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Stamps and Financial Investment. Steve Satchell; Trinity College, Cambridge. European Inquire Istanbul October 2012. Purpose of Talk. Stamps as investment assets From perspective of high net worth (HNW) From perspective of institutional investment. Stamps as Investment Assets.

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Stamps and financial investment

Stamps and Financial Investment

Steve Satchell; Trinity College, Cambridge.

European Inquire


October 2012

Purpose of talk
Purpose of Talk

  • Stamps as investment assets

  • From perspective of high net worth (HNW)

  • From perspective of institutional investment

Stamps as investment assets
Stamps as Investment Assets

  • Valuation

  • Data

  • Portfolio Construction


  • Stamps are assets with no fundamentals but which deliver a stream of consumption.

  • Consumption is happiness from ownership or

    form of compulsion

  • Unbelievably heterogeneous in nature (classic stamps) unlike shares.

  • Modern material typically homogeneous. Valued as mint and essentially identical like shares.


  • Stamps deliver a stream of happiness to the collector but...

  • Murky behavioural issues. Extreme collecting becomes addiction.

  • Prices largely determined by demand as supply for classics is fixed.

  • But...As the prices moves up, this induces people to sell their collections so short run supply is upwards sloping as a function of price.

Existing research
Existing Research

  • Most well-known Dimson and Spaenjers;


    . Uses SG catalogue prices over 1900 to 2008,

    Finds annualised return of 7.5%,real return of 2.7%

    Between equity and bond


  • Does not factor in psychic “dividends”

  • Does not take into account one-way costs of circa 25 to 30%

  • Clearly this must impact on holding period

    and net return;10 year horizon too short for investment.

Stamps and financial investment

  • Three versions of data, one is the catalogue price, Stanley Gibbons, Yvert, Michel, Scotts etc.

  • Second are auction realisations.

  • Third are stamp indices.

  • All are highly problematic, stamps sell retail at fractions of catalogue and sometimes high and sometimes low. Auction realisations tend not to include various substantial commissions. Stamp indices usually constructed by vendors and have numbers of obvious flaws.

Stamps and financial investment

  • Attempts to index by looking at a particular stamp

Valuation arbitrage1
Valuation Arbitrage

  • Stamp 1 in SG at £65. Very nice used copy, slightly heavy postmark. Fine rather than superb. Worth £20 (30%)

  • Stamp 2 in SG at £1500 but grubby used copy. Possibly worth £30 (2%).

  • Stamp 3 is mint (1849) and very rare, in SG at £8000, looks beautiful but thinned on back. Possibly worth £200 (2.5%).

Valuation arbitrage2
Valuation Arbitrage

  • Valuation for these heterogeneous classic stamps very complicated and gives clear advantages to those who are better at it than others.

  • However, one solution is to only collect perfect specimens without other positive characteristics, hence much less variable.

  • In particular, relying on catalogue values very misleading.


  • Stamp Collecting both widespread and elitist.

  • Investment is at the elitist end of the market.

  • Theory of luxury goods ,in normal microeconomics ,utility U=U(X) where X is the vector of goods consumed

  • Luxury Goods, utility U=U(X,P) where P is the price, the goods give us happiness because they are expensive


  • Capitalist Spirit; U=U(X,W);happiness stems from how wealthy we are, not what we eat

  • Investment grade Stamps are durable luxury goods; they give us consumption but differ from a peach, more like a share or Art.

Portfolio construction
Portfolio Construction

  • Suppose we want to build a portfolio where all stamp prices are increasing functions of quantity.

  • Very little economic theory or models to help us here.

  • However, practitioner MV models with impact/ transaction costs do address this problem and give numerical solutions.

Portfolio construction1
Portfolio Construction

  • Asset Allocation: If I wish to invest E100,000,000 in emerging market stamps then some countries would provide huge problems due to lack of material.

  • European countries well represented as are major former colonies.

  • Some Asian countries have had spectacular growth, notably China/India. But Indonesia/ Phillipines have barely moved.

Hnw investing
HNW Investing

  • Stamps here work very well, investor can collect and get utility buying through investment vehicle or privately.

  • Problems, huge transaction costs. Big auctions 30-40%, small auctions 15-25%. So buy and hold is the only strategy.

  • Private trading via eBay is possible. Counterparty risk is a problem.

Institutional investing
Institutional Investing

  • This seems very problematic.

  • Storage is an issue.

  • Insurance is an issue.

  • Segregating material is an issue.

  • Long term co-mingled fund a possibility but

  • Accounting for possibly millions of stamps in varying condition very difficult..

Stamp econometrics
Stamp Econometrics

  • Possible to look at returns to country stamp indices as function of explanatory variables.

    • 1 Wealth

    • 2 Nationalistic Fervour

    • 3 Currency Controls

  • Generally stamps have performed well when inflation is high as they are seen (possibly erroneously) as hedge to inflation.


  • From a finance perspective stamps have limited investment appeal except for HNW investing where investor gets pleasure from activity.

  • From a quant perspective data are terrible.

  • Costs are so high that not factoring them into returns gives fairly meaningless answers.