Collecting stamps as an investment can be an enjoyable and potentially rewarding hobby. Stamps are considered little pieces of history and like postcards are often considered miniature works of art.
The background to every stamp issued means that there are many interesting facts to learn about famous peoples or historical events and people have been collecting stamps ever since they were first produced.
What’s the appeal of collecting stamps?
There is believed to be somewhere in the region of sixty million stamp collectors worldwide with their numbers growing all the time; especially from China where there has been increasing interest in collecting stamps: an activity that was at one point banned under Chairman Mao.
For many collectors, collecting rare, historic and foreign stamps presents a chance to learn about history. Stamps have also played an integral part in creating the modern world. They originated in the UK when Roland Hill campaigned for a reform to the postage system.
His campaign led to the introduction of the Uniform Penny Post in which postage rates were set by weight rather than size. The famous Penny Black, the world’s oldest stamp, released in 1840, made prepayment of letters possible and affordable, and gave us the postal system we use today.
An increasing number of people, however, see collecting stamps as another form of investment. During the ten years to 2015, prices of stamps tripled, and as investors diversify away from cash and bonds, acquiring stamps as an alternative asset is a very attractive proposition.
In addition, new collectors from Asia have injected a huge amount of liquidity into the market and with more and more collectors chasing a limited number of valuable stamps, prices are expected to continue rising.
Building a collection
As with other similar hobbies such as collecting postcards or banknotes, there are many different themes that an individual could build a collection around.
Stamps can be collected by country, era, famous people, historical events etc but arguably the most important decision a collector has to make is whether the stamp should be used (postmarked and cancelled) or unused (brand new).
Used stamps are graded according to their condition. Grades run from “superb” (perfect quality) to “poor” (torn or damaged) and depend on whether the gum is original and intact, the state of perforations, whether it’s mounted or unmounted and how faded the colours are.
Errors contained in stamps can also be highly sought after. The printing process is rigorously controlled by postal systems, but oversights do occasionally happen. Problems such as a crack in a printing plate could lead to a major design flaw or mistake.
To be considered valuable, though, this has to be a mistake which was missed and the stamps sold to consumers on the open market before the error was noticed and the subsequent withdrawal of the stamp from circulation.
Older stamps are rarer and more valuable. As postal systems evolved and moved into the 20th century, stamps became mass produced and therefore did not have the same degree of rarity value that collectors were looking for.
The right price
There are many variables in determining the right price for an individual stamp or a stamp collection. Values are contingent upon how complete the collection is, how rare the stamp is; whether it has a postmark; the legibility of the design; the perforation (or lack of); where it was in the sheet; whether they are glued and of course its condition.
When the British colonial Guyana One-Cent Magenta was put up for auction at Sotheby’s in 2014, it fetched $9.48 million and set a new world record price for a stamp. While that was a truly remarkable price, quite often the price a stamp achieves will only be worth as much as an individual collector is prepared to pay for it.
Fortunately, for the average collector, the entry point into the world of collecting stamps is significantly lower. In general, stamp collecting can be a relatively affordable hobby but it does depend on which end of the market you buy at.
For example, famous and relative rare stamps such as a Penny Black can cost anywhere between £325 and £250,000 depending on its condition and whether it is used or unused. However, many individual stamps can also be purchased for less than their face value, but if it forms part of a coherent, thematic collection, then it could eventually become quite valuable.
Buying stamps at auction can be quite expensive as not only do you have to contend with the level of interest in the ‘room’ driving up demand and price; there is also a buyer’s premium to pay on top of the ‘hammer’ price. For that reason, many collectors buy privately or through dealers.
To find out how much an individual stamp is worth, Stamp Finder provides a free online stamp valuation guide which will identify a stamp and show its current market value.
Collectors can also attend trade fairs and exhibition such as Stampex or register with organisations such as the Philatelic Trading Society where experts are available to provide helpful advice and, in some cases, free valuations.
Where to buy
The easiest and most conventional route is to buy direct from other dealers. The National Philatelic Society website is a great location to find likely stamps to buy. Aside from the occasional rarity, most single stamps will not make much of a profit, so the best route may be to buy a collection. These are often grouped thematically, such as by year, genre or historical events.
Exhibitions and fairs can also be good places to buy, sell and meet other collectors. The biggest is Stampex which is held annually in London but there are many other fairs taking place around the country. Experts are often happy to pass on their knowledge and help beginners make the right decision.
Reputable auctioneers such as Sotheby’s and Christies hold regular auctions including some of the rarest stamps on the market. However, smaller auctions are also held around the country by various organisations including Sandafayre, Regency Stamps and County Philatelic Auctions.
When buying a stamp or a collection of stamps, collectors should always be alert to the risk of fraud and where possible request a certificate of authenticity or have the stamp or collection verified by an independent expert.
What about tax implications
A stamp is considered a personal possession or chattel by HMRC (and treated the same way as jewellery, coins, antiques etc) for tax purposes. Accordingly, the sale of stamps will be exempt from capital gains tax when the price achieved is less than £6,000.
However, if you do find yourself buying and selling individual stamps or stamp collections in greater quantities and with increasing frequency (and at a profit) then strictly speaking you will probably be deemed a trader or dealer. Therefore, you will be required to register as a self-employed sole-trader with HMRC .
Anything else to think about
As you build a stamp collection over a period of time, it is important that the stamps are protected and stored in the right way. To avoid any damage or discolouration to the stamps they should be kept away from direct light, heat and moisture; and held for example, in stock books which can be purchased from Stanley Gibbons.
Stanley Gibbons also provide some very useful advice around the toolkit a serious collector should have in their possession. This includes a set of tweezers (to facilitate easier handling of the stamps), a magnifier (to identify errors and see more intricate designs) and a watermark detector.
Further information
Stamp collecting is now a global activity and there are many clubs, communities and societies available. These offer a chance to build up knowledge, swap information and meet fellow collectors. You can see a list of clubs by checking out www.stamps.org and www.rpsl.org.uk
Risk warning
Investing in stamps is not considered a regulated investment activity by the Financial Conduct Authority. In the event of something going wrong with the investment, retail investors are not covered under the Financial Services Compensation Scheme so will not be entitled to receive any compensation.
