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Investing in stamps
Category :- Investments

Author :- Steven Haddock 
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Posted on April 19, 2014, 1:33 am
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INTRODUCTION

 

If you've been told stamps might be a good investment, or you're thinking it yourself, the best advice I can give you is that they are not a good investment, at least for those who are not familiar with the hobby. While you may have heard stories about tremendous upswings in the values of some stamps, most stamps do not appreciate in value over long periods of time. To understand why, you have to understand why most stamps don't appreciate, and why certain stamps do.

 

PRIMARY MARKET v. SECONDARY MARKET

 

The first thing you have to understand about the stamp market is that it is split right down the middle; those who make a lot of money producing stamps and covers (stamps on envelopes), and those who eke out a living selling stamps that they purchase from primary producers, collectors and other dealers. The first group comprises governments, philatelic agents (who produce stamps on behalf of governments) and collectible producers (who, for example make artistic first day covers). They sell directly to dealers and collectors. As it only costs a fraction of a cent to print and distribute a stamp, the markup is very high. For a typical 46 cent Canadian stamp, the gross markup is about 45 cents.

The reason why the Canadian government don't make a huge amount of money selling stamps is that, of course, for the 46 cents they have to promise to deliver a letter, first-class, anywhere in the country (and Canada is very large!). However, for every sale to a collector (or dealer), the post-office is making almost pure profit.

If all post offices sold their stamp production entirely for postage, there wouldn't be a problem buying mint new issue stamps for investment purposes. Indeed, that is why early unused stamps are so expensive. However, there are now over 160 postage issuing entities in the world, and the majority of them deliver very little mail. Although all governments make money by selling to the philatelic community, generally speaking, the smaller the country, the more of its stamp production goes to collectors rather than for postage.

However, once a government sells a stamp, it generally won't buy it back (with the exception of some countries, notably Great Britain). That leave two things you can do with it: use it for postage (if you can) or sell it to an interested collector or dealer. Therefore the primary market (government to collector/dealer) is just one way, and works (generally) at a fixed price. The secondary market (dealer/collector to dealer/collector) is based on the general laws of supply and demand. What many people fail to realize is that the price in the primary market is often unrelated to the price you can get in the secondary market, for example:

- United States mint postage generally sells in quantity at 20-30% BELOW its face value.

- United Nations mint postage sells in quantity at a discount of up to 50% of its face value.

- Most governments destroy their excess stocks of stamps after a 6-12 month sales period. However, every once in a while, unscrupulous agents will release mint stamps into the philatelic market when it will be unlikely that they will be used for postage. Stamps you purchased at face value may go to wholesalers at a small percentage of their face value.

- First day covers that sold for a big premium over the value of the stamp now sell for less than the value of the stamp.

- Stamps, unlike most commodities, are tremendously sensitive to inflation. For example, the face value of most Polish stamps from before 1990 works out to a fraction of a cent each.

 

WHOLESALE v. RETAIL

 

Collectors generally buy at retail and sell at wholesale. Dealers generally buy at wholesale and sell at retail. That's why most dealers make money and most collectors don't. Although dealer to collector markups aren't as egregious as the markup on stamps from your post office, they can be quite substantial. Generally, the markups on lower priced stamps are higher than they are on more expensive stamps. A collector building a collection of stamps priced at 10 cents each may be lucky to get an average of 1 cent each when he sells, even if he managed to pick up a few bargains over the years.

However, even on "investment quality" stamps, you're generally paying a hefty markup from the dealer. Would you buy a front loaded mutual fund with a 20% sales commission? That would be a lousy investment, and that's exactly what you're doing when you're buying a good stamp from a dealer. It would be like buying a used car planning on selling it 25 years from now as a classic. While you shouldn't begrudge the dealer his profit if you're a collector, you shouldn't pay such a hefty fee for an investment.

Buying and selling at auction is one way to keep closer to the wholesale price. However, this method too is fraught with dangers. Even a 10% commission can easily wipe out any profit you might make by selling your stamps.

 

CONDITION & QUALITY

 

The three rules of stamp valuation are condition, condition and condition. For classic stamps, condition can make a difference of ten times or more, even for seemingly minor differences in quality. Those stamps that get the big prices are absolutely "superb", without any defects at all. Prices deflate rapidly after that. A stamp that looks "pretty good" might not even be worth a quarter of what it might say in the catalogue. The highest demand is for stamps at the high end, and those, of course, are the most expensive to acquire. However, if demand for an area drops, those stamps are the most likely to plunge. For example, at the height of the stamp market in the early 1980's, the U.S. stamps issued for the flight of the Graf Zeppelin sold in superb condition for up to $15,000 U.S. However, if you wanted to pick up the same stamps today, you could probably do it for a mere $2,500. Bre-X stock is the only worse investment I can think of off the top of my head.

 

SUPPLY & DEMAND

 

Frankly, it's not hard to find stamps that are printed in low quantities. Your local dealer, and maybe even your local post office, has stamps that are printed in quantities of lower than 100,000, or even lower than 10,000. However, there are literally hundreds of stamps out there that were printed in low quantities (often for legitimate postal purposes) that aren't too expensive.

For stamp prices, demand for a particular area is often a lot more important than scarcity (although there are some scarce stamps that are very expensive!). The world's first stamp, the Penny Black, is actually very common (there are millions of copies floating around), but even a bad copy will set you back $25.00 because so many collectors want all the various varieties of a Penny Black (there are 240 to a sheet that can all be identified by the letters in the corners). Conversely, postal stationary (postcards) from Cuba during the early period of U.S. influence is very rare (about 2000 of each), but you can pick one up, if you can find them, for less than $100.

Many countries issued stamps for the 400th anniversary of Columbus (1492-1892). However, right now, the most valuable issues are those of the United States, which printed hundreds of thousands or even millions of some of the issues. However, many countries issued only 10,000-20,000 of each stamp and (again assuming you can find them) they are a lot less expensive than the equivalent U.S. issues.

A sudden change in demand can change the market just as suddenly. United Nations used to be in demand and, at the peak of the market, the souvenir sheet issued for the 15th anniversary of the UN sold for up to $325.00. Now, the same stamp will get you about $100. Conversely, the market for China has heated up. Stamps that used to be easy to find at 50 cents each now are tough to get at $5.00. Many stamps from China get tremendous prices and are hard to find at any price, even though many of them are not at all scarce. The conclusion: current rarity is no guide to future value!

 

REAL & FAKE

 

As if the above hazards weren't enough to scare you off, there is always the possibility that you're not going to get what you paid for. Although forgeries of rare stamps are plentiful, they are not the major hazard as any qualified expert can tell them from the real thing. The big risk is that an otherwise defective stamp has been altered to make it look better. Minor defects in a stamp can be repaired. Missing perforations (holes) can be replaced by trimming down one side and adding new holes. Missing or defective gum can be repaired or replaced. The result is a stamp that the faker paid 1% of catalog value for is passed off as a superb copy that sells for 100 time more. The nature of the risk is amplified by the fact that even the most qualified expert may be unable to detect such changes! Buying stamps of this quality takes years of experience and is definitely not for the beginner or speculator.

 

STORAGE & LONGEVITY

 

Stamps aren't like stock certificates. Stocks can be damaged or destroyed and still be replaced for a moderate fee. A damaged or destroyed stamp is lost forever. Stamps are sensitive to humidity, heat, pressure and lack of air, just to name a few things. Stamps must be insured against risk (at a cost of about $14/$1000 market value every year), and insurance can't cover a risk like damage caused by too much humidity. While stamp collectors can treasure and care for their collections, investors face a money pit just to maintain them.

 

CONCLUSION

 

If you're a collector and you sell your stamps for more than you paid for them, count your blessings and pat yourself on the back for developing the expertise that only arises from years of dedication. If you want to go into stamps for money, become a dealer and hope for the best.

 

Source: http://haddock.usanethosting.com/invest.htm

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