Tharp's Thoughts Weekly Newsletter (View On-Line)

  • Article Investing in Rare US Stamps by Van K. Tharp, Ph.D.
  • Trading Education 2011 Fall Workshop Schedule
  • Trading Tip Debunking the Death Cross by D.R. Barton, Jr.
  • Mailbag Position Sizing™ Strategies in the Systems Development Home Study

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Investing in Rare US Stamps: A Glimpse at Value Investing

I hadn’t thought much about rare stamps over the past five years or so. But I recently discovered a spreadsheet on my computer from 2005 on rare, 19th century US stamps. The spreadsheet listed 41 19th-century US stamps ranked in terms of rarity, of which 90 or less copies of each exist. For the rarest 34 stamps, only 34 or less copies of each exist.

So what do rare stamps mean from an investment perspective?

First of all, only 41 of these stamps exist, and there are only nine of them of which enough are known to exist (i.e., more than 50), assuming that the current owner was willing to part with them. I own a few of them but to part with mine, my price would be around $100K. You see, I’m working toward a complete collection, which I know right now is an impossibility.

Many rare stamp dealers now sell on eBay; however, the rarest stamps mainly surface during auctions. Let’s look at what was available on eBay a few weeks back for 19th-century, unused stamps on eBay ranked by price. I also searched for 19th-century, used stamps but didn’t find any.

Two weeks back, only five of the rarest 19th-century stamps were available, and they were all from the same stamp dealer who must have been disposing of a collection through eBay rather than a formal auction. Anyone with $100,000, could have bought all five below in the table.

Catalogue Number Number Available Price on EBay
200
66 (I thought there were 75)
$12,999
168
56 (I thought there were 75)
$9,999
196
80 (I thought there were 100)
$8,999
168
56
$8,999
171
50
$5,999
175
90
$5,499

It’s possible that dealers have a lot more available in their stock. Perhaps you could get another 20 so or more if you scoured every major dealer. They also probably have some in their personal collections that they might part with for the right price.

Also, I don’t have any catalogues for any major auctions but there could be some coming up with as many as another 20 available.

By the way, I haven't talked about the condition of the stamps. Perfectly conditioned stamps sell for much more than ones in poor condition or that are damaged. In fact, if there were 30 known copies of one stamp and only one was in great condition, that one stamp would be an extreme rarity selling for $100,000+, while the others would probably only command several thousand each.

Also, “nearly perfect condition” adds one more dimension to rarity. For example, one used pair of stamps on eBay had no perforations between the two stamps. This is one of only two known pairs was recently available on eBay for $249,999 (or best offer). A third pair exists but it was stolen from a FedEx package and disappeared.

Currently, though, there is not much demand for rare US stamps. The post office ruined stamp collecting as a hobby a long time ago. Most stamps issued since the Great Depression can be purchased wholesale at about 85% of their face value. In fact, I have done that, but it is a little ridiculous trying to make up the current price of a postage stamp from many old stamps with a face value as little as 3 cents.

But the rarities are still out there—I’ve yet to mention another 50 or so stamps for which less than 500 copies are known to exist. There are probably a dozen of these on eBay.

Some Background on Rarities

In 1925, three years prior to his death, Benjamin Miller gave his collection consisting of 47 volumes (2,350 pages) of rare stamps to the New York Public Library. He had spent over $140,000 (in pre-1920 dollars) on his collection, and it was probably the largest known collection at the time. The library was supposed to display the collection but after four robberies and lots of potentially damaging exposure to light and the public, it was put into storage. I had the opportunity to see the collection at the US Postal Museum in Washington, DC—where it was displayed for a short period for the first time in over 30 years. It’s probably the highlight of all my museum visits, and I think I was probably the only person looking at it when I was there.

Benjamin Miller managed to acquire one of two known copies of Scott 85a in 1923 for the amazing price of $300. The other copy of 85a was purchased at action for $985,000 within the last 15 years.

One person who really appreciates rare stamps should be familiar to most Tharp's Thoughts readers as he is the bond king, Bill Gross, who said that his interest in rare stamps really taught him the meaning of value investing. Bill managed to acquire the only plate block of c3a for a cool $3 million. And he later traded it for the 85a making the new price for that stamp $3 million. And by the way, both copies of 85a were on display at the US Postal Museum at the same time.

The table below shows a compilation of the US stamps through 1934 for which less than 100 are known to exist. These do not include most of the rare errors.

Last Known Price   Rarest EBay Price Number Issued Known to Exist Comments
  1 164     1 controversial
$3 M plus 2 85A     2 1 available
$220K 3 85F     2  
  4 321 pr     4 All in Museums
$175K 5 82     4 1 available
$130K 6 80     4  
$90K 7 85D     6  
$60K 8 81     8  
  9 295a used     7  
$50K 10 181     9  
  11 316     13  
  12 596     13  
  13 204   317 19  
  14 194   267 20  
  15 203   917 20  
  16 205c     22  
  17 180     24  
  18 211D     26  
  19 195   185 30  
  20 192   368 30  
  21 197   180 30  
  22 199   169 30  
  23 482a     33-35  
  24 170     35  
  25 613     39  
  26 167     40  
  27 169     40  
  28 172     40  
  29 174     40  
  30 176     40  
  31 177     40  
  32 202   170 40  
  33 201   179 40  
  34 121b     44  
  35 171 $5,040 473 50  
  36 193   216 55  
  37 168     56  
  37 173     60  
  38 200  $12,999 268 66  
  39 198   282 75  
  40 168  $8-9K   56  
  41 196 $8,999 473 80  
  42 120b     80  
  43 175 $4,850 286 90  
  44 360     90  
  45 363     90  

The existence of the 164 has yet to be confirmed; however, I’ve read articles that I believe prove it does exist, so I included it. If it does exist, there is only one. From the spreadsheet above, you can see that a significant amount of study goes into rare stamps.

If you are interested in investing in stamps, there are a few things you need to know. You should only buy rare stamps with certificates of authenticity—ideally from PSE with a grade. You should buy the highest grade you can afford, although that might be rather pointless if only 10-20 are available to collectors and only one is for sale.

And be careful! Scott numbers 55 through 62 were once considered to be special issues and quite rare. Later, it was decided that they were proofs not actual stamps. In addition, I bought Scott 476a for a substantial sum only to learn within six months that through advanced technology, they had been able to detect a watermark on the stamp and thus 476a no longer existed. I was not able to get a refund. Also, you’ll learn that some of the early varieties of stamps are really the same stamp but irregularities in printed sheets led to different varieties. For example, 5, 5a, 6, 6a, 7, 8, 9 are all the same stamp.

And many of the rarities are such because of the type of grill (an impression) that was put on the stamp to prevent counterfeiting) on the stamp. For example, 85a through 85f all have z-grills. Collecting can be complex, which is why you should never buy anything without a certificate.

I only own the 168, 173, and 196 stamps. It is hard for me to share this with you because I’d love to buy the three stamps listed that I don’t own. I’m currently only 39 stamps away from a complete 19th-century collection—not counting errors—and 48 away from a complete collection through 1934. I’m tempted to purchase about half of the 39 I’m missing (unless an number of new collectors decide to invest in rare stamps). Being unattached to collections is one of the issues I’m working on psychologically and spiritually. (By the way, this article is being published after all of the auctions that I listed have expired. That way, people can’t say, “Van told me to buy that one”—whether meant in praise or otherwise).

What This Means for Rare Stamp Investors

When Steve Sjuggerud introduced his Sjuggerud Confidential newsletter, he priced it at $1,000 per year (his True Wealth cost $99 yearly) because he was only recommending special situations in which few people could participate. However, the first issue of that newsletter was sent out by mistake to his entire subscriber base of about 70,000 people. In the first issue, he recommended a small timber company. He gave a maximum buying price of about $28, which was a few dollars above the price at the time of the recommendation and he said the target on the company was $62.

Shortly after that recommendations came out we did a workshop in which one person said he had put in a market order for the stock the day after the recommendation was given, and it was filled at $59. That is what happens when a lot of motivated investors flock into something that is very limited. In the case of this stock, there were a limited number of shares and a lot of demand for the shares after the recommendation. I’ve seen that with some of Steve’s other recommendations that go out to his 70,000 subscribers.

Well, the same applies with rare stamps only the rarity factor is much greater. Of the 45 rare stamps, listed in the table, a total of 1,647 are known to exist. So let’s say they are all available to fifty new collectors who are willing to spend $100,000. Thus, there is $5 million available to purchase them. That’s means that there is about $3,035 available per stamp. However, no one can buy any single one of those stamps for $3,035. In fact, it would probably take a lot more than $5 million to pry 85a from Bill Gross.

Say a stamp collector only wanted to own the ten rarest stamps. There are 48 copies total that exist for these ten rarest stamps and none are available for sale. So each of those would end up being worth a little over $100K, although chances are most of them would be well over $100K—that is if the current stamp owner could even be convinced to sell. 

There may be as many of 50 of the rarest 19th-century stamps for sale right now and most of them are in the $5,000-$15,000 range. They could be selling for about $100,000 each at some point—and that’s probably a reasonable price for such rarities if people recognized the opportunity that their finite supply presents.

About the Author: Trading coach, and author, Dr. Van K. Tharp is widely recognized for his best-selling books and his outstanding Peak Performance Home Study program—a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp at www.vantharp.com.  


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dr

Trading Tip

Debunking the Death Cross

One of the better-known technical indicators was triggered in July last year and you probably heard about it somewhere. When the 50-day simple moving average of the S&P 500 cash index crosses below the 200-day simple moving average of the same index, market pundits call this the Death Cross or Black Cross signal. Here’s what that looked like 13 months ago.

chart 1

The most interesting thing about this signal was the amount of interest it generated last July: talking heads on TV, pundits throughout the media and every Tom, Dick or Jane who had a blog seemed to be blathering on about the Death Cross. To be fair, we had been in a two and a half month drop in index prices, and market sentiment was extremely negative. Aside from all of this, however, there was still an inordinately high level of interest in the Death Cross last year.

Did you know another Death Cross happened this past Friday (August 12th)? Maybe not—there was much less fanfare about it this time. I still heard it bantered about in the technical analysis outlets, but the broader press barely mentioned it. Why?

The reason for the more subdued reception of Friday’s signal is simple: the Death Cross last year didn’t work. The implications of this drastically different reaction for all traders and investors are important, and today, we’ll focus on the psychology behind it.

The Last Event Bias

You have to forgive the pundits for all of the fanfare they gave the Death Cross in July 2010—they readily remembered the last time it triggered in December 2007. The Death Cross that preceded the market collapse of 2008 was excellent in its timing, and those who got into cash or shorted the market based on the signal were richly rewarded. Let’s look at how the 2008 Death Cross worked out.

chart 2

In stark contrast, the Death Cross from July 2010 didn’t work at all. So on Friday if some technical analysis geek had told the newsroom producer that a Death Cross has just triggered, he or she probably would have said, “Show me the last one.” This chart is what they would have seen.

chart 3

Looking for something newsworthy, the producer would have said instantly, “Didn’t work. Not interesting.”

Even though our rational thought process tells us to evaluate how something worked over many trials, traders often fall into this same powerful psychological trap: “It didn’t work last time.”

To understand why we fall into this trap, let’s review the peak-end rule popularized by Nobel laureate Daniel Kahneman. We talked about Kahneman’s work extensively in an article series after the Flash Crash in 2010, so I’ll just summarize here:

Kahneman and his colleagues found that people remember and quantify past experiences (whether pleasing or painful) based only on two points: the peak level and the last or end event.

This means that we base decisions on emotional recollections that are either the extreme or the most recent, not an average for all of them.

Kahneman makes it easier for us to understand that last July’s Death Cross had a lot of attention because the previous occurrence had been so massively successful. The psychological effect of the peak-end rule made people very curious as to what would happen, so it was big news.

The market went on to move more than 20% to the upside, however, after last July’s Death Cross. Since folks remember that the last one didn’t’ work, the recent bias caused few news outlets to run the Death Cross story this past Friday when it triggered.

Next week we’ll look at some Death Cross statistics. Spoiler alert! It has a rather poor track record.

If you have read an interesting article on the Death Cross or have seen any interesting research, please pass it along to me at drbarton “at” vantharp.com. And as always, we love to hear your general thoughts and comments about the articles.

Great Trading,
D. R.

About the Author: A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena. He is a regularly featured guest on both Report on Business TV, and WTOP News Radio in Washington, D.C., and has been a guest on Bloomberg Radio. His articles have appeared on SmartMoney.com and Financial Advisor magazine. You may contact D.R. at "drbarton" at "vantharp.com".

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A: The Systems Home Study Course assumes the student has some knowledge of position sizing strategies so it does not cover basic level material much at all. The online course only covers introductory level material and covers it fairly thoroughly. There is some overlap in material between the two but the Systems Development course covers more advanced position sizing strategy material.


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August 17, 2011 - Issue 539

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