Stamps were once a childhood hobby, but do they make sense as an alternative investment?
I am a proud member of the baby boomer generation, now entering our 50s and 60s. In our youth a major passion was collecting, and most of us possessed a stamp album. Sadly daytime TV, computer games and Nike trainers mean that very few school boys now dream of finding a mint block of 1840 Two Penny Blues in Grandma's attic.
However, philately, the study of stamps, has never lost its magic for dedicated collectors. And increasingly many of them are investing part of their pension pots and portfolios in stamps. I reckon stamps are an alternative investment worthy of attention. They can diversify a portfolio, hedge against inflation and protect you from stock market falls.
The investment case
The past ten years or so has been unkind to the equity investor, providing one of those rare decades where returns have been negligible for most investors and disastrous for those who ventured heavily into tech stocks in 1999, saw the error of their ways and bought into the 'safety' of UK banks in 2007.
Just imagine finding an index where in one year the best performer rose 93.5% and the worst performer rose 8.6%. And to achieve that in an economic 'perfect storm'. You've probably guessed already but that was stamps in 2008, and the index was the Stanley Gibbons' SG GB30, which rose 39% in 2008.
The investment case for stamps is also supported by demographics and global economic development. Estimates of the number of serious collectors worldwide vary but it is probably in the region of 50 million according to the experts. And the average age is between 50 to 60, the grown up schoolboys of my first paragraph who are now one of the most attractive demographic market segments.
In addition, as less developed countries emerge the stamp collecting bug seems as infectious as art and wine. Already there are 18 million Chinese collectors.
I like to see some good, solid, long-term facts to support any investment strategy though. Recent research (August) by Elroy Dimson (London Business School) and Cristophe Spaenjens (Tilburg University) constructed a whole load of buy and hold portfolios going back to 1900 and using catalogue prices. Their conclusion? That over 109 years stamps provided an annual return of 6.7% nominal and 2.7% real. Less than equities but more than bonds. They also found that decreases in nominal prices occur infrequently.
Well, I can't go back as far as 1900 but I have done some research for you and in the table below I show the annual return of stamps (from the Dimson/Spaenjens study), shares, gilts and savings accounts. All data except stamps is from the Barclay Equity Gilt Study. The data for shares and gilts include reinvested dividends and interest.
| Year | Shares | Gilts | Cash | Stamps | Inflation |
|---|
| 1972 | 16.4 | -3.8 | 8.2 | 2.7 | 7.7 |
| 1973 | -28.1 | -8.9 | 9.7 | 18.1 | 10.6 |
| 1974 | -50.1 | -15.2 | 11.1 | 18.5 | 19.1 |
| 1975 | 149.3 | 36.8 | 11.0 | 32.8 | 24.9 |
| 1976 | 2.3 | 13.7 | 10.7 | 81.6 | 15.1 |
| 1977 | 48.6 | 44.8 | 10.7 | 34.2 | 12.1 |
| 1978 | 8.6 | 1.8 | 9.4 | 27.0 | 8.4 |
| 1979 | 11.5 | 4.1 | 12.2 | 84.7 | 17.2 |
| 1980 | 34.8 | 20.9 | 15.0 | 23.5 | 15.1 |
| 1981 | 13.6 | 1.8 | 12.9 | -2.2 | 12.0 |
| 1982 | 28.5 | 51.3 | 12.2 | -10.4 | 5.4 |
| 1983 | 28.8 | 15.9 | 9.6 | -0.2 | 5.3 |
| 1984 | 31.6 | 6.8 | 10.0 | 0.1 | 4.6 |
| 1985 | 20.2 | 11.0 | 10.8 | 0.2 | 5.7 |
| 1986 | 27.3 | 11.0 | 10.6 | 0.5 | 3.7 |
| 1987 | 8.7 | 16.3 | 9.7 | 4.7 | 3.7 |
| 1988 | 11.5 | 9.4 | 8.3 | 1.0 | 6.8 |
| 1989 | 35.5 | 5.9 | 10.7 | 1.7 | 7.7 |
| 1990 | -9.6 | 5.6 | 12.4 | 0.2 | 9.3 |
| 1991 | 20.8 | 18.9 | 9.3 | 0.3 | 4.5 |
| 1992 | 19.8 | 18.4 | 9.6 | -1.1 | 2.6 |
| 1993 | 27.5 | 28.8 | 4.1 | 0.1 | 1.9 |
| 1994 | -5.9 | -11.3 | 3.7 | 0.4 | 2.9 |
| 1995 | 23.0 | 19.0 | 3.9 | 5.4 | 3.2 |
| 1996 | 15.9 | 7.7 | 2.6 | 3.0 | 2.5 |
| 1997 | 23.6 | 19.4 | 3.1 | 0.0 | 3.6 |
| 1998 | 13.7 | 25 | 7.1 | 6.0 | 2.8 |
| 1999 | 23.8 | -3.5 | 5.1 | 5.3 | 1.8 |
| 2000 | -5.9 | 9.2 | 5.5 | 12.8 | 2.9 |
| 2001 | -13.2 | 1.3 | 4.7 | 3.5 | 0.7 |
| 2002 | -22.3 | 9.8 | 3.4 | 9.3 | 2.9 |
| 2003 | 20.2 | 1.6 | 3.3 | 13.8 | 2.8 |
| 2004 | 12.5 | 7.2 | 4.2 | 21.3 | 3.5 |
| 2005 | 21.6 | 8.4 | 4.0 | 10.9 | 2.2 |
| 2006 | 16.4 | -0.1 | 4.4 | 11.3 | 4.4 |
| 2007 | 5.1 | 5.2 | 4.8 | 9.7 | 4.0 |
| 2008 | -29.8 | 12.9 | 0.9 | 38.8 | 1.0 |
So stamps are by no means the perfect investment; they enjoyed a robust 1970s, a dismal 1980s, a mediocre 1990s and a cracking few years in the noughties. But they protected you from stock market and inflation disaster in the 70s. When inflation briefly soared in 1979 and 1980 stamps excelled, and in the stock market carnage since 2000, stamps again proved their worth.
Whether you include them in your portfolio depends on if you can tolerate the inevitable low-growth years for protection when its most needed. And remember one important stock market lesson: you are destroyed by large declines in value at key moments of your investing career. Stamps have never slumped as much as stock markets.
To be fair, I have quoted independent academic research. The investment folks at Stanley Gibbons reckon their "GB Rarities Index" has averaged 9.9% pa growth and never had a down year.
The case against
The table above ignores transaction costs. While these can now be minimal for shares, This is not the case for stamps. You can buy stamps at catalogue price from Stanley Gibbons' catalogue, however if you want to sell them back they will pay only 75% of catalogue price. Auction costs are usually about 20%, with the purchaser paying a buyers' premium of 10% and the selling paying 10% commission. However there may also be custody and insurance costs to pay.
How to gain exposure
I believe that most investors would benefit from some exposure to alternative assets. Possibly as much as 10% to 15% of a long-term growth portfolio. Usually I like to provide a variety of investment choices, some of which may be suitable for the smaller investor.
However, in the case of stamp exposure for the UK investor, the only institutional option would appear to be the various offerings from Stanley Gibbons (LSE: SGI). This is not necessarily a bad thing as they are the oldest and most reputable dealer in the world. Nevertheless, one option is not a choice -- and I believe choice is fundamental to investment.
Minimum investment for the Stanley Gibbons range of plans is £5,000 and at least one offers a "guarantee" over five years of a minimum 15% return with unlimited upside depending on stamp appreciation.
Now where did I hide that unused Penny Black, with original gum, that Granny gave me for my fifth birthday...
More alterative investments:
