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How to Buy and Sell Stamps for a Profit

By Dr. Thomas P. Singer



George Washington
1847
U.S. Scott #2



Andrew Jackson
"Black Jack"
1861
U.S. Scott #73



Penny Black
1840
Great Britain
Scott #1
People who never collect or invest in postage stamps often regard stamp collectors as pre-teen children or aged people with little else to do with their time. A superficial glance at the window of a neighborhood stamp store with its display of colorful albums, stamps with Disney characters from obscure mid-Eastern emirates, and packets of stamps with pretty pictures selling for a couple of dollars or so would confirm this impression. Yet, the safe in the back of the store may contain a "Cape triangle" or two, a few high value Columbians, a rare Civil War "cover," and some highly presentable examples of the 1869 issues of the U.S., items for serious collectors which have shown remarkable price appreciation over the past two or three decades.

In the world of philately one finds tens of thousands of sophisticated investors - engineers, businessmen, scientists, lawyers, even investment counselors. But the stamps they are interested in compare with those in the $2 packets and shoeboxes with "3 for 10 cents" in the front of the store like a vintage Rolls Royce in pristine condition compares with the beat up VW you find propped up on bricks in a depressed neighborhood. Investment quality stamps are rather special. They must be carefully selected, purchased only from reputable sources, and carefully preserved. This article is intended as a primer in the art of buying and selling stamps for profit.

INVESTMENT VERSUS SPECULATION

A plethora of articles have appeared in recent years on the performance of 'collectibles," as compared with conventional types of investments, on the relation of prices of collectibles to the state of the economy, the prevailing interest rates, to policies of the Federal Reserve. While informative and often on target, they deal with short term trends - a period of a few years, by and large. It is self evident that when interest rates soared to 20%, many so-called "investors" pulled out of the stamp market and put their funds in money market instruments, causing a drop in the prices of the type of issues these speculators had invested in. For these were speculators, not investors: buying and selling stamps for a relatively short holding period is pure speculation and, I might add, seldom pays off. True investment in collectibles must be for much longer holding periods, ideally 10 years or longer, because a long time span makes the short-term fluctuations in stamp prices caused by tight money, unemployment, political uncertainties, etc. negligible, compared with the long term trend, which is, as we'll see, appreciation. I like to compare persons who buy stamps when the market is "depressed" and sell them when they are "fully priced' with a minor league building contractor I once met, who bought houses in bad states of repair, moved his family in while he fixed them up, and then moved them out as soon as he could sell the houses at a profit with the leaky roof patched up, new carpeting, and a few other cosmetic alterations. He didn't care about the house or the neighborhood; his only motive was fast bucks. It works for awhile but all-too-often foreclosure is just around the corner.

While money has been made by speculating in stamps over the short term, even by amateurs who knew nothing about the market forces which determine the prices, the writer thinks that this is a risky business. Gambling in Las Vegas gives you about the same chance for quick profit and there may even be a good floor show thrown in as a bonus. Investment in stamps is quite another matter. Besides a long term holding period, there are several other rules which must be observed. First and foremost, one should invest in quality, not in bargains. Stamps in premium condition, particularly if both scarce and popular, are markedly resistant to recession and can be sold quickly at any time, because there is always a buyer for top quality material, while the "pretty nice copy I got very cheaply" may go begging for a buyer when the time comes to liquidate a collection. But more of this later. Second, one must have either first-hand knowledge or advice from a knowledgeable dealer or investment counselor as to the relative scarcity of the issue and the demand for it in the marketplace. This includes some knowledge as to which country's stamps are suitable for investment and which are strictly for collectors, with little prospect of major appreciation. Finally, one must learn how to keep stamps over long periods, to prevent deterioration, damage, and theft. We shall discuss all these aspects one by one.

ADVANTAGES OF INVESTMENT IN STAMPS


USA - 1930
Graf Zeppelin Passing Globe
U.S. Scott# C15

The writer has often been asked by newcomers to philatelic investment what are the advantages and risks associated with owning quality stamps compared with more conventional investment media. I usually start by pointing out that, as anyone who has followed the stock market for a number of years knows, there is no "floor" under the market price of common stocks but there is definitely one for widely collected stamps. The historic price/earnings ratio of a common stock is no harbinger of the future; it may change dramatically in a short time. The "book value" of a company's stock is even less of a rock bottom. Stocks of reputable firms with poor prospects often plunge to a fraction of the book value. The reason for this is that if the major buyers, whose activities ultimately determine the market value of stocks, decide that the future looks bleak for a given company or given industry, this may initiate a selling trend which feeds on itself and the plunge may be disastrous. In sharp contrast, if speculators decide that there is more money to be made elsewhere and sell their philatelic holdings (as they did in 1981-82), this has little influence on the price of truly rare stamps and even the more common ones will decline in price only to the point where collectors step in and decide that their long-sought stamp is now affordable. Thus, collectors provide a floor under the price of all but the most common stamps, below which the market price cannot fall. Common sense then dictates that philatelic investments should concentrate on stamps of countries with the largest collector base. This is why early U.S. stamps and selected issues of the British Commonwealth are popular with informed investors. Though the claim of our Postal Service that over 20 million people collect U.S. stamps is almost certainly an exaggeration, it is generally acknowledged that more people collect American stamps than those of any other country. Thus, theoretically they tend to be the most resistant to severe price decline. The price trends of recent years have confirmed this expectation.


Another advantage of philatelic investment is their historic price performance. Ignoring short-term trends (1 to 5 years), the rise in the price of U.S. stamps for the past 50 years has outstripped most other forms of investment, although we can always point out, with 20:20 hindsight, that buying gold or oil stocks "at the right time" and unloading them "at the right time" a few years later would have been more profitable. This is just exactly the point: carefully selected stamps, held for 10 or 15 years, may be expected to net a handsome profit, far above the rate of inflation and in a worry-free manner. This brings us to the third advantage. Most advisory services caution their subscribers that stock and bond portfolios should be frequently reviewed, for the great performers of yesterday may be the dogs of tomorrow. This creates the need to follow the market, to consult frequently with one's broker, activities which are definitely not conducive to peace of mind. The stamps you buy, in contrast, may be safely tucked away in a safety deposit box for many years, without a concern, because they will appreciate almost automatically. Some investors are, of course, also serious collectors and keep working with their stamps, enjoying looking at them, exhibiting them at stamp clubs and at philatelic exhibitions.

Fourth, stamps are a relatively liquid form of investment. Not as liquid as listed stocks and bonds, which can be sold in a matter of hours at the market price prevailing that business day, but definitely more liquid than most forms of real estate or certificates of deposit, let alone limited partnerships - the least liquid of the common forms of investment. Most stamps can be sold in a matter of a few days or few weeks to dealers at bourses and stamp shops and, for the best price, at auction within 2-3 months. Some auction houses even give an immediate advance on the estimated realization. Coins share most of these advantages. They are also less fragile, and thus easier to preserve than stamps, but they are subject to fluctuations in the price of gold and silver (except for ancient coins), a disadvantage as compared with stamps in terms of long-term stability.

Besides being a professor of biochemistry and biophysics at the University of California for over two decades where he heads a sophisticated and internationally renowned science research laboratory, Dr. Thomas Singer is well known all over the country as an expert on U.S. stamps.

He has been a frequent guest on major radio talk shows all across the western U.S. where he discusses the science of detecting defects, alterations, and forgeries of philatelic material and the economics of stamp investing. He has given a number of lectures on these popular subjects in many cities and has been the author of several articles in the daily press.

Hawaii
1865
U.S. Scott #26



St. Louis "Bears"
1846
U.S. Scott #11X4



Cape of Good Hope Pair
1853
Scott #4



USA Inverted Jenny
1918
U.S. Scott #C3a

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