Wade Saadi was anxious before he sold his collection of rare 1869 American stamps last summer. “The fun is in putting the collection together,” he explained, and he was worried about parting with stamps he had spent four years gathering.
But Saadi, 47, who owns a computer software business and lives in New York City, was not upset after the sale. “I discovered that letting go doesn’t have to be so painful,” he said. One big reason was a six-figure profit–a return of more than 100 percent–on the transaction.
Of course, stamps are not a standard investment, nor should they be, financial advisers say. Like coins, art, gold or other hard assets, they are risky and illiquid, and stamp collectors should never assume that they will earn anything other than enjoyment from what is, after all, a hobby.
In recent years, however, the market has produced something other than fun: decent returns.
In November, for example, a rare stamp, an 1855 Yellow Treskilling from Sweden, sold for $2.3 million, a record price for a stamp. That was $1 million more than its previous sale price, in 1990. An 1854 Bermuda cover–collector parlance for a stamp still affixed to an envelope–sold in April for $373,000. In 1980, in the midst of a stamp boom, it fetched just $231,000.
But the rarest stamps are not the only ones with rising values. In the five years through November, the value of collectible U.S. stamps in general has appreciated about 14 percent annually, according to Linn’s U.S. Stamp Market Index, which tracks the prices.
During the same period, the Dow Jones industrial average has risen by an average of 16.96 percent a year, and the Standard & Poor’s 500-stock index has returned 14.34 percent, on average.
“Globally, the stamp market is also faring well, especially in Hong Kong and China,” said Robert Scott, director of the stamp department at Sotheby’s, the New York auction house.
The reasons for the steady rise include the influx of Baby Boomers into the pastime and the relative strength of the economy.
“A great many 40- to 50-year-olds who had stamp albums as kids are revisiting the hobby,” said Michael Laurence, the editor and publisher of Linn’s Stamp News, a weekly publication owned by the Scott Publishing Co., which also puts out the Scott catalogs used by collectors.
According to the U.S. Postal Service, about 20 million Americans are stamp collectors–defined as people who have saved at least one stamp. About 5 million collect up to four stamps a year. And about 550,000 are serious collectors, people who, like Saadi, carefully research stamps and slowly build collections.
The recent price upswing, driven by collectors, contrasts markedly with the boom between 1979 and 1981, when non-collectors fleeing high inflation crowded into the market.
“You had serious investor capital flowing into the stamp market, chasing a fixed amount of stamps,” said Scott R. Trepel, president of the Robert A. Siegel Auction Galleries in Manhattan. As a result, prices soared.
But in 1981, a new federal law prohibited the inclusion of stamps and other tangible collectibles in tax-deferred retirement accounts; they were thought to be too risky and too difficult to value. With that change and with a lessening of inflation, there was a market bust.
By the end of 1991, the prices of American stamps had plummeted by more than 56 percent from their 1981 highs. That collapse should serve as a warning to someone who hopes that stamp collecting can be a consistent money earner.
Still, like gold, coins and other collectibles, stamps move in different cycles than stocks and other financial assets, so, despite their risks, they can help hedge against losses in those assets.
Some people also like stamps for less savory financial reasons, including their portability: A person can put them in a pocket “and cross a border with no questions asked,” Trepel explained.
Profits from stamps are also difficult for the Internal Revenue Service to detect. “That’s why there is a great deal of anonymity in stamp collecting,” Scott of Sotheby’s said.
Financial counselors say stamp collecting should not be seen as an investment. The required knowledge is alone a huge hurdle to profit.
“Unless you know a great deal about individual stamps and have a keen interest in postal history, you’re probably going to lose money,” Saadi said. The value of any stamp can be greatly affected by details such as the size of the cancellation or the condition of the gum.
High markups are a factor, too. “People in the stock market pay a commission of 2 or 3 percent on a buy-sell transaction,” Laurence of Linn’s said. “In stamps, it can be 100 percent or more.” That’s expensive, and it means “you’ve got to hold for many, many years” to overcome the dealer charges, he said.
Add the dangers of fraud and the illiquidity of this small market, and even a risk-embracing investor may pause.
Still, given the five-year rise in stamp prices, stamp collecting can be tantalizing as a hobby. Do you have any 19th Century American stamps in that dusty old album? These days, those stamps are leading the market index to higher levels, according to the people at Linn’s.
And check your stamps closely. Bloopers can sharply increase a stamp’s price. That Swedish Treskilling, for instance, was worth $2.3 million just because it was erroneously printed in yellow rather than the issue’s standard green.
Then there is the Inverted Jenny, a 1918 American stamp in which an airplane was mistakenly printed upside down. A single specimen of that issue can go for $50,000 to $200,000. These lucrative errors are not just a thing of the past. Just last year, some 32-cent Richard Nixon stamps had the former president’s name printed upside down and his picture off-center. One sold last February at Christie’s for $16,675.
Of course, the odds for such a find are long. Rarely does someone bring in a collection containing goodies, Scott said.
But those who think that they may have valuable stamps should ask an auction house for a free appraisal, he suggested. If the collection’s value is too small for the auction house, it will often recommend a dealer.
But in taking an interest in stamps, the best approach may be Saadi’s. True, his decision 10 years ago to resume collecting led to a huge profit. But it was hardly motivated by the bottom line. He just happened to be in the post office, and he spotted some new, colorful stamps–the Postal Service’s transportation series.
“That whetted my appetite,” he said.
