BackA stamp of approval for this alternative asset
A stamp of approval for this alternative asset
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Looking for an investment which can potentially triple in seven years? Something which has extremely low price volatility and is uncorrelated to other asset classes? Before you exclaim that it is impossible to achieve all three, allow me to explain. The miraculous asset class which satisfies this holy trinity of investing is postage stamps. Yes, the stamps that you and I collected as children are a serious investment proposition. According to Stanley Gibbons Ltd, a UK-based leading philatelic dealer, the market for stamps has an estimated 60 million collectors spending $20 billion annually. Contrary to what you might think, it is not just about old stamps. An Indian stamp as recently printed as 1992 sold for £11,500 (approx. R8.5 lakh at the time), 11.5 times its estimated value at an auction held in the UK last June.
Stamps are an alternative asset that you should consider as part of your balanced portfolio. The remarkable risk-return profile of philatelic investment can be seen by looking at stamp price indices. These indices track the price of rare stamps and are similar to equity, bond and commodity market indices. Chart 1 shows the comparative performance of two indices designed by Stanley Gibbons—the SG100 Rare Stamp Index and the GB30 Rarities Index—against conventional asset classes. The last five years have seen the most difficult investment climate in recent history. In this period, while other asset classes have undergone turbulent phases, stamps have been quietly appreciating.
At this point, sceptics will state that past performance is no indicator of future performance. The veterans among them will emphasize this point by taking the example of the bubble and subsequent crash in the postage stamp investment market in the late 1970s. This is a valid criticism, and, as with other investments, there are no guaranteed returns. However, the market currently does not seem to be in the grip of unbounded euphoria. Moreover, there are three main reasons that make it likely that an investment in stamps will pay off in future.
The third advantage for the market is the rise of Graphics by Naveen Kumar Saini/Mint the so-called BRIC nations. Ranks of the estimated 60 million stamp investors are surging rapidly as newly wealthy collectors from BRICS nations join their brethren in developed markets. The flow of new money is likely to raise prices as it has done in other alternative asset classes such as wine. The astronomical prices paid for Indian stamps recently underscore this point.
Given the track record and prospects of philatelic investment, it is hard not to be excited about the potential of postage stamps as a genuine alternative asset class. Successful investing requires the usual twin ingredients—time and effort.
A good starting point is subscribing to and reading philatelic journals to gain knowledge on the subject. Before spending any money, it is important to know what you want your collection to look like. A welldefined set of investment-grade stamps can prove to be more valuable than a general collection.
On the other hand, a collection encompassing different countries and ages can provide the benefits of a lower risk diversified portfolio. Even though individual investment grade stamps are as cheap as £50 (around R4,300), building a portfolio requires a higher investment. For example, Stanley Gibbons requires a minimum investment of £1,000 to start a portfolio.
Initial acquisition of stamps for your collection can be done through dealers and at auctions. Over time, as you build contacts in the philatelic world, you can also exchange and buy directly from other collectors. Given the fragility of stamps, care has to be taken to prevent damage that leads to substantial value impairment. Therefore, storage and insurance are as important as acquisition in philatelic investment, and are usually offered by large dealers at minimal charge.
As you set about investing, two aspects of stamp collecting should be kept in mind—one, value lies in the eyes of the collector, and, two, returns from investment accrue over the long term. In an illiquid market, value is determined by what the other person is willing to pay for a stamp. That in turn depends upon how important the stamp is to the person’s collection. As an example, Bill Gross exchanged a $3 million set of stamps for a single stamp to complete his collection. This quality also makes stamp investment indices and catalogue values only rough guides to valuation. The serious investor should pursue the ‘‘start it, add to it, preserve it" strategy for long-term investment success. This is one asset that does not require poring over spreadsheets and worrying about frequent valuations. It is time you rediscovered the boyhood joy of stamp collecting. I
Shashank Khare is a London-based investment professional, learning from the capital markets what they didn’t teach him at IIM, Ahmedabad. Respond to this column at Indulge@livemint.com
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