Far East market will benefit the others

• Canada/British North America- dependent largely on the economy up there; I like the other BNA better than Canada (lower pr. quantities on much of the other BNA)

• Latin America- quite a bit of better material, before around 1960, is grossly undervalued; many issues have printings of 50,000 or less (in some cases 5,000 or less), including popular topicals; well worth study; sooner or later, the political and economic problems of this region will be fixed, the middle class will grow; also, Hispanic Americans are the fastest growing ethnic group in the U.S., and they're richer than their relatives down South

• Europe and Possessions-
  • Great Britain and Commonwealth- GB's earlier better material should continue to have a steady rise; as far as Commonwealth is concerned, it falls under regional markets (Hong Kong under Asia/Far East, for instance);
  • Western Europe- should ultimately benefit from EU reforms; most better issues should rise steadily, though not spectactularly; I like many of the possessions/offices better; some have v. low printing quantities, and benefit from dual markets, both in the home country and in their geographical regions; of all of the W. European countries, I think Spain and Portugal have the most

potential- Spain has a strong cultural rapport with Spanish-speaking people all over the world, and many of its issues through 1940 have modest printings; ditto re: Portugal, which has strong ties to Brazil;

• • Eastern Europe, incl. Russia- intriguing, and worth investigation; much of the former Eastern bloc better issues have low printings, and their economies are growing rapidly now that the chains are off;

• Asia-
  • the Far East-
    • China/Taiwan/Hong Kong/Macao- after a spectacular 10-15 yrs.,the market for better material has dampened recently; I view this as a probable temporary phenomenon, assuming the PRC keeps up its rapid econ. growth and doesn't face some grave crisis over the next 20 yrs. (such as revolution, fragmentation, or

a crippling HIV infection rate)

• • • the other Asian Tigers- pretty much the same story
    • Japan- depends upon how long it takes to recover from the economic constipation that's afflicted it for over a decade; also, with the exception of the Japanese overseas offices and WWII occupations, printing quantities are not attractively low
    • Indonesia/Malaysia/Philippines- worthy of investigation; potential political/military problems, however

• • India- overlooked, and with many better Raj period issues grossly undervalued; unfortunately, printing quantities for many issues are not known; if India can reform its cumbersome and corrupt bureaucracy, and avoid major disruption from ethnic/religious/caste hatred and HIV, it has vast potential- booming tech., agricultural sectors, well-educated, growing middle class, and, of course, Bollywood

• • the Middle East-
    • Turkey- attractive, as long as it holds together politically; many undervalued issues, and the country will benefit from trade w/Europe and the U.S., and its rapport with Turkic former Soviet Republics
    • Saudi Arabia/the Gulf States- these have seen their stamps rise over the last twenty yrs., prob. due to a funneling of a tiny portion of their oil wealth into their stamps; there's been some dampening of this recently; alot depends upon oil prices, whether these states can hold together politically, and whether they can come up with alternative sources of economic expansion
    • Iran- interesting; many overlooked issues, and very unpopular now among most collectors; if it reforms and Westernizes, it could boom; if the mullahs retain their power, it won't;
    • Israel -if the Israel/Palestinian/Arab conflict is ever resolved, I think that the better early tabs of Israel (and better stamps ofthe British Palestine Mandate period) will do well; the country currently spends 50-60% of its GNP on the military; nevertheless, it has a booming tech sector, lots of stamp collectors (incl. Jewish collectors overseas), and would benefit enormously from peace, if it comes;
    • Egypt- interesting, if it can manage to muddle through the next decade of economic/political/social crises

• Independent Africa/former European colonies in Africa - interesting, though problematic; each case must be examined individually, but not by me right now

• Oceania- I like Australia, and especially like the former Australian States; the country is resource- and land-rich, with a well-educated, hard-working population, and growing number of stamp collectors; many of the former Aussie states' stamps had low printing quantities, and are historically interesting as well (quite a few of them were primitively printed by convicts!)

• Topicals and Collecting Areas for which the Author is Bullish:

• • Topicals-
    • Sports
    • Space Exploration
    • Black Heritage
    • Columbus
    • Art
    • Stamps on stamps
    • Nature

• • Collecting Areas-
    • Back-of-Book
    • Worldwide Revenues
    • Cinderellas

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Appendix B

• Some Notes Regarding the Vagaries of Condition and Supply

• • Postally Used Stamps

While it is true that, worldwide, most collectors prefer unused stamps, many will also collect used, and some collect used stamps exclusively. Generally, unused stamps of an issue are worth more than the used stamps, and often, considerably more. There are some major exceptions to this rule, however: in some cases, legitimate and contemporary postally used stamps are rarer and more valuable than the same stamps used. Many stamps issued by Germany during its infamous inflation period are worth far more used, because they could only be used for a short time, after which they became virtually worthless, due to runaway inflation.

Usage rates vary widely from stamp to stamp, and, of course, some stamps purchased by collectors from the post office may be saved for a few years, and then used. Generally, unless a stamp is heavily speculated upon or popularly collected when it is issued, I would estimate that at least 98% will ultimately be used. I differ with the U.S.P.S. on this question; the Postal Service once estimated that 15% of the stamps issued by them are collected, but I disagree beccause I believe that most of those collected for a brief period after issue will eventually be used.

• • Concerning Supply

In many cases, inexpensive stamps increase in value at a greater rate than expensive stamps of the same issue, over time. This paradoxical fact flies in the face of conventional thinking regarding investing in collectibles: that one should try to buy the rarest and most valuable items and hold onto them. There is a logic to such a trend, however: if a stamp is valuable, great care will be taken in handling and storing it, and if it is very valuable, there won't be many collectors who can afford it. If a stamp is inexpensive, however, more will be damaged or destroyed over time, and the high rate of attrition of supply coupled with its affordability to most collectors will contribute to a faster growth in value.