In recent months, we have witnessed a rise in the price of premium quality rare collectibles as more investors turn to our asset class as a safe haven and a means of wealth protection. The recent record set for the sale of a single stamp in the UK for £1.1 million & an India 1854 Four Anna Victoria Head inverted sold for £ 105,390 , demonstrated this.
With news that banks are unlikely to pay a rate of interest that will keep up with inflation for at least the next two years, investing in tangible assets makes a lot of sense. Even more so when taking into account the tax advantages of investing in tangible assets.
Many investors turn to gold in times of panic, but it is important to consider the extent of the bull market that gold has enjoyed over the past few years. I think any downward correction here could be severe. It has happened before...
If you had invested in gold between 1980 and 1985, you would have lost 38%. Between 1995 and 2000, you would have lost 29% of your investment.
Rare collectibles on the other hand have a long term history of never declining in value. The reason for this is simple economics. We have a declining supply as items are damaged, lost, donated to museums or tied up in long term collections. Against that, we have rising demand...
Where is this demand for collectibles coming from?
It is not widely appreciated just how big the collectibles market is. There are an estimated 200 million collectors in the world.
It is widely known that we are seeing a rising interest in collectibles from the new middle classes in the Far East. This new dimension has provided a boost to the market.
Not only that though, there are more ultra high net worth individuals in the world now than there has ever been. Some of them have got into collectibles. Notable examples include Bill Gates, Roman Abramovich and Bill Gross (the famous bond trader and avid stamp collector).
Add to that the fact that the average collector is aged 65 plus. That demographic is rising rapidly thanks to the baby boom after World War II and people living longer. What that means is that we have an expected increase in demand for many years to come.
"No wonder financial advisers suggest adding stamps to an investor's portfolio. Investments in rare stamps can fetch annual returns of over 45%. On average, rare stamps have given returns of about 10-15% a year in recent years. They have given steady returns and occasionally".
Towards the start of this year, Dianomi Ltd undertook a wide ranging survey of almost 2,000 investors and potential investors in the UK.
The results make interesting reading.
Inflation was reported as the primary fear, with investors doing all they can to choose assets that inflation-proof their portfolios, whilst also selling gilts. As well as alternative assets, gold, silver and sectors like utilities and infrastructure are proving popular for the top investors
Two hot topics of discussion and where investors wanted free guides or reports included, "How to create a morally responsible banker" and "Guide to investments during periods of stagnation or inflation" - regrettably we can't help you with the former, but we do know that rare stamps have proven a strong hedge against inflation in the past and are proving their worth in that context once again. Their consistent growth rates, tracked on Bloomberg in the GB30 Rarities Index, clearly demonstrate their stagnation-busting ability, particularly as a medium-term hold.
It is worth noting, therefore, that rare stamps not only hold up strongly against other asset classes, but also provide an excellent hedge against inflation. As an indicator, the last time we experienced seriously high inflation, in the period 1975 to 1980, the GB30 Rarities Index actually increased in value by 593%.
What are the top investors buying right now?
Not surprisingly, 30% of investors are buying gold and silver compared to just 19% at the same time last year and property also shows some signs of recovery with 32% buying versus 24% last year - but from Stanley Gibbons point of view, the real news is that alternative investments have surged year on year, 29% of top investors are buying alternatives (including rare stamps and coins) against 17% last year.
When you consider the continuing buoyancy of the rare stamp market and the increasing profile of rare stamps as an asset class, uncorrelated with other mainstream asset classes, this is actually no surprise.
What's happening in the rare stamp market?
Unsurprisingly also, Penny Black prices are increasing, with added interest coming from abroad (particularly China) as well as in the UK.
Further afield, both the Indian and Chinese stamp markets are booming, with Chinese stamps particularly continually breaking all sorts of records at auction; the emergence of 5 new (philatelic) auction houses in Hong Kong in the past year points irrefutably to the region becoming a new powerhouse in stamp trading circles.
The key fact is: the stamp index has not dropped in value in any 5-year period over the past 50 years. You can now see why many financial commentators refer to our market as a "safe haven investment".
So - if you have been undecided about taking out an investment in rare stamps, now is your time to act.
Do bear in mind that although the rare stamp market continues to grow, every year.
Is it a bubble?
I think the term "bubble" is widely misused by financial commentators when referring to anything that represents a high growth market. There is validity in the concept though, that things can't go up at such high rates forever...
Ultimately, prices rise in accordance with demand against the inherent supply restrictions, which exist in the stamp world.
It stands to reason that the more expensive things get, the more collectors become priced out of the market. There will come a time when only the very wealthy have the funds available to participate in the market.
But, it is all a numbers game...
In China, there are over 20 million collectors, far more than the print runs of the stamp issues. This is in a country where wealth is rising. The Chinese elite get the importance of "tangible assets" in prudent wealth management and protection.
More and more money is flooding into the market. Naturally, this causes a supply squeeze.
It is not just the Chinese that are buying Chinese stamps...
"I would say presently that half of my buyers are from Mainland China and half are from outside China," said Louis Mangin, owner of the auction house Zurich Asia.
"Many Westerners also buy Chinese stamps. It is seen as a diversification and investment into China."
Stamp prices in China started at very low levels. Chairman Mao banned stamp collecting, which remained in force until his death in 1976. Since then, the Chinese have been frantically buying back their postal heritage scattered around the world.
But, it seems that highly sought after stamps still trade at very affordable prices.From experience at auctions in China, this is the most liquid stamp market in the world, where one has never before seen so many collectors bidding in a room at one time. It staggers oneself when we see the price of a stamp going above £100,000 and there are still a dozen collectors in the game.
One day, this may become a bubble. Right now, it is a simple high growth market supported by huge and rising demand against severe supply restrictions.
investors will benefit from a "quality re-rating" when the Chinese ultimately begin to appreciate the premium rarity value of quality examples.
That is on top of the underlying growth in this asset class. The recent Merrill Lynch Wealth Report states that there are around half a million Chinese millionaires, (31% more than in 2008).
According to Barclays Capital, the Chinese account for 12% of the world's luxury goods market. The Chinese want to show off their new wealth to the world. The stamp market is just one part of this revolution.
Demand is always far in excess of the available supply in the market.....
The Chinese& Indian stamp market will remain highly lucrative for the foreseeable future. It is already the biggest and most important stamp market in the world.
To summarise the economics, you are:
Investing in a tangible asset;
In a growth market;
Not tied to the strength of the UK pound, US dollar or Euro;
Non correlated with other asset classes;
Benefits the most in times of high inflation.
Visit
stampsofindia.com site & check in philsensex june 2011, to know the current rates of indian stamps & New Issues for commemorative stamps .
www.philamirror.com
http://rainbowstampnews.blogspot.com/
http://www.indianstampghar.com/indian-stamps-2011/
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