While we focus on the investment characteristics of stamps and how they retain and build value, there are two critical factors in that equation, the quality of the actual item and its purchase price.
Quality or grading can be assured to a great extent by getting a certification of the item. This will cost from $20 upwards, and is as close to a guarantee of value as you can get. It also adds to the value of the item because it gives any buyer not knowledgeable in stamps the assurance that he has a defense against a knowledgeable buyer who wants to talk down an item. Note that when buying an item at auction, you can require the auction house to submit the item to certification, at your expense, before you take delivery thereby sparing you from a dispute after the fact. While many stamps are self-evident as to quality, things such as hidden defects, repairs, and re-gumming will occur and not be included in the description of the item and they will become an issue. With valuable stamps such factors are common but need not be a reason not to buy the item, they are mainly reasons why the purchase price should be greatly reduced. I say this because catalog values are premised on the idea that a stamp is in very good condition and many classic stamps are often not found in such a grade. In fact, they often sell for significant premiums over the catalog value.
The second critical factor when buying an investment grade stamp is the purchase price. If you purchase a stamp from a dealer, you will be paying the retail price. This means at that moment in time, your price will be 50% or more than its resale price at that same moment in time. Clearly this is not the way for an investor to buy. Dealers price their stamps on the assumption they are selling to a collector, someone who is buying a specific stamp to fill a specific space in his album. An investment buyer is shopping for a good investment and thus, is not married to any specific stamp. There can be exceptions to a dealer’s markup, such as when he has a large block of an expensive stamp and will give a buyer of such a multiple a bargain price because it would take him several years to sell it otherwise. Also, dealers often have need for cash and will accept offers for their higher priced items simply because it is a quick way to raise money. Don’t pass up the fact that a larger purchase in dollars carries its own discount value.
The principal way an investor should buy stamps is at auction. Here he has some protection in that if the item is not accurately described, the auction is obligated to take the item back. The main reason for auction buying, however, is that most of the bidders at auction are dealers and they can only bid up to where they can make a decent profit on the item’s resale. Hence, you need only go one bid higher and thereby pay the wholesale price rather than retail. Auction bidding procedures and strategies are a topic in itself, so I will not deal with it here. It is, however, an important consideration since it is the main source of a ready supply of stamps for someone wanting to make a significant investment.
Investors not knowledgeable in stamps should know that it requires years of experience to learn what to buy and how to evaluate the quality of the items they are offered. The grading of stamps is no different from the discipline applied to grading a diamond and the price paid can vary tremendously based on where you buy. Until you kn ow the game, you should seek out professional advice or certification and pay a fee for same.