Why buying stamps should be left to the experts
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Like just about anything else you care to mention, stamps have been a cracking investment over the past few years.
In fact, they’ve done so well that leading philately group Stanley Gibbons has managed to get Bloomberg to carry its stamp price indices on its terminals. So now you can check the price of stamps alongside that of commodities, stocks and oil.
The company reckons the credit crunch will only boost the appeal of stamps, as it opens investors’ eyes to other assets.
But is it really time for investors to be learning all about a new hobby?
Michael Hall, the chief executive of stamp collecting group Stanley Gibbons, reckons that stamps are a good asset for investors seeking to diversify their portfolios.
Stamps (not to mention shares in Stanley Gibbons) have certainly done well in recent years. The SG 100 stamp price index, which tracks the share price of the 100 most-traded stamps, has risen by an “average compounded 7.6% per annum over the past nine years”, says The Telegraph. Mr Hall even reckons we could soon see the launch of an Exchange-Traded Fund tracking the price of stamps.
So are stamps the next big thing?
Well, no, I don’t think so. The flood of cheap money and rise of alternative asset classes have fudged a lot of investment issues. But let’s think back to basics for the moment.
Why do you invest? The reality is that in most cases, you invest in an asset because it will pay you an income. That’s what wealth creation is all about. You want to stop working one day, so where’s your income going to come from? Ideally, you don’t want to have to keep selling things because that destroys your capital base - even if you’ve got enough capital to last until you die, you might just want to pass some on to your heirs, or even just the local cat home.
So the price that any sensible investor will pay for an asset should reflect the income that you expect to get from it in the future. A property will pay you a rental income stream; a share will be paying a decent dividend – or if not, you’ll expect it to reach a point where it is able to pay a decent dividend in the future.
That, incidentally, is why buying buy-to-let property seems like such a bad investment at the moment – most newcomers to the market are happy to actively subsidise their tenants’ rent while chasing capital growth. But if you can’t expect a decent future income stream, then there’s no reason for the value of a property to grow.
Unless, of course – as the bulls always argue – the supply is going to remain restricted, while demand rises. Now as we’ve mentioned before, we’re very sceptical of the supply / demand argument for property (See: Yes, housing is off the boil). However, we would argue that a decent supply / demand imbalance is why the price of commodities and oil keep rising; although our first choice for playing commodity prices would still generally be stocks which can translate rising commodity prices into higher profits, which in turn become a decent dividend stream for their shareholders.
So what about collectibles? Certainly supply and demand characteristics can be good – with wine investment for example, you only have a limited number of bottles in each vintage, and as time goes by, more are drunk or damaged, so the supply only gets shorter. And while stamps aren’t consumed, there’s certainly no chance of printing up any more original penny blacks than are already in existence.
But how much of the recent gains in stamp prices (and most other collectibles) are down to increasing rarity, and how much is down to increasing amounts of money piling into asset classes indiscriminately? I’m not an expert on philately, but I doubt that the strong growth in the SG 100 index is down to a correspondingly sharp decline in the availability of the top 100 stamps.
I suspect instead that it’s rising for the same reason as prices in the art market are rising – there are more rich people with money to burn.
That may be fine as long as the supply of rich people keeps rising. But with global economic conditions looking wobbly, particularly in property markets across the world, a slowdown in wealth creation seems a strong possibility.
At that point, people will once again remember why most of the activities now grouped under the heading ‘alternative investing’ were once more commonly described as ‘hobbies’. Buy stamps if you’re interested in stamps – if you want to diversify your portfolio, I’d stick with gold.
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In the meantime, regular MoneyWeek columnist Simon Nixon has given us his take on the current state of British politics especially for Money Morning readers this week – subscribers will already be familiar with his City View column, but if you haven’t read Simon before, I strongly suggest you do – his is the second recommended article, attached further down this email.
Turning to the wider markets…
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In London, the FTSE 100 broke through the 6,700 mark for the first time since June on Thursday, adding 91 points to end the day at 6,724. Miners were the main driving force as metals prices continued to rise, and Vodafone was also higher as investors welcomed speculation that chief Arun Sarin is to leave. For a full market report, see: London market close
On the Continent, the Paris CAC-40 added 24 points to end the day at 5,862. And in Frankfurt, the DAX-30 was up 47 points, at 8,033.
Across the Atlantic, the Dow Jones hit a new record high of 14,198 in early trading only to give up all its earlier gains to end the day down 63 points at 14,015. The reversal was generally thought to be due to an early afternoon sell-off in the tech sector. The Nasdaq hit its highest level since 2001 - 2,834 - earlier in the session before falling back to 2,772, an overall loss of 39 points. And the S&P 500 hit an all-time high of 1,576 but ended the day down 8 points at 1,554.
The slump on Wall Street also prompted profit taking in Asia. The Japanese Nikkei was off 127 points at 17,331. But the Hang Seng had reduced its losses this afternoon and was last trading down just 294 points, at 28,838.
Crude oil futures added nearly $2 in New York yesterday but had fallen back 22c to $82.86 this morning. And in London, Brent spot was at $79.94.
Spot gold rose to its highest level since January 1980 yesterday - $753.60 - but had eased to $746.50 this morning. Silver was also lower, at $13.72. And cash platinum had also fallen back from the record high of $1,407 it hit yesterday.
In the currency markets, the pound was at 2.027 against the dollar and 1.4291 against the euro. And the dollar was at 0.7046 against the euro and 117.28 against the yen.
And in London this morning, Northern Rock shares were on the up again this morning on reports that Ricahrd Branson's Virgin Group has met with the mortgage bank's management and is considering a bid. Shares in Northern Rock were up 4.7% in early trading.
And our recommended articles for today...
How private investors got caught in the political crossfire
- Alistair Darling's tax reforms may have been intended to make the system fairer, but they've had all sorts of unintended consequences for private investors, says Tom Bulford. From IHT to AIM-listed shares and ISAs, find out what the pre-budget report means for your portfolio: How private investors got caught in the political crossfire
Has the City lost confidence in Brown's judgement?
- Brown's backtracking over an autumn election has raised big questions over his credibility. That's particarly worrying at a time of financial instability. And just when the Conservatives look like they could be trusted to run the economy again... For more on Brown's tactical errors, read: Has the City lost confidence in Brown's judgement?
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