Feb

19

Penny BlackFeb 10 was the first "snow day" in New York in three years where kids don't have to go to school and when I was a boy, we greeted the snow days with alacrity as it meant we could hop on the subway and visit the stamp dealers on Nassau Street and spend a quarter on some rarities. Apparently there are few if any stamp collectors left among kids today because other activities crowded them out. I base this on direct testimony from Stanley Gibbons and the fact that there are no stamps offered for sale in the newspapers anymore as well as published reports from stamp magazines themselves. This is a tragedy since stamps provide so many benefits in geography, art, history, economics, categorization, collecting, and patience, foreign exchange, printing, and topical interests.

In honor of the snow day, I thought I should enumerate some trends I have noted from my reading of the literature. Dimson is seminal. There is a seminal paper on investment returns from stamps available that does for stamps what DMS and Fisher, Lorie and Ibbotsen have done for stocks. They report that the returns from stamps over the last 100 years have been about 2% a year worse than stocks and 3- 4% above bonds. Adjusted for systematic risk and standard deviation the returns are comparable to stocks. There are so many important and intriguing points covered in that paper that I must refer you to the original. However, a few that I noted are that stamps hardly have had a down year during the last 100. The cost of getting in and out is about 25%. The returns from high priced stamps are similar to those of low priced stamps. The boom years for stamps were 2008 and the late 1970s and like stocks these days they have a few 20 year periods where the returns have been flat especially during the early first and last 20 years of the 20th century. The market for collectible stamps is 10 billion a year, higher than the fine art market in total. The number of collectors is about 50 times higher in Germany per capita than in the US: 1 in 20 in Germany versus 1 in 1000. There are an estimated 20 to 50 million collectors in China. It was previously illegal to collect stamps in China under Mao so there is a surging demand especially for the old issues that none in China were allowed to buy. The price of many low priced issues in stamps has appreciated more than the high priced issues becuase people didn't take good care of them. A nice example are the first stamps issued in the US and the Columbia Expedition sets. The price to weight ratio of stamps is among the highest in the world and part of their value is their portability. The upside down fixed income "Sponsor" has bought 100 million worth of stamps and believes that their value is correlated with GNP. Dimson has a nice set of regressions showing the systematic beta of stamps about 0.2 when adjusting for various Fisher type effects in lags in pricing. (The Dimson and Spaenjarie article)

Stanley Gibbons has a nice index of the 100 rarest British stamps, which are the most collectible, as is their silver, and this correlates well with the Dimson estimates, even though there is much spurious lookback effect in it. There is general agreement that the current collectors in stamps are those who were introduced to it before the 70s and now have the income to augment their portfolios. Very few new collectors are coming in from the US and England. In view of the 25% transaction cost of buying and selling stamps, one could not recommend them as an investment. A good investor would never see his stamps because the values regrettably depend almost entirely with a range of 500% for the same stamp based on condition. Thus, only long holding periods like the 40 years that Dimson uses would seem appropriate. But in 40 years the demand from the kids of today would seem to be likely to be small because they don't collect now or even know what a letter is in many cases. If one were going to invest, one would probably confine his activities to German speaking lands and Asia, and England which still is the rule of the sea as far as collectibles goes and is likely to maintain that edge. One should not rule out the changing value of stamps as a hedge against increases in the service rate on gains and lifetime earnings. One would be interested readers' thoughts on this alternative asset.

Sam Marx comments:

Don't buy retail. Place classified ads in Linn's, bidding close to wholesale prices and/or join the NY Stamp Dealers Club and buy close to wholesale there. If you know stamps it is hard to lose money but the amount you can make is small compared to stocks. In my opinion, if you still want to get involved in this type of endeavor, coins are a better choice. Spilled coffee can destroy your stamp investment.

Alan Millhone commments:

A MMy stamp collecting began one Christmas when I was seven and my parents gave me a Coronet stamp album. I still have it and over the years have expanded my collection. Guess at heart I am a collector and the upsurge in values has been a side benefit. As in all collectibles condition is important. One never has to apologize when selling quality items. To date I have never sold anything from my collection. None of my grandsons have any interest in stamp collecting. My daughter collected some as a youth but quit. I look at stamps as little pieces of paper with bits of history printed on each stamp. Stamps are an excellent way for youngsters to learn about countries and where they are on the map. Something many youth cannot do today. As a youth I dealt by mail with HE Harris , Zenith and Garcelon stamp firms. Stamps could be used today in grade school as a teaching tool. Queen Elizabeth maintains the Royal Collection. Spink etc. has helped the Royals add to this most valuable collection since the Penny Black was introduced. I don't collect any modern stamps and the early US are beautiful esp. newspaper and periodicals. My best friend is Greek and we collect the early Hermes. I like to get out my stamps in the Winter months. I like early stampless covers of my area. Penny post cards and post cards depicting Checkers ( a cross collectible). Cut squares is another area I like and Trieste A and B and AMG-FTT. Stamps as you said is a yearly multi billion dollar business. Auction firms like Greg Manning is publicly traded and deals with collectors all over the world.

Rocky Humbert responds:

A slightly different way at looking at this is the fact that domestic postage rates have handily beaten inflation since 1958. Last February, I went "all in" and purchased a trove of USPS Forever Stamps. (My local postal clerk was perplexed, to say the least.) See: http://onehonestman.wordpress.com/2009/02/28/warren-buffett-deer-poop-and-postage ,  Yet if one extrapolates the trend of the last fifty years, this "investment" will handily beat CPI inflation going forward. The Chair's cited paper is interesting. Yet before drawing any conclusions, one should study how stamps have performed compared with other ephemera … such as private letters from Abraham Lincoln, Ronald Reagan, and Hank Paulson. Given the rise of email and the demise of private letters, one might speculate that collecting the written letters may have a historical significance and scarcity value in the future that bests the postage stamps? Details on the forever stamp: http://www.usps.com/communications/newsroom/2007/sr07_011.htm

Russell Sears writes:

While I do not know the first thing about stamps collecting, the Chair's story reminded me of my 3rd grade winter in Titusville, PA. It was close enough to Lake Erie to get hammered by lake effect snow. I would take all the money I owned, (under 15 bucks) and go to the bank and ask for rolls of pennies, nickels or dimes. Shift through them for collectible dates.

The wheat backed pennies, were still fairly common in change. While the silver nickels and dimes quickly grew scarce. The rare one I found were treasured, more than the bought silver. I can still grab a handful of coins shake them and tell you if one is silver.

The ladies at the bank were always gracious and used the machines to re-roll them when I returned a pile of pennies to the bank. Most likely because I was the rare customer on those snowy days, and it was always evident that I walked/ran that mile to the bank on entering.

However, my interest in stamps, now is for the art work. Stamps and their press have some of the best miniature work available.

Plus the interest in special commemorative editions always catch my interest after the press have stopped.
I think the interest in the 50 states quarters and bicentennial quarters may signal that these limited edition and artist designs may be the future of trading stamps, In this large volume nearly reproductive limitless world we live, uniqueness can thrive.

Victor Niederhoffer responds: 

I would add to the erudite Floridian's remark that the vigorish of 25% that Dimson notes, which is in line with or ever too small versus the reported P&L of Gibbons, does not take into account the grading differential where if you bring a stamp in to sell it's very fine but if you buy it, the condition is perfect and flawless, adding another 25% at least to the vigorish.

Alan Millhone comments:

On grading, perhaps a discussion of "slabbed" stamps and coins is warranted on grading services in business today.

Alston Mabry comments:

Does not take into account the grading differential where if you bring a stamp in to sell it's very fine but if you buy it, the condition is perfect and flawless, adding another 25% at least to the vigorish. Certainly reminds one of:

Strong Buy

Buy

Hold

Sell

Strong Sell

and the increase in churn thus promoted.


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3 Comments so far

  1. Russell Sears on February 11, 2010 3:31 pm

    Big Al, in coin collecting the answer to the grade vig is only go with the top quality, without a blemish. Get the proof sets or the uncirculated coin and then preserve them in sealed plastic containers. This certainly takes some of the childhood charm out of it, but adds a touch of professionalism and pride. Surely there is a similar version for sheets of stamps.

  2. Christophe Spaenjers on February 17, 2010 3:06 pm

    Some very interesting comments here! An updated version of my paper with Elroy Dimson is now available. In the revised version we also compare stamps to other real assets like art and gold, and we look into the issue of inflation hedging.

  3. admin on February 22, 2010 1:57 pm

    Snow-Day Discoveries: Periphery of a Country’s First Modern Stock Exchange

    by Douglas Roberts Dimick

    On or about the time of V’s article (http://www.dailyspeculations.com/wordpress/?p=4414), I awoke, and, upon opening the curtains of my top (sixth) floor room in the Le Hu Hotel at Shanghai University, I was seized, overlooking our city campus’s grass square being snow covered – a first and perhaps last for the season.

    Although the snow disappeared by day’s end, I too was reminded of snow days back in Falmouth, Maine, on and around assorted (horse, cow, even chicken) farms, and the opportunities so presented as a student.

    Today, some two weeks later, marks six months of living in Shanghai after six months of living in Beijing. I did not care much for China’s capital city. As with much of China’s past, its energy and architecture appear to be as disjointed as the country's socialistic time within an heir apparent of capitalistic space.

    There is a geographic triangulation to be found when describing that political relativity of China today. On a map, there is a triangulation of that human social-economic dynamic, plotted by three cities.

    Below Beijing, there is Wuhan. Having there begun my continuing odyssey, I find that Wuhan is China today. In both customs and pragmatics, old is found to be long and short against new on a daily basis, trending characteristically yet uncomfortably with often increasingly transparent highs and lows – relatively speaking compared and in contrast to what the Communists here tout to be “Chinese characteristics.”

    Equilaterally to the east of Wuhan and forming a hypotenuse to Beijing, Shanghai extends a right-triangle’s base for these three cities. Likewise, since arriving, my walks about the “Whore of the Orient” have triangulated from north to south, both east and west.

    Then presented with a snow day, I venture central to Beijing Road and east to the Bund (http://en.wikipedia.org/wiki/The_Bund). Reaching one of the several bridges crossing over Suzhou Creek, which snakes through the northern sectors of the city, I cross and find a building with signage: The Philatelic Corporation.

    What in the world?

    I enter the lobby to so inquire. A uniformed girl behind the room-long-counter informs me that this company provides products and services for stamp collectors.

    Interesting, upon my return home, I find that the word “philately” is not to be confused with collecting, for it concerns “the study of” stamps (http://en.wikipedia.org/wiki/Philately). Yet other sources include “collecting” within the definition (http://www.thefreedictionary.com/philatelic).

    I’m confused. Might we revisit distinguishing among a securities analyst, trader or broker, and investor?

    And so, now yesterday, I returned to that same sector en route to visit the recently opened Peninsula Hotel (http://www.peninsula.com/Shanghai/en/default.aspx), merely a block east of the Shanghai Postage Museum and a street-crossing from the city’s waterfront. However, since obtaining my drivers license at age 15 (only to have it suspended for 30 days some two weeks upon issuance for speeding and passing on a bridge), I have been in the habit of expansionism by seeking out and taking new roads and paths when so presented the opportunity.

    Let us venture one more bridge down creek before crossing. This intuitive decision is confirmed by observance of numerous, older couples walking along the creek-side of the street. All of them are watching a half-block-long building being demolished.

    Across the street of the demolition, there it is. That old brownstone-looking, concessionary-styled building: I had spied it before from the other side of the creek, at the far northeastern corner of the bund, being juxtaposed to the Peninsula Hotel.

    I cross diagonally in front of the bridge to the corner entrance of the building. There is a soldier; he is guarding this old, metal, industrial-period looking, four-lane bridge.

    After four years here, it becomes evident that the Chinese Communist Party and its generals (of The PLA) hold tight to a fundamentalism of military dicta that evinces tactical superiority via the guarding of bridges in peace time.

    As a disclaimer, we must note here that the country’s constitution and 60 years of propaganda perpetuate the notion that “the people” are still fighting a revolution. Ironic, though, how the Communists increasing are talk about by “the people” as the very imperialists whom the state is supposed to be fighting. And it is that systemic contraction that appears historically as embodied as the Great Wall and the country’s plotting of fixed fortifications amassed during The Fourteen Dynasties of a 5,000 year history (or what may be considered a euphemism for 14 failed dictatorships).

    Anyway, I smile at the boyish soldier as I walk by, crossing in front of him via the middle of the street, perpendicular to the darkish, rusty-like metal bridge; his guardhouse is blocking that corner of the sidewalk. He looks perturbed that I smiled.

    How come the other bridges are not guarded?

    That night is capped off with my usual “bone-in” steak dinner special at Shanghai's only cowboy salon steakhouse, Pinnacle Peak (http://www.pinnaclepeaksteakhouse.com). It is Friday night, which is Salsa Night. My friend and the GM, Steven, who hails originally from California and who’s first joint was in San Fran in the harbor, gives me one of two new servers, Cindy. She is from Hunan Province, being the family home of Mao himself – Steve figures that, if Cindy can deal with me, she is good-to-go.

    Recounting my day’s highlights, I query my waitress as to why that small, rather dated bridge is guarded. What is its military (or police state) value?

    Cindy’s eye’s light up. She may be from Hunan (also home to the country’s liberalized though state-owned entity, Hunan TV), but two years in Shanghai shows, as she quickly recounts that this bridge is “a little” famous.

    Chinese ESL speakers like to say “a little” this and “a little” that. I find myself now adjectively employing this pattern of usage as well.

    Unfortunately, just as I was then uninformed about the bridge and building, Cindy could not express in English the why’s of it all. Hence we find me here, writing at 5:30am, yet to have any sleep.

    Post after-dinner walk about town, googling brings us to both the Waidaidu Bridge (being my bridge in question) and that building of concessionary architecture, the Astor House Hotel (http://www.astorhousehotel.com/en/fdjj/fdjj.php)…

    “Not to be confused with the Huangpu River, Suzhou Creek (or the Wusong River as it was once known) runs from the northern end of The Bund all the way to Suzhou. Historically it was an important trade route, and indeed plans are afoot to resurrect passenger ferry services between the two cities. Later it became significant as a dividing line between the British and American (and then the International and Japanese) Concessions. As a result, there's a wealth of interesting architecture and historical landmarks along its banks….

    Walking west from Huangpu Park at the very mouth of the river, you pass first under the famous Waibaidu Bridge, while off to the right is the Astor House Hotel, once described as the most luxurious in the world. A short way further on, and the art deco grandeur of the Shanghai Postal Museum lights up the northern bank…” (http://www.chinatravel.net/china-attractions/suzhou-creek/introduction-1207.html).

    Most important?

    On December 19, 1990, the first stock exchange in China after 1949, the Shanghai Stock Exchange, was launched at the Astor House Hotel.

    Moreover, Dr. Einstein roomed in 304 during 1922. Given that my theory of relativity work these past nine years, my visit evokes an emotive response to want to spend a night in that room if not live there in the hotel for some time.

    That said, there is the philately of it all (http://wapedia.mobi/en/General_Post_Office_Building,_Shanghai). A survey of famous stamp collectors (http://www.liveworkexplore.com/shanghai/residents/exploring/attractions/museums/shanghai-postal-museum) reveals…

    “Freddie Mercury, lead singer of the band Queen, collected stamps as a child. His childhood stamp album is in the collection of the British Postal Museum & Archive.

    John Lennon of The Beatles was also a childhood stamp collector. His stamp album is held by the National Postal Museum.

    Star women's tennis player Maria Sharapova has been an enthusiastic collector of stamps since a young age.

    U.S. President Franklin Roosevelt was an avid stamp collector who designed several American commemorative stamps while president.

    In The Simpsons episode, Homer the Vigilante, we learn Bart is a stamp collector.

    In the James Bond novel, Dr. No, the main antagonist, collects stamps and uses them as a form of money.”

    Stop right there.

    I am of the generation raised on TV and candy: see the movie, Hellboy (http://en.wikipedia.org/wiki/Hellboy_(film))… "I like not knowing. I've gotten by for fifty-two years without knowing. I sleep good not knowing."

    Is there a consilience to be found here?

    Sure enough… Bond, James Bond… 007… “Although the film and novel are similar in plot, the backgrounds for Julius No carry certain differences. An individual of Chinese-German cultural heritage, the novel's Dr. No was born in Peking to a German Methodist missionary and a Chinese girl, but was raised by his aunt. When older, he went to Shanghai, where he became involved with the Tongs, a Chinese crime syndicate. Later he was smuggled to the United States and settled in New York City, where he became a clerk and eventually Treasurer for a Tong in America, called the "Hip-Sings".

    In the late 1920s, a mob war broke out in New York, forcing the police to crack down on them. No stole a million dollars in gold from the Tongs and disappeared. But the Tongs tracked him down and tortured him to find the location of the gold…

    With the million dollars from the Tong, he purchased rare stamps in order to preserve his money against inflation; he later purchased the island of Crab Key, off the coast of Jamaica…" (http://en.wikipedia.org/wiki/Julius_No).

    Alas, I close the day out with citation of the headline and lead…

    “Widow sued

    Metro | Courts 2010-1-20

    SONG Meiying, the widow of artist Chen Yifei, is being sued by Shanghai Philatelic Corp for more than 260,000 yuan (US$38,067) for a commemorative album and stamps she had them make, Jing'an District People's Court…” (http://www.shanghaidaily.com/article/list.asp?id=18#ixzz0g0YWrVA2).

    Study of, collecting, and investing – enough said.

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