Graded US Stamps - Collecting vs. Investing

Notes From Jay's Desk - March 2007
Can stamps be viewed as a legitimate investment? What is the difference between a collector and an investor? What makes a stamp the right stamp? Check out these thoughts from world-famous rarities dealer, Jay Parrino:
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For philatelists around the world, the last few years have been an exciting time! A universal grading system for US stamps, created by the Professional Stamp Experts (PSE) and quickly adopted by the Philatelic Foundation (PF), has revived a long-depressed market that was fraught with forgery and misrepresentation. Bidders and buyers, with the increased confidence provided by these services, have been paying higher and higher prices. These higher prices have, in turn, prompted some of the finest collections of US stamps to be brought to market, generating record prices time and again.
Can Stamps Be Viewed as a Legitimate Investment?
People start to cringe when stamps and investment are mentioned together. Many will say that collectibles should be collected, not invested in. They say the market is too volatile, too unpredictable; that investment should be limited to established markets, like stocks and securities. Yet, events like the dot-ge bust, the Enron debacle, and the market plunge of late February, have investors looking for alternatives.
The fact is, stamps (specifically, graded US stamps) are a prime market for investment. With a little research, using industry leading tools like StampTracker and the JP-100 Stamp Market Index, it begees evident that the stamp market is not only a legitimate investment - it could be your best investment.
Collecting Stamps vs. Investing in Stamps
People have been collecting stamps since they were created over 150 years ago. What is it that motivates collectors to pursue this hobby? While each individual has his/her own unique reasons, many of the stories are surprisingly similar. Oftentimes, the hobby begins at a young age, licking and sticking stamps onto album pages. As time passes, aparticular area captures the collectors attention and he narrows his focus. Fascinated by the history surrounding these miniature works of art, he learns all he can about them, how they were designed, printed, perforated, used. Now the collector searches, not just for any stamp to fill the spot in the album, but for the best stamp he can find. A set begins to take shape, and the collector is always on the lookout to fill the empty spaces and/or replace the ones he has with better examples. What was once a hobby, is now a passion.
What every collector realizes early on, whether he is collecting stamps, coins, baseball cards or whatever, is that every set has its key pieces. Everything else is relatively easy to find, but the keys, those are a different story altogether. Generally speaking, ten collectors putting together the same set of stamps will all have the same one or two holes in their sets. And when one does gee up for sale, all ten collectors need it, none of them have it, and they will stretch to get it.
It is these key pieces that deserve the attention of investors. Rather than building sets, an investor builds an inventory of keys. While grading continues to increase buyer confidence and general market demand, the demand for key pieces is always enhanced, always ahead of the market. By the very nature of collectibles, supply is finite; in the case of keys, it is often extremely limited. Smart investors recognize that increasing demand plus extremely limited supply equals a good investment.
Some will say that todays stamp market is a bubble waiting to burst; that now is the time to sell, not buy. Thirty years ago, they said the same thing about coins. The truth is, if you buy the right stamps, or the right coins, it doesnt matter what the market does. Sound crazy? Using the coin market as a reference, do the following exercise: Find Red Books for 1950, 60, 70, 80, 90, and 2000. Open any book to any section and find the most expensive coin for that section. Then go to the Red Book of ten years later and find the same coin. The prices dont go down, they only go up - even in the midst of so-called "bad" coin markets. As the graded stamp market matures, the results will be the same. Great rarities never sell for less than they did the time before. Even now, our StampTracker Market Research Tool shows quite clearly how top-grade (98) stamps vastly outperform their mid-grade (80) counterparts.
What Makes a Stamp the Right Stamp?
There are generally three criteria that must be examined when considering a stamp for investment:

Rarity How replaceable is the stamp? Is it unique or are there thousands just like it? If you asked a dealer to find one for you, how hard would he have to look? gemon stamps dont make good investments.
Quality When it gees to investment, only the top tier will do. Though grading has drastically improved a buyers ability to separate quality from stuff, no system is perfect. Within each numerical grade, there is a range of quality. A stamp that is at the top end of the 95 range will usually bring substantially more than one that barely squeaked into a 95 holder. In this arena, there is no substitute for experience and meticulous examination.
Popularity Is the stamp a key of a popular set? Is the set reasonably able to be gepleted? Is the stamp well-known in and of itself?
Keep in mind that these criteria are interdependent - they dont typically stand alone. For instance, rarity must be balanced against popularity. If there are 3 stamps but only 2 collectors that want it, be careful! Similarly, quality must be balanced against rarity. If 200 examples of a stamp have been graded, and half of those grade 98 or better, be careful! If, however, a stamp ranks high on the list for each of these 3 characteristics, it is worthy of investment.
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As a footnote to the thoughts above, it is worth mentioning that Jay Parrinos The Mint practices what it preaches. We meticulously inspect and research every stamp and only buy and sell "The Rarest