When considering buying investment grade stamps, you are focusing on less than 2% of the stamp universe. Any useful advice you get from dealers or collectors is very limited and heavily biased. Talk to an auction house instead, they have a much more objective view. If you are a stamp investor, one thing you will quickly learn is you can’t really make friends with collectors or dealers. Imagine you tell a broker or stock investor that you want to buy a lot of a certain stock and have him tell you not to because you will only drive up the price! Besides that, everyone knows that stocks are a risky investment, no proof needed. That’s similar to what happens when you identify yourself as an investment buyer to a stamp dealer or philatelist.
The stamp collector thinks that you are ruining the hobby for him by driving up the high-priced items, the same items they are frequently still missing from their collections. This is because most collectors spend years building a collection for which they have already found all the cheap stamps and have spent decades searching for a cheap buy on the missing investment grade items which are always hard to find and rarely on sale. They know you, the investor, are searching for those very same items and would buy up every copy you find. They expect to lose money on the eventual sale of their collection precisely because they bought mostly cheap stamps to fill blank spaces in their albums. They get satisfaction from how few blank spaces they have left rather than the fact that the value of those blank space stamps is much more than the rest of their collection put together. Collectors take a beating when they sell because they paid retail prices for common stamps which are in abundant supply. Dealers buy such collections only when they contain enough high value items to allow them to recover their cost for the entire collection.
Dealers are equally adamant that stamps are poor investments despite the fact that they appear to be passing up sales. In reality, they are passing up few sales because the high-priced items are easier to sell than the thousands of lesser stamps. Their number one concern is being able to buy those high-priced items for which they have two sources. They can buy entire collections with those items along with thousands of cheap items which will take years to sell off. Alternatively, they hope to buy the investment grade items sold separately at stamp auctions, but here they face investment buyers and wealthy collectors who normally outbid dealers since they know they would have to pay much more to a dealer if they could even find the items without time consuming searches on the Internet or at stamp shows.
The economics of stamp investing differs from most other products in a fundamental way. Economic theory tells us that when the price of a product rises due to rising demand, the economy responds by finding ways to increase the supply. In stamps, as in most collectibles, increasing prices has little effect on supply. This is because supply is inflexible since no more such stamps can be made and because those who own them will normally do so until they die or are in economic distress. As a result, prices are constantly increasing. A unique exception to this theory was the early 1980’s when the prices of silver and gold were driven up by price manipulations which sparked huge run-ups in collectibles as well. The truth is that this was a short-term mania in which many collectors and dealers were caught up only to find out they had been duped, mostly by themselves.
Are postage stamps good investments? Ask Bill Gross, the man who did it right.
