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OTHER RISKS
Occasionally large stamp collections can
come onto the market (usually when a
collector passes away) which can push down
the prices of some assets if it produces a
sudden glut of supply. This usually only has
a minor or temporary impact. Buried hordes
of ancient coins are sometimes unearthed
as well – the William I silver penny was
considered to be a very rare coin until over
8,000 of them were unearthed in 1833,
which decimated its rarity value. Such finds
are less frequent today.
Forgery is unfortunately a risk with both
rare stamps and coins. Rare stamps can
be forged outright, although this practice
is thought to be rare these days. More
commonly, the condition of stamps can
be artificially improved – stamps can
be re-gummed, re-perforated, cleaned,
margins can be tidied up and pen marks
can be removed. How much of this could
be considered legitimate and how much
is outright faking is a matter for debate
amongst the collectors. Rare stamps can
also be made more desirable by adding a
forged cancellation mark, which turns a poor
quality unused example into a fine quality
used one.
Coins can be forged by using moulds
taken from existing rare coins. This is the
simplest method of forgery, but can usually
be quite easily detected by an expert. The
more sophisticated method is to engrave
dies based on original coins so that copies
can be struck. This method is much harder
to detect, but investors and collectors do
not need to be unduly worried – reputable
dealers and organisations such as British
Numismatic Trade Association are happy
to help assess coins for authenticity. Many
coins have signed authenticity documents.
REGULATION
Stamps and coins are unregulated
investments. They are personal property,
not financial securities or promises to pay
in the future. This is part of their tangible
nature and one of the qualities that makes
them such good diversifiers. However, this
does mean that they are not covered by
the FSCS (Financial Services Compensation
Scheme). If your broker or agent were to
go bankrupt while holding your cash or
your investments, you could lose all of your
investment. Similarly, they are not covered
by the Financial Ombudsman Scheme
(FOS), so if you are mis-sold an item there
is no recourse to the ombudsman to try
and hold the seller or broker to account.
However, the investors would still own
a tangible asset which holds intrinsic
value, and as long as it has not been sold
at an inflated price the investor should
be able to sell on the open market.
Mints and postal authorities around the
world issue commemorative sets of both
coins and stamps to mark important
occasions such as a royal birth, an
important state anniversary or an event
such as the Olympics. Whilst these might
have value for collectors who are following
a relevant theme, they never have
investment value as rarities and should be
avoided by investors. Indeed, in the 60s and
70s many small countries were deliberately
issuing these sets to cash in on the demand
from collectors – but they were issued in
such numbers that they would never have
any financial value. Gambia and Liberia,
for example, each issued more than 500
different new stamps in one year
3
.
COMMEMORATIVE SETS
“Investors potentially need to factor in future price volatility. As stamps become more mainstream for
private and professional investors then volatility could increase over time.”
David Stevenson,FT Columnist
“There are so many nuances that determine whether a stamp
is suitable for investment that we strongly recommend you
consult an expert. It’s also important you buy from a name you
can trust, as a guarantee of authenticity is only as good as the
organisation issuing it.”
Keith Heddle, Stanley Gibbons Investments
RISKS&DUEDILIGENCE HOWTO INVEST
S
SWOTANALYSIS
STRENGTHS
WEAK
OPPORTUNITIES
TH
Diversification (negatively correlated with
mainstream markets)
Strong Price Growth
Tangible
Positively correlated with inflation (inflation
hedge)
Inverse supply and demand curve
Opaque m
value
Disjointe
Price gro
willing to pa
Difficult
Hard to
investors
Growing interest worldwide, particularly in
Asia
Supply can only dwindle
Room and scope for new entrants (investment
providers) to enter the market
Buy
Un
count
O
CONCLUSIONS
A
i
R
ALTERNATIVE INVESTMENT REPORT
19
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 Exhib tion will
next be held in 2020 and, heralded th
“mother of all shows”, it is said to already be
ving an impact on prices at auction.
Other more recent exhibitions inc ude
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 – nother 20%.
Even when buying directly from a dealer,
rather than at auction, investors will have to
overcome the dealer’s premium. Thi 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 u cover 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 a d 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
RISKS & DUE DILIGENCE
SOURCES OF INFORMATION
HOWTO INVEST
PRODUCT DEVELOPMENT
SWOT ANALYSIS
CONCLUSIONS
APPENDIX
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