15th June 2005
"SEPARATING THE WHEAT FROM THE CHAFF:
THE SELECTION OF INVESTMENT-GRADE STAMPS"
by Gary Watson
There are three common misconceptions that cloud people's judgment when it comes to assessing the quality of classic and antique stamps. First, that all old stamps are valuable. Second, that anything that's old should be expected to have defects. Third, that stamp catalogues are infallible on pricing.
Here's the reality. First, most stamps, including many that are over 100 years old, aren't worth a cracker, and never will be. Second, it is possible to obtain examples of most stamps, regardless of age, in very fine to superb condition. Third, catalogue prices are at best only a guide to the value of stamps in very fine condition: superb stamps will often be worth much more, while defective examples may be worth only 1 or 2% of those quotes.
There are three things that determine real value: quality, rarity, and demand. Of these by far the most important is demand. But it is fair to say that rare stamps of the finest quality are always likely to be in demand.
When it comes to creating an investment portfolio, demand - both current and anticipated - should always be considered, but rarity and quality should not be compromised. Ideally, every item you acquire will be difficult to source and in perfect condition.
The Ideal Stamp
The ideal stamp will be of very fresh appearance
with original colour. The design will be complete, including
any outer framelines, and with no abrasions. The gum, if present,
will be original and well preserved. If used, the stamp will
be neatly cancelled. If the subject is imperforate, it will
have margins clear of the design on all sides. If it is rouletted
or perforated, the design should be intact but the standard
of the separation will vary from issue to issue. (Rough perforations
are not necessarily reason to downgrade a stamp.)
A major impediment to obtaining very fine examples of many nineteenth century stamps is the fact that the individual impressions were often placed too close together. Even the major British security printers Perkins Bacon had serious difficulties in this area. Their plate-making technique often bore results that can best be described as chaotic.
It was often the case that if a post office customer was supplied with a full-margined stamp, all the adjoining units would necessarily be "cut-into" and thus defective right from the point of sale.
Several aspects of what one needs to assess when buying stamps for investment are best addressed pictorially. In each case, it is appropriate to use common words "very fine", "fine" and "average" as imparting an easily understood message. (As an aside, it might be noted that in America, degrees of "fineness" relate only to centring, which in the author's opinion is a sad abuse of language.)
Imperforate Stamps - Margins
Very Fine Fine Average
Perforated Stamps - Centring
Very Fine Fine Average
Used Stamps - Cancellation
Very Fine Fine Average
In each category, there should be a major disparity in prices between the different grades. A simplistic example might be: the fine example is worth $100; the very fine example is worth $200; the superb example is worth $500; the average example is worth $30; and the poor example is priced at $5 (and not worth owning).
Grading Coins and Banknotes
Collectors of coins and banknotes are familiar with the simple grading scale F, VF, EF, Unc etc. Other systems enjoy currency (pardon the pun) including an American system for grading coins that has 100 levels of quality!
Most aspects of these grading systems are objective. Does the coin exhibit any bumps, dents, rubbing, cracks etc? The presence, or absence, of such characteristics when taken together allows for a grade or standard to be assigned.
Because the assessment process is largely objective, consistent grading is possible. The level of consistency contributes to the level of confidence that buyers have. The greater this confidence, the more the buyer is prepared to accept the dealer's statements regarding the coin.
The question might then be fairly asked, "Why don't stamp dealers routinely grade their products?" To a limited extent they do. Many traders will distinguish used stamps as "good", "fine" or "very fine", based on the degree of disfigurement of the cancellation. Mint stamps are rarely noted as anything other than "mounted" (previously hinged) or "unmounted".
However, to focus on just one aspect of a stamp's "personality" is to take shortcuts that can result in a buyer being sadly mislead. Proper grading requires expert assessment of all aspects of how a stamp presents. For example, just because an unused stamp has unmounted gum doesn't make it a candidate for an investment portfolio. What is the centring like? Are all the perforations intact? Is the stamp toned, soiled, or showing signs of aging? Has the ink faded or oxidised?
I regret to say that in the philatelic marketplace, grading is generally seen as unnecessary or too difficult. Sweeping statements such as "Old stamps cannot be expected to be as fine as modern stamps" are completely useless to buyers and invite the sellers to be rather loose with their language. Another common problem is the assertion that one shouldn't be put off if an old stamp has faults. After all, goes the argument, what would you look like if you were 100 years old?
Several of the prominent auction houses in America have taken to over-describing material, sometimes to a nauseating extent. The twin dangers are that one either drowns in verbiage or tends to skip the prose in favour of the illustrations.
I'm proud to say that my business, Prestige Philately, is the only world-class auction firm that properly grades the stamps and other material on offer. What we seek to do is provide clients with a simple at-a-glance guide to our lots, allowing them to quickly decide if an item satisfies their standards, without having to read the full description or examine the illustration.
The Prestige Grading System (PGS) is a deceptively simple alpha-numeric regime that provides an overall grading plus, in most cases, separate assessment of key factors being centring, quality of perforations, gum and cancellation.
I say it's "deceptively" simple because, even though we have made no attempt to protect the PGS, only one minor firm in the whole world has copied it!
Using the PGS, a client can literally tell at a glance if an item is unmounted, well centred and, overall, very fine. Stamps graded "A" are very fine and have no faults; those graded "B" are fine but may have minor imperfections; "C" is for a stamp with obvious faults; while an item in poor condition - and we offer very few of them - is adjudged "D".
Many clients refuse to compromise on quality. If an item is not graded "A" they don't want to know about it. With PGS, it takes a split second to make that judgment. Add in the other components of the grading system and, at least at the most basic level, full written descriptions are almost redundant.
For clients with an eye for investment-grade
material, again the PGS provides instant access to their needs.
If an item is graded "A A1" it is, almost by definition, of
investment standard. "A B1" or "A A2" might qualify but a
stamp graded "B B2" is unlikely to be considered for this
purpose, though it may be perfectly acceptable for the general
At the top end of the market, tiny variations in quality can make a huge difference in value. The three stamps shown here are all unmounted examples of the Third Watermark £2 Kangaroo. They were sold as consecutive lots at an auction in January 2004.
The first is centred slightly to the right but is otherwise an excellent item: it sold for $4928. The second example is similarly centred but to the left. It is a marginal example and, to some people, more appealing for that: it fetched $5152, from which it might be said that the piece of selvedge added $200 to the value. Both of these stamps were graded "A B1", meaning that they were very fine, but slightly off-centre. The third stamp, also from the edge of a sheet, is perfectly centred and of outstanding freshness. The difference in centring, measured at less than half a millimetre, and the overall grading "A+ A1", added over $7000 value to this stamp which was bid up to $12,320!
It must be said that just because a stamp is of investment grade, it is not necessarily appropriate for a growth portfolio. This is where an in-depth expert knowledge of the market becomes invaluable. While, as has been noted above, grading is a largely objective exercise, the ability to discern market trends and anticipate future returns is derived from long-term immersion in and understanding of the market dynamics. It is inherently subjective, more art than science.
This is where the truly professional dealers, and that is a small minority of traders, come in. The would-be investor, especially if he or she is new to the market, should seek professional advice on establishing a portfolio. This process can be as hit-or-miss as selecting a financial adviser.
A common trap is that the dealer has a vested interest in recommending items that he has in stock, and may even take the opportunity to clear out stamps he has despaired of ever selling.
The adviser you select must be able to demonstrate his knowledge of the market and his ability to properly grade material. He probably won't use my terminology but he needs to project a high level of competence. If he doesn't fill you with confidence, move on.
Investment in stamps should be approached with a combination of caution, scepticism and patience. It's your money so don't be railroaded into spending it on sub-standard material or otherwise inappropriate items. Study the market, especially retail price lists and auction catalogues. Don't be in a hurry to spend the funds you make available for the project.
And don't expect to make an overnight killing or to double your outlay in a year. It can happen, but more often than not simply as a result of being in the right place at the right time. If you develop your strategy around "luck" you are headed for disappointment. However, as with any other endeavour, the harder you work at your investing, the "luckier" you are likely to become.
How will you know if you are pursuing an appropriate investment strategy? Show your acquisitions to knowledgeable philatelists. If they respond with lots of "Oohs!" and "Aahs!" you are probably on the right track.