When people read the Salamon Brothers report, which maintains that stamps were the third best investment over the decade of the 1970s, ranking behind oil and gold, they expect to see a high percentile increase in the price of stamps on a year-to-year basis. Such an impression is misleading. Most people who avidly watch stocks or commodities know that investment items trade in a relatively narrow band most of the time. Then, for whatever reason-- good news in the case of most stocks and bad news in the case of most commodities-- they sometimes shoot up 20 to 30 percent in a very few days. And often they jump down the same way. Slow, steady progress in financial matters simply does not occur in the trading, though the long-term results may make it seem that way.
Stamps are much the same. A stamp will trade in a very narrow band, then in a matter of a month or two move up 50 percent or more, to remain relatively quiescent for the next interval. This much we now about the stamp market. What we don't know are the two things we most want to: we do not know when a particular stamp will move, and we do not know how much it will move. But we have a theory. The collector is in reality the stamp market. It is he, for whatever irrational reasons, who buys this otherwise worthless piece of paper and puts it in an album never to sell it until dotage or death. One group of market analysts watches the larger stamp dealers, who sell primarily to collectors, to see what they have in short supply-- for it is collector demand that has pruned these dealers' supply. Such items usually go up in price. Theories on how much a particular item will go up once it has begun its move abound; unfortunately, they do not predict much better than chance.
Some people live with the mistaken notion that you have to be rich to invest in stamps. Now there are many different evaluations of which constitutes rich. The average family income in the United States in 1980 is almost $20,000. If you are average, and you have kids in college or braces (or, God forbid, both), you probably do not have enough money left over after expenses to invest in a movie and popcorn, much less stamps. But as your children gradually go onto someone else's payroll, and your home mortgage in real terms begins to demand less and less of your take-home pay, even a person of modest means can invest in stamps.
If someone can spend even $20 a month on stamps, he can derive a reasonable investment return from them in addition to the pleasures of collecting. From a strict standpoint of investing, a person spending only $20 per month should never buy more than one or two stamps each month. When you purchase lower-price stamps, you are buying almost all dealer handling. To prove the point, modern United States plate blocks, which most retailers sell at prices ranging from 85 cents to $2, sell wholesale in quantity for just a fraction over the face value of the stamps. To a collector, this does not matter; the later stamps that he buys-- which are cheaper and the price of which represents mostly labor-- he chalks up to his hobby. The earlier stamps that he has-- which are expensive and have significant growth potential-- he chalks up as an investment.
Stamps are an exceptionally poor short-term investment. If you go to sell your stamps, you will often get only 70 percent or less of their retail or resale price, which is considerably lower than conventional investment instruments. If you sell your stamps at auction, the commission will end up being 20 percent of the ultimate sales price, so you see that a relatively long holding period is the only way stamp investments will work. When you buy a stamp for $100, it is immediately worth $70 or less; and even with 15 percent per annum growth, it will take nearly three years to pull up again. But by compounding, assuming the 15 percent per annum holds, you should be able to sell the same stamp for a 40 percent profit after five years, and 175 percent profit after 10 years, all taxed at the preferential capital gains rate.