Only the Strongest Assets Survive Today’s Markets

Geoff Anandappa (December 5, 2012)

The bidding in the auction room stood at two million Hong Kong dollars – and all eyes were on me.

Ceiling fans offered some respite from the stifling heat outside, but the room still seemed unbearably hot. Some 40 or 50 collectors and dealers, many of whom had made the trip from mainland China, jostled for elbow-room. A bank of auction assistants manned telephones and laptops, processing bids from around the world.

It was one of the Chinese dealers who was currently the highest bidder. I had noticed him earlier. He had already beaten me to a couple of lots that I had earmarked. But not this time…

I nodded to the auctioneer. “2.1 million,” he announced and a murmur ran through the room. My rival shifted uncomfortably in his seat. This was already a record price, and more than he wanted to pay.

“2.1 million Hong Kong dollars,” the auctioneer announced again, looking at the dealer. He shook his head. The auctioneer scanned the room for other bidders, but there were none. The hammer came down to a round of applause, and cameras flashed. A couple of collectors came up to shake my hand.

I had just paid around US$325,000 – for a stamp…

Now, I think my boss was a little worried when he learned that I had spent $325,000 on one stamp … but what he didn’t know was that I had a buyer for the stamp almost as soon as the auction ended.

The client I had in mind had contacted me at our Hong Kong office about six months before. He was a professional in his mid-40s, with a successful business and a young family. He already had a significant investment portfolio, which included equities, gold and property in the Caribbean. Now he wanted my help to put together a portfolio of rare stamps, specifically as a 15- to 20-year investment for his children.

Together, we had already selected $3 million in British stamps, which would form the basis of his rare stamp portfolio. But he also wanted one or two key rarities which would have enduring appeal worldwide.

13.7% For the Past Decade

Of course, most of my clients are not in the market for a $325,000 stamp. Many of them have young families and are looking to invest for their children’s future; or they may be approaching retirement and wish to protect their pension. And I recognise that most investors don’t have the time or the expert knowledge required to trawl through auction catalogues and dealers’ price lists. But to make this easy, Stanley Gibbons has created an index of 250 British stamps priced from $15,000 – the GB250 Rare Stamp Index – which investors can use to assess the rare stamp market.

Since 1865, Stanley Gibbons has published its selling price for every stamp in the world, so it is possible to track the price of many stamps for over 100 years.

Analysis of the GB250 Index shows that investment-grade British stamps have increased in value by an average of 13.7% each year for the past decade. I must emphasise here that this only applies to rare stamps. Stanley Gibbons has around three million stamps available for sale to collectors in our shop in London, but almost all of these are not scarce. Only a tiny proportion – some 200-300 at any one time – fit our criteria for investment-grade stamps.

The GB250 Index also illustrates that rare stamps have outperformed traditional investments such as equities, property and even gold. But it’s not just about the solid returns: rare stamps are clearly less volatile than these asset classes.

Stamps’ Decade-Long Rise

The Stanley Gibbons GB250 Rare Stamp Index vs. Equities, Property & Gold (1995-2012)

See larger image

Why are rare-stamp prices so stable? Well, the vast majority of these stamps belong to collectors, not investors. A collector might have to wait five or 10 years before he finds the right stamp – and when he gets it, he will probably hold on to it for 20, 30, 40 years. Collectors don’t rush to sell their stamps at the first sign of a downturn in the stock markets or unstable currencies. If anything, they hold on to their precious collections even more.

One final point about the stability – and this is important – rare stamps did not fall in value during the 2008-09 economic crisis. In fact, the Index went up 18% between 2008 and 2010. This clearly demonstrates that rare stamps are uncorrelated with mainstream asset classes.

So, the GB250 Index demonstrates that, compared with most other investments, rare stamps

• are more stable and less volatile…

• show historic returns of 10%-15% per year over the medium- to long-term…

• and are uncorrelated with most mainstream asset classes.

Rare stamps also compare very favourably with other alternative investments such as wine, modern art and historic U.S. gold coins. Of course, some of these asset classes have recently shown spectacular growth. I experienced this first hand in Hong Kong, which has seen a surge in demand for Bordeaux wines and Chinese art over the past decade.

But the amount of investors buying into wine, modern art and U.S. coins makes them increasingly volatile and subject to investor sentiment. This has resulted in many of these alternative investments falling in value, particularly during the 2008-09 crisis.

Many people believe that “diversifying your investments” is like putting money away in your pants pockets: some in your left pocket, some in your right pocket – and some in your back pocket, just to be really safe…

To good investing,

Geoff Anandappa

P.S. It’s easy to get started as a stamp collector with a $25,000 investment. This will buy a nice portfolio of 4-5 collector grade stamps. Once Geoff understands your investing goals, he’ll put together a strategy that’s just right for you. Email him at ganandappa@stanleygibbons.com or call 011-44-207-557-4442.

Only the Strongest Assets Survive Today’s Markets

13.7% For the Past Decade

Stamps’ Decade-Long Rise

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