MORE people are investing in stamps in a bid to beat the economic downturn and hedge against inflation, but philately experts have warned against using them for investment purposes.
As returns from traditional assets, such as equities and property, continue to fall, the appeal of collectibles like wine, coins, stamps and artwork has grown. Not only do these assets provide protection against inflation, but they offer important di
versification due to a lack of correlation with mainstream assets.
Last month the world's oldest stamp dealer, Stanley Gibbons, reported that demand from investors for rare stamps, autographs and signatures had driven a rise in profits for the first six months of this year.
"The rare stamp market offers low volatility as prices do not correlate to any other investment class," said Adrian Roose, a director at Stanley Gibbons.
"But, as with any collectable market, it is driven by passion rather than by fear or greed. The market is not investor driven, it is very much collector driven."
According to US investment bank Salomon Brothers, stamps were among the top four investments of the 20th century, producing an average return of 10 per cent a year.
The appeal of stamp collecting as a hobby is well known, with nearly 50 million philatelists globally. Recently, internet trading sites have driven a growth in popularity, with stamps the third most popular category on eBay.
There are several ways to invest in rare stamps, with Stanley Gibbons promoting a number of products. One option is a guaranteed minimum return contract (requiring a minimum investment of £5,000) which promises at least 4 per cent a year growth on a three-year contract and 6 per cent a year over ten years.
While their diversification is a big attraction, however, this only applies if they are held alongside a spread of other investments and they should only comprise a small portion of any portfolio. And it doesn't mean stamps are low-risk. With any esoteric investment, investors looking to turn a hobby into a source of financial gain needs to do their homework.
Not all rare stamps are investment worthy, while issues including storage, insurance and durability can cause complications, so unless you're something of an expert it's advisable to get specialist advice.
"As with all antiques the slightest fault can hugely detract from the value of a rare stamp," said Roose. "A small tear, a shortened perforation, an over inked post mark can all knock up to 90 per cent off the value, so if an investor is entering the market for the first time then they need to be sure they are dealing with a reputable dealer or auction house for expert advice."
But Robert Murray, who since 1977 has run the Robert Murray Stamp Shop in Edinburgh, said that unless you're a knowledgeable stamp collector, stamps are not an investment option.
"Do not touch it unless you really know what you are doing," said Murray. "I have had hundreds of stamp investment portfolios bought to me and I can count on one hand the number that have been successful.
"We have seen portfolios from the market peak in 1980 that were hard to sell at 10 per cent of their market price."
According to Murray, the problem is typically that either the portfolios have been bought at the correct price but haven't proved a good investment, or too much has been paid for them (or a combination of the two).
"If a stamp is a good investment and priced correctly it will sell because there is demand and knowledgeable people spend money on them. So if you buy one as part of an investment portfolio, you must be able to buy it somewhere else cheaper."
Murray added that potential investors should be wary of the promises set out in stamp investment promotions. For instance, he pointed out that the SG index promoted by Stanley Gibbons – which previously distanced itself from the notion of stamps as an investment – lacks the independence of, say, a FTSE index. The guaranteed return product is similarly flawed, believes Murray.
Earlier this year, IFA Philip Milton complained to the Advertising Standards Authority that the guarantees advertised couldn't be substantiated. In the event, the complaint was upheld only because none of the guaranteed minimum return contracts had reached their expiry date.
"If someone took their portfolio back now the guarantee would be covered," said Murray. "But if we reach a point where stamp prices are not going up and there are no portfolio buyers coming in, the scheme can't provide guarantees."
Instead, Murray insisted, using stamps as an investment should be the domain of the experts. "I have seen numerous collections built up by knowledgeable investors who have made excellent returns. But it tends to be only the knowledgeable collectors that succeed."
The full article contains 809 words and appears in The Scotsman newspaper.
