Our Chief Executive reports on the performance of the Commonwealth 30 Rarities & Errors Index over the past year
Dear Reader,
You may think of our Commonwealth Rarities & Errors index as the poorer cousin of the GB index.
But, I think differently...
Some of the most beautiful stamps in the World come from British Commonwealth countries. And... I collect them!
All the excitement just now surrounds the strong growth in stamps from Great Britain. The GB30 Rarities Index showed an increase of 38.6% over the past year.
The Commonwealth index performance for the year was less spectacular, but there is a good reason for this. I will show you why later...
The Commonwealth index increased by 6% over the past year (2007: 8.1%).
The compound 10 year return of the index since inception in 1998 is 142.8%...
This equates to an average annual compound return of 9.3% over a ten year period.
To view the full index click on the link below:
Commonwealth Rarities Index
I look upon my own investments in stamps as a family heirloom. Something my children will inherit. Perhaps they will cash them in to fund their own retirement.
The longer term returns from the Commonwealth index have been even stronger. In 1975, the total constituents of the index were worth £30,010. Today, they are valued at £951,000. This equates to an average annual compound return of just over 11% during the past 33 years.
These consistent long term returns make me comfortable that my own investment will be a legacy that I can take pride in.
Should historic returns continue over the next 50 years, an investment of £100,000 today could be worth £18.8 million by 2058.
My children will be close to retirement age by then. This one investment would fund a very comfortable retirement for them, irrespective of what else I leave behind.
Why are the returns over the past year lower than for rare stamps from Great Britain?
If you read my report on the GB30 Rarities Index, you will know that the GB30 Rarities Index increased by 38.6% over the past year.
The main difference is that many of the items in the GB index traded in the year...
The auction in June last year of the GB collection belonging to the legendary investor, Bill Gross set a benchmark. Other auction houses have since followed those prices...
Follow the link below to read the report on the GB30 Rarities Index:
Market Watch: An Exceptional year in GB Rarities
The fact is only 10 of the 30 Commonwealth stamps in the index actually traded over the past year.
The prices of items traded reflect the current open market price unless we have reason to believe that the most recent open market price was a statistical anomaly or perceived unsustainable based on our overall market experience.
Unfortunately, the index performance is held back by the inherent lack of liquidity due to the level of rarity of its constituents.
What this means is that two thirds of the index did not trade over the past year. We adopt a prudent pricing mechanism in the absence of external trading information.
Our overriding assumption in the absence of any other information is that if the stamp did not trade the price remains the same.
In some cases, prices go up by around 5% where we feel confident based on market conditions and prices realised for similar stamps that the market value will increase when next traded.
So, to sum up this long winded explanation...
The Commonwealth Index lags behind true market values.
In investment terms, this is what you call a buying opportunity.
This is no different to recognising a buying opportunity in the stock market. To illustrate by example...
Think of a company operating in a market where conditions are in its favour and is soon to announce its results. Market expectations are that the company will grow by around 10% in the year yet the share price is the same it was a year ago. The company has not issued a profit warning; therefore, the assumption is that results will be in line with forecast.
Generally, this represents a safe buying opportunity under my investment philosophy that if an investment opportunity looks obvious, it probably is obvious.
I believe Commonwealth Rarities represent a similar characteristic, but we need a catalyst...
Bill Gross announces the sale of his Commonwealth Collection
Here we have the catalyst...
On Friday October 3, 2008 another impressive collection formed by William H. Gross - his collection of Important Postage Stamps and Postal History of the British Empire - will be sold at unreserved public auction in New York City.
Should history repeat itself, we may see record prices set for Commonwealth Rarities in the same way we did last year for GB Rarities. As mentioned earlier, this contributed significantly to the GB30 Rarities index increasing by almost 39% in the past year.
The Gross Collection of British Empire is a relatively small (138 lots), but remarkable assemblage of highly desirable and seldom seen rarities of the British Empire.
We will soon see what the market believes is a fair price. The prices within the Commonwealth Index need to reflect open market prices.
See the full index on the link below and tomorrow I will share with you what I believe to be an exciting opportunity in the Commonwealth market.
Commonwealth Rarities Index
Sincerely,
Mike Hall
Chief Executive
The Stanley Gibbons Group
Background on COM30 Rarities & Errors Stamp Price Index
The Commonwealth 30 Index lists rarities and stamp errors available on the open market, and gives an accurate picture of the market for scarce items. Stamps included in the Index represent examples of the type of classic material recommended by the Stanley Gibbons Investment Department to its clients. Such stamps are considered to be the most likely to show consistent returns over the medium to long term, as demand from collectors exceeds what, in many cases, is a very scarce supply.
The prices quoted are from Stanley Gibbons published catalogues which represent the estimated selling prices of Stanley Gibbons Limited at the time of publication. They are for examples in fine condition for the issue concerned. Superb examples are worth more; those of a lower quality considerably less.