The Economics of Stamp Collecting

It's natural to want to get money back for something you buy, and many of us put a lot of money into our collections, whether they be stamps or trading cards or antiques or paperweights. We start to think of our collections as investments, with guaranteed returns ready when we retire or expire. And that's our mistake. Collectibles are not an investment in the way that real estate and stocks are. Even those conventional investments are not sure things - witness the recent implosion of some segments of the stock market (I am writing this May 26, 2000). Collectibles are a far more volatile market, and largely a retail market at that. We don't expect to sell our cars or sofas or kitchen utensils for their original value, so why do we think we can do it with our stamps?

Stamps do have an intrinsic value of sorts, of course, and that's one source of our confusion - almost every stamp issued in this country for the past 150 years is still valid as postage at its face value, and most of them were issued in such large quantities, and saved by so many collectors, that they are still worth only their face value. Consider this, though - you can't take stamps to your Post Office and redeem them for cash. You can't even trade them in for other stamps - once you walk away from the postal counter, the stamps you bought are yours, period. Granted, there have been periods in this country when stamps WERE used as currency, especially during and after the Civil War, when there was a shortage of coins. But you are unlikely to find a merchant willing to take stamps in lieu of cash today.

Another source of our confusion is the 'catalog value' of stamps. If I look up all my stamps in a Scott Catalog or a Brookman Pricing Guide, it looks like I'm sitting on a gold mine. So why aren't all the stamp dealers rich? There are a few who are doing well, but most are just getting by, their stamp dealing is a hobby, a pastime. It costs fifty to a hundred dollars a day to rent a table at a stamp bourse these days, several hundred a day at a major show. Add to that the cost of driving one's stock to the show, setting up and tending a table, renting a room for the night, meals, taxes, losses to theft and bad checks, etc., and you should begin to understand why no dealer can afford to pay you more than half what he hopes to sell your stamps for. AND that's for the stamps with a good market, the MNH or LH, VF or better, clean attractive items with a catalog value of $50 or more. A stamp like that will probably sell fairly quickly, but the cheaper ones, or ones that don't look as good may languish for months or years in a dealer's stock. So now add the cost of keeping an inventory, which a dealer of course needs, since he can't attract repeat customers unless he does a reasonably good job of filling their Want Lists. I try to give my business to my favorite dealers as much as I can, but when an item has been on my list for several years and none of the guys I like can sell it to me, I start looking elsewhere. You are starting to understand, I hope.

What about the old advice that the high-end items will always increase in value, so you should buy only the best, and the most expensive items first? Well, there's some truth to that. What I said above about a dealer having a better chance of moving a high quality item is true, so if what matters most to you is getting back the highest percentage of what you paid when you sell, buy only the best. That doesn't mean you'll make a profit, of course - you're still buying at retail and selling at wholesale. The dealer still has to make a profit. And there's still no guarantee you'll get any fixed percentage of your original 'investment'. A dealer will pay based on current catalog value, and catalog values can fall - compare the catalog value of a set of Zepps in 1982 to what it is now. On the other hand, the difference in price between the really good items and the merely ordinary ones can be enormous. If your resources are unlimited, by all means buy only the best, but I prefer to fill a whole page with decent, ordinary stamps, rather than buy one gem. I'd like to complete my collection in THIS lifetime.

How about auctions? The commission charged the seller is typically only 10 or 15 percent. That sounds like a pretty good deal. And one can do well selling top-quality material at auction at the right time with the right auction house. So if you have only top-quality material, an auction is probably a good way to sell. Otherwise, well, not so much. No matter how high the catalog value of an item, if its quality is poor, no one will want it, or they will be willing to pay only a small fraction of catalog. And auctions are best for big-ticket items - most auction houses have minimum values per lot - it doesn't pay to auction an individual lot worth less than $40 or $50. So your lower value items must be either grouped - which generally means they will sell for a lower percentage of catalog value - or sold somewhere else, and you are back where you started. Even with the items worth big bucks, there's no guarantee - I have tracked items that sold for $10,000 a year ago, but only $7,500 today, simply because tastes changed or the right buyers were on vacation. Can you set minimum bids? Maybe, but you may also have to pay for that privilege, e.g., pay a fee for each lot that fails to sell. So an auction is something of a gamble, no matter what you are selling. Again, only the dealer has a good chance of making a profit.

What it comes down to is this - the stamp market is really many markets, each with separate rules. There are the physical markets - dealers, auctions, bid-boards, the Internet, etc.; and there are the material markets - New issues, classics, high-catalog items, low catalog items. If you are buying new issues, most of them will never be worth more than face value. Yes, there are occasional exceptions, like the Bugs Bunny imperf sheetlet, but buying those cheaply is largely luck. If you are buying high-catalog items, over $50, say, and taking care to get authentic, decent quality material, and to pay a reasonable price based on condition, you should be able to do reasonably well, if you can choose when and where to sell. For the rest, items with catalog values in the $5 to $50 range - and pretty much regardless of age - are seldom worth more than half of catalog.

Horse trading is definitely a critical part of preserving your investment. By that I mean you have to know what you are buying and selling, and what it is worth, and one critical factor in that is authenticity. Most reputable dealers will guarantee the genuineness and value of what they sell, for a reasonable period. If you buy an item that turns out to be a fake, or to have hidden faults, an honest dealer will refund your money, IF you make the claim within a specified number of days or months. After that, you are on your own. So you should learn the basics of authenticating what you collect, or insist on a certificate with all the tricky items, or have everything authenticated yourself. Most reputable dealers will agree to sell tricky items contingent on a certificate, i.e. if you send the item to a mutually agreed upon expert, and the item is returned as a fake, or faulty, they will refund what you paid, plus the cost of the certificate. Just be sure those terms are clear to both of you. Your best protection is knowledge. Learn how to detect fakes, and avoid questionable material. Get a certificate if you are the least bit unsure. There are good books available to teach you.

Dealing with knowledgeable, ethical dealers is essential, and one good way to judge a dealer is to ask him questions such as what societies he belongs to. If he does not belong to either the APS or the ASDA - preferably both - you might want to take your business elsewhere - both of those organizations require applicants to sign a strict Code of Ethics to join, and to adhere to those standards to remain members. Sure, that's no guarantee, but it's a start. And membership proves a dealer is serious about his profession.

Another thing you should ask someone you intend to do business with is What is his policy on returns? I know a few dealers who say they will take anything back, any time, and give a full refund, no questions asked. Most will give refunds if you return items within a specified period. If a dealer is offended by the question, or has a very restrictive policy, I recommend you avoid him. And while you are at it, ask your dealer how much he will pay to buy back an item five years from now, i.e., how he evalates material for purchase.

Another essential part of 'horse trading' is knowing what percent of catalog value to pay for something. If you paid too much to begin with, you're very unlikely to be pleased with what a stamp is worth when you go to sell it. So how do you know? As with most things in life, experience is the best teacher, and you will probably have to make a few mistakes before you figure it out. Here are some ways to start:

- Go to a stamp bourse and look at the stock of several different dealers. Compare their prices for items you want to buy. How and why do those prices differ? If Dealer A has a stamp at $40 and Dealer B has the same stamp at $60, is the more expensive stamp better in some significant way? Is its centering or gum or color markedly superior? Ask those two dealers how they price their material, and if you are brave, ask them to explain the difference in price. How they answer may tell you which one you prefer to do business with.
- Watch auctions for items you are seeking, decide what you think those items should sell for, then compare your expectations with the actual final bids.
- Take some items from your collection and show them to a few dealers - ask them what they would pay you for them if you wanted to sell them.

By the way, you should keep track of what you pay for any item worth more than $20, and what percent of current catalog value that was, and where you bought it. If you do not know what you paid, you have no way to judge whether you are getting a good price when you sell. This is especially true of items for which there is no catalog, such as covers. I have seen the same cover at several different dealers, priced as low as $5 at one, and as high as $100 at another - the higher price may be realistic, or it may be wishful thinking, but if you pay the $100 price, it will help to know where you got that item when you want to sell it.

When and where to sell is also an important part of getting a good price. I discussed some of the pros and cons of selling at auction; other options include outright sale to a dealer, bid boards, private treaty sale, and the Internet. Each has its merits, and is better or worse depending on various criteria. If you have plenty of time, experiment with them - sell a few items each way, and see which gives the best return. Time can be a critical factor, no matter how you choose to sell. The stamp market has been strong for good material lately, but if you need cash within a month, you probably won't be able to get the best price, because pretty much your only option will be an outright sale to a dealer.

Preparing your collection for sale is also an important part of getting a good price - as I mentioned above, mounted collections, especially with hinges or mounts that make it impossible to examine the stamps, will almost never get a good price. One exception might be an award-winning competitive exhibit, which could be worth more as a unit than as individual items. But that is rare. If you insist on selling a collection as a unit, prepare to get less money for it.

Let's suppose you have taken the time and effort to transfer all your stamps to high- quality stock pages - not the cheap manila kind that conceal most of the stamp and end up mangling half the stamps you put in them, but the black cardboard ones with rows of plastic holders, so that it's easy to get the stamps in and out safely, and to examine the gum side with minimal trouble. You have organized them by catalog number, and also written up little labels with catalog numbers, maybe condition, and catalog value, like this - nothing fancy, just clear and simple.

"Hey, that's a lot of work," you say. "Well, Duh!" as your ten-year old grand-son might say. Did you think your dealer's stock books got catalogued by magic? Depending on the value of the stamp, he will have to verify what you do, but he'll be saved a large part of the work. If he likes what you did well enough, he may even offer you a job as his assistant! Then you can REALLY learn the economics of stamp collecting.

Next, having put everything on stock pages, and sorted and identified it with catalog numbers and values, decide how much you think each item is worth. If you bought wisely, you can expect to get 60% to 80% of the same percentage of catalog value that you paid. So, for example, if you paid $100 for an item when the catalog value was $200, and the current catalog value is $250, you can hope to sell it now for $75 to $100. In my experience, that rule holds true almost regardless of how you sell, on average. You may get more for certain items in certain markets at certain times, but that's largely luck. If you are selling an entire collection, those differences will even out.

BUT, please remember, what I am saying applies only to the higher-catalog items. Stamps you bought at face value, or with retail values under $10, are not going to be worth more than half what you paid for them.

What I am saying here is just my experience, of course - but I do have the experience. I have been buying and selling stamps for about fifteen years now, and what I have written here is what I have learned. Your experience may differ, but the key thing is to gain that experience. Don't wait until you decide to sell your collection to learn how to do it. You must have some duplicates or some material you just don't want. Sell it now, and learn how.

Condition, Condition, Condition! In real estate, the three keys to value are, Location, Location, Location. In stamps, it's Condition, Condition, Condition. Look at the three stamps below. All are Scott 68 - Which is worth the most, and why? Which the least? Why?

I hope you said the one on the left is worthless, and the one on the right looks like it could be worth more than full catalog value ($450 in 1997). The one in the middle, well, a few bucks. The reasons have to do with condition. A mint stamp is (almost always) worth more than a used one. A stamp that looks Post-Office fresh is ALWAYS worth more than one that is stained and scuffed and creased. A stamp with a light cancel is worth more than one with a dark cancel, unless the cancel itself has value. A stamp that is well centered is worth more than one that is not, unless the centering is so dramatically wrong that it qualifies as an error. A stamp with a tear or crease or missing perf teeth is worth less than one without those defects. If you are not paying attention to these factors when you buy stamps, you will be sorry when you go to sell them.

For more on this topic, look at GUM, CENTERING, FRESHNESS and PRINTING on my glossary page.

Why would anyone WANT your moldy old stamps, anyway, except as postage? That question gets at a fundamental issue here, supply and demand. Most U.S stamps of the past sixty years were printed in such large quantities, and saved in such large quantities, that one can still buy full panes of them at near face value - I see stacks of the 3-cent commemoratives of the 1940's selling at face value in shops and bourses all the time. Or write Karl Anderson, PO Box 51258, Provo, UT 84605, and ask him to send his next price list (be sure to enclose $1 in mint postage - it's a big list). He sells mint panes (he calls them sheets, but we know better), at bargain-basement prices - and he makes a profit. So why should someone pay even face value for your collection of ordinary mint singles, or even plate blocks (check out Karl's Plate Block section in that same list)? Again, it's the catalog value that is misleading us - that's the price a retail dealer has to charge to make it worth his while to sell the stamp. Check out any dealer's price list for new U.S. issues - he's asking 1-1/2 to 2 times face value, for stamps you can buy at the P.O. for face. The value he is adding is the convenience of no- wait, one-stop shopping. But the stamps are still worth only their face value as postage. Putting them in your album does NOT magically increase their value to the catalog value. (Karl Anderson is on the www now, too, of course))

And by the way, it's very unlikely anyone wants your stamps mounted in your musty old album - most likely they will have to invest all the time and effort to unmount and examine each stamp. Do you use hinges? Uh-oh - deduct 20% to 50% from the value of anything that IS worth more than face. Do you use some old style mount that encloses the stamps in a death grip, and may conceal major faults or damage? Then your collection will be lucky to bring even half of catalog value, no matter what you have in it.

AND all you have are a bunch of singles, so even as postage they are a mess to deal with - a dealer will be hard pressed to pay more than 2/3 of face for them. You'll get more for larger multiples, in quantity - I know dealers to whom I occasionally sell my accumulated surplus of partial panes of recent U.S. issues at 85-90% of face - I sort it by denomination and count it and put it into glassines with values written on them to save the dealer the labor. I'll never use that much postage, and the money does me more good in my pocket. But note that I am still losing money. Why do I buy all those stamps I don't need? Generally because that's the easiest way to get what I want quickly - the postal clerk might tear out the ones I want from a sheet, but it would take time, and they might not do the job as well as I will. It might be cheaper to buy only what I want, from a dealer, but I ENJOY doing it this way.

And that's perhaps the most important reason to collect - the enjoyment. You can't put a dollar value on it, but you don't expect to get paid a profit for other things you do for enjoyment - you pay 5 or 10 dollars to see a movie, and what do you have to show for it afterwards? They don't even refund your money if the picture is a dud. So think of your stamp collection not as a financial investment, but as a spiritual one. The reward is the pleasure and relaxation it provides. Instead of trying to sell it, give it to a grandchild who shows an interest. Or donate it to your local stamp club for their annual fund-raising auction.


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