Market Watch - 5th October 2007

By Mike Hall, CEO, Stanley Gibbons Ltd.

The forgotten index - the most consistent and secure investment you are likely to find in the stamp market for long term capital growth.

"What an ugly little piece of paper," I'll think. Then Philip Kinns will work on me...Once Philip explains what makes the stamp special, then the "ugly piece of paper" morphs into something desirable. I soon understand the significance. The value becomes clear. And I buy.

I've bought many Commonwealth stamps from Philip since I've been with Stanley Gibbons.

Philip remembers every stamp he's come across. (He has a photographic memory.) And he makes a mental note of the imperfections of each stamp he sees. Fortunately for Stanley Gibbons, Philip is our philatelic director.

I feel safe buying from Philip, as I know quality is not something I need worry about. At auction, Stanley Gibbons passes over most of the items we view due to inadequate quality. And when we sell items, Philip details every imperfection in his stock descriptions. He accounts for any deviations from perfection, and he lowers the price we charge from the catalogue price accordingly.

In my opinion, Philip is the best in the world at what he does - which is buying British Commonwealth stamps. Yet investors often pass on Commonwealth stamps in favour of Great Britain rarities.

As I'll show you today, I think this is a mistake. Commonwealth stamps have a solid history of performance. And the outlook is bright as well. Let's take a look...

Commonwealth stamps keep up with similar GB stamps

You may be surprised to learn that Commonwealth Rarities & Errors, as a group, are up 8.1% in the past year. Our index for these shows a compound nine-year return of 129%. This represents an average annual compound return of 9.7%. For comparison, the index for stamps from Great Britain returned 10.7% per annum for the same period.

An average of 9.7% per annum over the past nine years is an excellent long-term consistent return by any standard. In 1998, the total value of our Commonwealth Rarities & Errors Index was £391,750. Today, the index is worth £897,000, more than double your money.

Key movers within Commonwealth Index

Some Commonwealth rarities and errors are up significantly this year. For example...

An unused 1875 Bermuda 1d. on 2d. "No stop after penny" error is up 25% from £20,000 to £25,000. An unused 1942 Malaya - Japanese occupation $50 green and yellow is up 20% from £10,000 to £12,000. And the largest increase in monetary terms in the year came from the 1930 Australia 2d. golden scarlet Tête-bêche (pair) which is up from £110,000 to £120,000.

This item is unique and last traded in 2003 at Spink Auctions in London. At that time, the estimate was £20,000 to £25,000. Back then, it opened at £36,000 and finally sold for £84,690 (including VAT and auction commission).

This huge price discrepancy brings up an important point for buyers now...Back then, the Stanley Gibbons catalogue price was £32,000. It's not unusual to see big differences between catalogue prices and market prices, particularly in rare items. Rare items trade infrequently, so the catalogue price is often nothing more than an estimate. We often see the rarest items sell at auction for much higher prices than Stanley Gibbons catalogue prices. The recent Bill Gross auction is a perfect case in point.

Why I feel safe investing in Commonwealth stamps now

I believe stamps from the Commonwealth and British Empire make a sound investment for three reasons:

1. I trust the integrity and skills of Philip Kinns to buy right.

2. I believe the "romance" and the interesting postal history of the British Empire ensures stamps from these countries will remain a popular collectible in the long term.

3. I believe Stanley Gibbons catalogue prices are prudent when compared to prices being realised at auction in recent years. The "market gap" must close in time.

Auction prices are often exceeding catalogue prices these days. This surprises me, as I'd expect to pay less than retail at auction to account for the "caveat emptor" risk. Stamp dealers go to auctions to buy their stock but are unable to do so when collectors enter fierce competition to secure prize items. Some examples from only a brief search of realisations from recent auctions in the past year or so include:

Many items still sell at auction at below catalogue price. But often the discounted price is condition related. It is clear to me that paying a bit extra when buying to get items in top condition is worth it in the long run.

The New Commonwealth & British Empire Stamps 1840-1970 Catalogue

I waited eagerly this year for the publication of our new traditional Part I catalogue. You see, for the first time in six years, it included stamps from 1952-1970. I was keen to see how stamps that I own from that period had increased in price. I was not disappointed...

Even at the low end, some of the price increases pleasantly surprised me. For example, my British Honduras 1964 New Constitution 1c, error orange-yellow omitted (SG 217b) increased in price from £60 to £90 (a gain of 50%!).

The catalogue clearly illustrates the strength of the market in Commonwealth stamps. The market for stamps from Australia, Canada and New Zealand looks particularly strong. We also see signs that India is entering a "boom" phase, fuelled partly by the increasing wealth in its home market.

The stamp collector is truly blessed nowadays...We can spend money doing what we enjoy, whilst building an asset of long-term value. If you're looking to commit new money, one overlooked area of value in my view is Commonwealth stamps.

British Commonwealth Rarities & Errors Index

Stanley Gibbons Investment Newsletter