Philately and Investment

Stamp collecting came about soon after the postage stamp itself. While the first postage stamp was introduced in 1840, within twenty-five years one could find for sale in London or Paris some of the earliest stamp albums, catalogues, and magazines. In recent decades, stamp collecting has garnered attention from more than just philatelic enthusiasts; stamps’ investment merits have also been recognized. As it happens, historical return data suggests stamps can indeed offer protection against inflation, reasonably strong returns, and diversification. However, transaction costs and appreciation that comes in spurts mean stamp investors must have a long time horizon.

Postal Reforms

It would be mistaken to presume that for as long as mail has been delivered, postage stamps have paid for their delivery. In fact, though postal systems can date back centuries, postage stamps are not even two hundred years old. Stamps date to 1840 when they were introduced in Britain. Up until then, the cost of postage had been paid by the recipient rather than the sender of a parcel or letter. The first modern postage stamp was the Penny Black, introduced in 1840.

It was an instant success, resolving previous inefficiencies where rates for postage, even for letters, depended on the distance travelled and the weight of the letter. This was despite the fact that the largest costs in operating a postal service were in handling and sorting, which depended little on distance travelled. Further, a recipient could simply refuse to receive a letter to avoid paying postage and then the mail would be returned back to its sender, requiring a second trip for no revenue.

When the postage stamp was introduced, it formed part of a larger program of postal reforms proposed by Rowland Hill, a Victorian social reformer. From then on, letters would be delivered within Great Britain for a fixed charge regardless of distance and this amount would be prepaid by the sender rather than collected from the recipient. From here, the concept spread to other countries very quickly. By 1850, postage stamps could be found in the United States, Brazil, Germany, Austria, and Switzerland.

Stamp Collecting

Stamp collecting did not take long to follow and by the early 1860s, it seems that stamp collecting was already a budding hobby in several countries. The first catalogues of stamps were published in France in 1861 and several were in print in Britain by 1862. Stamp albums could also be bought in Paris as early as 1862, the same year the first magazines for stamp collectors were launched in Britain.

These few years also saw a growing number of informal, open-air stamp markets formed for dealers and collectors in a number of European countries. These were commonly called bourses, perhaps foreshadowing stamp collecting’s eventual association with investment. By this point, perhaps 3,000 stamps had been issued by various countries around the world.

Interest in stamp collecting remained strong through the 20th century, when many philatelic organizations were launched. The hobby had by now been growing in popularity among the middle-classes for decades. Philately had prominent enthusiasts; King George V and the American President Franklin Roosevelt both collected stamps. Of further help, stamp collecting was increasingly supported by postal systems which, in the prior century, had largely ignored collector interest in their stamps. Things were now very different. In America, the Postmaster General James A. Farley worked with President Roosevelt to further encourage stamp collecting.

Stamp Investing

By the late 20^th century, more than 200,000 unique stamps had been catalogued and it was at this time that stamp collecting had evolved into an investment strategy as well. Stamps of particular rarity had become very valuable. A unique one-cent magenta stamp from British Guiana, dated 1856, sold at auction in 1970 for $280,000. Others became valuable as a result of errors in printing, such as an American airmail stamp with an airplane pictured upside-down.

There seems to have been some interest in stamps as an investment since the late 19^th century. However, the appeal of collecting stamps for investment purposes grew in parallel with rising interest in alternative investments more broadly in recent decades. Some investors in postage stamps want diversification, some want another source of capital growth, some prefer tangible assets, and others are drawn to stamps for a mix of these and reasons of genuine interest in the stamps themselves. It is true that compared to securities, tangible assets add extra costs for storage and insurance but these can be lower for stamps than for other alternative assets, as they are small and easy to securely store.

Returns

Stamps investments must have appreciated enough to justify attention from investors. Some performed very well indeed. The one-cent magenta stamp from British Guiana that sold for $280,000 in 1970, after changing hands several more times, sold for nearly $9.5 million in 2014. Several indices now track stamp values. The GB30 Stamp Index, created by UK-based stamp cataloguer Stanley Gibbons, tracks prices for thirty British stamps and has data going back 60 years, achieving in that time frame a 7.1% compound annual growth rate through 2016.

Creating metrics of appreciation that go back before the creation of such indexes may overstate performance though. The GB30 index may be biased because the index was only launched in 2004 and then back-filled with historical data, allowing the index’s composition to be selected to make past performance look better. Further, because rare stamps do not trade often and because stamps of the same series can differ in condition, investment performance measurements between sales are always mere estimates. Even the color of a stamp matters with those exhibiting the original color being the most sought-after specimens of a certain issue of stamps.

In any case, studies of stamp appreciation from scholars show similarly strong performance. Research by Elroy Dimson and Christophe Spaenjers pointed to long-run annual appreciation of 7.0% in the period from 1900 to 2008 or 2.9% per annum after adjusting for inflation. They found the returns on British stamps to be comparable to that of investable art.

Appreciation was strongest in the 1970s but stamps have also seen long periods of little appreciation; though they can prove worthy investments, an investor must have a long time horizon. Dimson and Spaenjers found that stamps could be a hedge against both expected and unexpected inflation. Overall, returns exceeded that on art and gold, other inflation-hedging alternative investments.

Looking at American stamps over a shorter period, that of 1969 to 2013, John E. Grable and Xuan Chen measured average annual returns of 5.5% for 19^th century American stamps and lower returns of 3.3% and 1.6% for more modern stamps and airmail stamps respectively. While their analysis led to lower calculated returns, they similarly found strong correlations between stamp returns and inflation, indeed even better correlations than that of gold. They also found low correlation against several non-stamp investments, including gold, stocks, bills, and bonds, suggesting that stamp investments do have diversification merits as well.

More recently, investors in stamps have been drawn to the philatelic assets in anticipation of growing interest from emerging markets and the new affluent. They expect stamps to move in tandem with wealth and stock prices. Today, stamp collecting and stamp investing are certainly fused. The previously mentioned stamp catalogue firm Stanley Gibbons, founded back in 1865, in the midst of the original stamp collecting boom, now offers investment products. Regardless, investors in these products must have long time horizons as it can take years of appreciation just to cover transaction costs. Buyer’s premiums and seller’s commissions paid to auction houses can sum to 20% or more of a stamp’s value.

Lesson

For decades, investors have been drawn to alternative investments, including tangible assets like art, precious metals, and even postage stamps. Those who would otherwise have little interest in stamp collecting see in stamps a worthwhile addition to their portfolios. Investors in stamps may seek diversification and strong returns. However, the historical track record shows they must also have long investment horizons as long periods of uninspiring investment performance have occurred as well. If not, they would be better off being collectors in the manner of those of the mid-19^th century, interested in stamps for aesthetic or historical reasons, than expect riches to come quickly.

More from the Tontine Coffee-House

Learn how art, though also an object of aesthetic appreciation, has become an investable asset as well. Also, read about how hundreds of thousands of investors got caught up in a stamp investing scandal. Lastly, consider subscribing to this blog’s newsletter here.