21
HOW TO INVEST
BUYING PRIVATELY
Experienced collectors and investors will
attend fairs and auctions to source, price-up
and purchase rarities. Collectors’ fairs are
held regularly at various locations around
the world for both coins and stamps. The
decennial London Philatelic Exhibition will
next be held in 2020 and, heralded the
“mother of all shows”, it is said to already
be having an impact on prices at auction.
Other more recent exhibitions include
London 2015 Europhilex, Singapore 2015
World Stamp Exhibition and the World
Stamp Show in New York in 2016. There
have been 14 international exhibitions
hosted in London since 1890.
However, as noted above, accessing
the market this way requires specialist
knowledge and anything brought or sold
at auction will incur high transaction
costs. Both buyers and sellers have to pay
a percentage of the hammer price as a
premium to the auction house, which can
mean total transaction costs are as high as
25%
1
. VAT has to be added as well – another
20%. Even when buying directly from a
dealer, rather than at auction, investors will
have to overcome the dealer’s premium.
This is one of the reasons why stamps and
coins should be considered a long-term
investment - there has to be a fair amount
of appreciation before the transaction costs
are overcome. The long holding periods
offset the high transaction costs. But bear in
mind that depending upon the investment
style, an equity portfolio may very well be
turned over several times in a similar 10
year holding period, perhaps incurring a
similar amount of transaction costs overall.
Buying and selling online carries the
same risks. The online environment
makes research easy and many different
opportunities can be explored. A skilful trader
could exploit other buyers’ and sellers’ lack of
experience and perhaps even a novice could
uncover hidden value with enough diligent
research. Buying online also increases the
risk of over-grading, particularly if the buyer
cannot physically examine the item before
they agree to purchase. This risk can only be
minimised if the buyer is given the option
to complete the transaction in person, after
first identifying and negotiating online. But
even though the market place is online,
the need for specialist knowledge, deep
contacts and buying power still remains.
ONGOING COSTS
Investors also have to consider the ‘cost of
ownership’ which will mainly be the cost
of storage and insurance. This cost can be
minimal or even zero if investors choose not
to concern themselves with these issues.
But leaving stamps open to the possibility
of theft or a deterioration in their condition
is a major risk. Many investors choose to
let their broker-dealer store them on their
behalf and this is usually offered as part
of the service at no extra charge. Investors
much check that storage also includes full
insurance and items are stored in suitable
conditions to preserve their quality.
USING AN AGENT OR BROKER
One way of overcoming these issues is
for investors to employ a specialist to
work on their behalf. Different agents and
brokers offer different services ranging
from bidding at auctions on behalf of their
clients to consulting on disposing of a
collection (perhaps one that a novice had
inherited) or advising potential buyers on
the particular items they have in mind. For
novices who buy into the investment case
for stamps and coins and would like to have
some exposure, but who do not have the
expertise, this is the sensible way forward.
MONITORING INVESTMENT
PERFORMANCE
As auctions can be infrequent and data
surrounding the lots sold not widely
disseminated, and as many transactions are
private affairs, it can be difficult to establish
a fair value for a particular portfolio of
stamps or coins. There are no automated
stock exchanges to provide daily pricing.
Price catalogues, now often available online,
do give an indication of prices at a point
in time and are the most useful way of
forming a guideline valuation. However,
they are only a guideline and the surest way
of valuing a collection is to ask an expert to
provide a valuation service. This will have
a cost, but there is no need to undertake
this exercise very often as stamps and coins
are a medium to long-term investment.
EXIT
The timing of the exit will depend upon
a number of factors. Obviously personal
circumstances of the investors can dictate
the timing of the exit, but this is sub-optimal.
The ideal is to await market conditions
and sell when prices have appreciated and
collectors are interested in your items.
Again, making this judgement is difficult
for novices and requires professional
expertise. Professional expertise is also
required to identify the best sales channels
– UK or overseas, auction or private sale?
