Refresher Course

Stamp investment can be successful, but comes with risk

By Rick Miller

Occasionally I receive comments from readers of this column who want me to write about investing in stamps. Until now, I have resisted because I am a collector of stamps and not an investor in stamps. There is a big difference.

The United States issued these three Graf Zeppelin airmail stamps (Scott C13-15) on April 19, 1930. In the late 1970s, a mint never-hinged set in the grade of very fine could sell for as much as $10,000. Today they have a Scott Standard Postage Stamp Catalogue value of $2,125.

A collector acquires stamps for the sheer joy they give. Purchases are made based upon the individual collector's interest in the country or subject shown on the stamp. Mounting stamps in an album or on an exhibit page is indescribably satisfying.

Those who invest in stamps may or may not experience the joy in ownership. The primary concern is whether or not a stamp is likely to appreciate in value and how long it will take for a profit to be achieved.

Can a person make money investing in stamps? Yes, but it is not for the weak of heart. The risks are great, and the knowledge requirement is very high.

To consider a stamp as an investment you have to treat it as an investment. If you were buying shares in a company, you would research the company's profit and loss statements, review their debt and consider the dividend history.

In buying stock, you have the benefit of being able to follow its valuation every day by checking the daily stock market reports. A savvy investor will time the purchase of stock so that he buys low (at the lowest price) and sells high, when the stock has maximized its potential value.

Stamp investments require every bit as much research as stock buying. In addition to learning the pricing history of the stamps in question, it is important to be able to forecast future demand. In today's world, when fewer dollars are available for nonessential purchases, that is a difficult prediction to make.

What will the world economy be like in five or 10 years when a stamp investor would likely want to cash in his investments? More to the point, how many collectors will want to compete for the stamps an investor has to sell at any given time?

Stocks, certificates of deposit and bonds are all investments that give their owners a paper receipt to prove ownership. In the case of stamps and covers, the investor owns the physical items. The stamp investor must consider not only future demand, but also current condition.

To be an investment, a stamp or cover has to be in the best grade and condition possible.

Grade is primarily a function of centering. A stamp in the grade of superb (perfectly centered) can be exponentially more valuable than an example of the same stamp in the grade of very fine (slightly off center on one or two sides but with the design well clear of the edge), while stamps below the grade of VF are usually worth exponentially less than Scott catalog value.

The primary element of a stamp's condition is whether or not it is used or unused. Unused stamps are further categorized as mint never-hinged, unused hinged, unused original gum (for 19th century stamps), and unused no gum. Again, the difference between the value of a mint never-hinged example and an unused hinged example can be huge.

Other elements of condition include crispness of color and, for used stamps, the type and appearance of the cancel. All these factors are incredibly important and can mean a difference of hundreds or thousands of dollars in the value of a stamp.

Flaws and damage are another element of condition. Flawed or damaged stamps are poor choices for investment. Flaws and damage include creases, pulled or missing perforations, thinned areas, tears, paper inclusions, faded color, natural straight edges, and a myriad of other sometimes nearly undetectable faults.

Covers are even trickier. The eye-appeal is definitely important. Creases, tears, missing envelope flaps, holes, and heavy or incomplete cancels all lower the appeal of a cover, and hence the value.

Damage to stamps affixed to a cover will detract from the value. Collectors also look for backstamps, covers sent to interesting or exotic destinations and auxiliary markings, which enhance the value. A potential investor needs to know as much as, if not more than, a collector to stand any chance of making a profit.

A stamp may look perfectly fine in an album or in a dealer's stock, but several minor flaws might appear when examined thoroughly by a trained eye. When buying expensive stamps or covers for investment purposes, it pays to seek an expert opinion from one of the respected expertizing services.

These services issue certificates giving an opinion as to whether or not the stamp or cover is genuine. The certificates also generally note flaws. There are services that issue graded certificates with both a written and numerical rating for the stamp's grade.

The cost of having a stamp or cover expertized is negligible if it can protect a stamp investor from buying stamps and covers that will later be difficult or impossible to sell at a profit.

Once stamps are acquired for an investment portfolio, they need to be kept in the same condition as when they were purchased. A decrease in condition means a loss of value. This requires proper handling using tongs and storage in archival material within a safe area (such as a safety deposit box). The stamps and covers should be kept at a uniform temperature of around 70 degrees and humidity of about 50 percent.

Collecting tastes ebb and flow. In some respects there are cycles of fad collecting, and certain stamps may make a meteoric price increase and then just as suddenly settle back into the real world.

A case in point is the set of United States Graf Zeppelin airmail stamps (Scott C13-15) shown here. These stamps have been eagerly sought by collectors since they were issued on April 19, 1930.

In the late 1970s, stamp investors, and perhaps more significantly, promoters of stamp investments, ran the prices up in excess of $10,000 for a mint never-hinged set in the grade of VF. Today the same set has a Scott Standard Postage Stamp Catalogue value of $2,125.

Why? Because there is still a more-than-adequate supply to meet potential buyers' demand. Those who purchased the stamps at their apex in the late 1970s made a poor investment if they are trying to sell in 2011. Even with the ups and downs of the stock market, that $10,000 investment in the late 1970s would be worth nearly $300,000 if it had been invested in an S&P 500 index fund.

For me, investing is work, not play. Stamps are a fun, relaxing hobby and I want to keep it that way. I can buy what I like without thinking about whether or not it is a good investment.

The crazy thing about stamp collecting is that if you buy the best stamps you can afford for your collection, keep them safely stored in albums and stock books, and take care of them properly, you will be able to sell them when it comes time to dispose of your collection. You might not make a profit, but there is residual value in the collection. Few hobbies can boast that.

The real profit you have made as a collector is the enjoyment you have received owning and working on the collection. You profited by finding relief from stress, making friends, learning about history and distant countries, even traveling to stamp shows. There is plenty of value in that, too.

You can help promote our hobby. Do you know someone who is having a milestone birthday this year? An easy-to-make unique gift would be a picture frame with one or all of the stamps issued in the year of their birth.

Give it a try and make someone smile.