14
COMPARISON TO PRECIOUS
METALS
THE INVESTMENT CASE
The investment case for stamps and
rare coins is based upon three key
considerations: supply and demand,
returns and diversification.
SUPPLY & DEMAND
Rare collectibles are not commodities. As
noted above, they are not fungible and they
are no longer in production. Nobody can go
back in time and mint collectible coins or
print rare stamps. This means that supply
is limited and declining as stamps or coins
disappear from the market or their condition
fades over time – so an inverse supply and
demand curve naturally pushes prices higher.
Very few assets have this property – in
fact it is only other passion assets such
as fine wine or classic cars that do.
On the demand side, although stamp
and coin collecting is seen as something
of an old fashioned hobby and there
are concerns that collectors are a dying
breed, this isn’t necessarily the case.
Firstly, although it is true to say that the average
age of collectors is over 50, in-fact many of these
collectors are taking up the hobby for the first
time, perhaps as a retirement pastime or to
continue the work on a collection that they have
inherited. Therefore although the average age
is old, this does not by any means mean that
collectors are dying out – new collectors are
taking up the hobby all the time. Added to this,
the “baby boom” population is generally wealthier
than the previous generation, the buying power
of these new collectors should be higher.
Secondly, new sources of demand are springing
up across Asia as newly wealthy middle-classes
begin to spend their money on hobbies that
appeal to their interest in history. Investing in
tangible stores of wealth is part of Asia’s saving
culture and owning rare collectibles also appeals
to some buyers as an indication of status. With
these new sources of demand – new collectors
all across the globe – the demand side is also
secure. In fact it is estimated that there are
60m collectors of stamps around the globe.
Collectors are continuously looking at themarket
froma history perspective, as ameans of owning
assets that have formed part of history and that
will continue to have aesthetic appeal. The appeal
of owning part of the heritage of a country, either
through rare stamps, coins or other physical
assets such as atlases or works of art is increasing
as the global middle class increases in size and
wealth. This increased buying power and demand
shouldmake already desirable objects evenmore
highly in demand, ultimately pushing up values.
Rare stamps and coins are becoming harder
to find and source, particularly as the number
of investors increases. Withmost investors
looking over themedium-term (5-10 years+) it
can be a while before certain assets resurface
onto themarket and become available again.
As investors look further forward these assets
become legacy items, as a way of protecting
wealth and passing it on to future generations.
As well as being rare and collectible, rare stamps
and coins have the characteristics to become
“antiques of the future”.
This doesn’t mean that these items currently
need to be old, but they should have the physical
attributes to allow them to last for a long period
of time and become old. Pottery, porcelain,
ceramics, art and new toys (boxed) can all
also fall into this category. This is most likely to
include rare stamps and coins which are part of
limited editions and which have not beenmass
produced. Unique designs or trends can help
add to the aesthetic value, rarity and appeal of
these items. These items must be stored properly
to remain in perfect condition, and investors
must realise they are taking a bit of a gamble. Be
patient, it could be a very long-term investment.
RETURNS
Driven by the favourable supply and
demand relationship, price growth has been
very strong for rare stamps and coins.
Stanley Gibbons produce two key rare
stamp indices and a rare coin index which
are useful for tracking historical growth
and performance of these items.
GB
30
RARITIES INDEX
Stanley Gibbons launched the Great
Britain 30 Rarities Index (GB30) in 2004.
This Bloomberg Professional® service
quoted index (STGIGB30) is based on the
catalogue prices for the 30 rarest British
stamps and aims to provide a snapshot
of the performance of scarce items. This
index contains data running as far back as
1954, although not all years are covered,
and is the longest running stamp index
in existence. This index tracks the price
of extremely rare stamps, which may be
held for very long periods of time and
rarely traded. There may only be a very
limited number of these prestige items
available and this index is therefore
limited when analysing the performance
of the stamp investment market.
Note that there are two main
issues with this index:
Prices are backtracked, and therefore
may not represent the price trend for
British stamps
The index contains some very rare
stamps which are rarely traded
Even investment grade gold and silver,
which people buy in bars or coins with
similar investment objectives to collectibles,
is subject to supply side shocks that can
force prices down. This was what caused
a low in the gold price in the late 1990s, as
many European central banks sold their
gold reserves and flooded the market with
supply.
Although the total amount of gold and
silver is somewhat limited, new supply does
reach the market – especially when prices
rise, making new or deeper mines more
economical. This in turn puts the brakes on
any future price rises.
Finally, gold and silver does not degrade,
one of the properties that makes them
ideally suited as a tradable store of wealth,
but it means that supply rarely diminishes.
Supply may be taken off the market when
gold is stored, or used in jewellery or
for industrial applications, but it can be
re-cycled and brought back the market.
So even precious metals, which are often
marketed as the ultimate store of wealth
and great diversifiers, do not contain the
same qualities as stamps and rare coins
when considering the supply side of the
supply and demand equation.
