On Perceived Value: It Only Has Value if You Believe it Has Value by Van K. Tharp, Ph.D.

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When I was a young boy in the 1950s, probably half of the children I knew collected stamps (the stamp experts tell me it was actually more than that). Stamp collecting was one of the most significant hobbies in the world and we all grew up expecting our stamps to increase in value over time.

Maybe so many people collected stamps because it was so affordable in those days. A regular U.S. postage stamp cost three cents. If you wanted to buy all the stamps issued by the government each year it would cost you perhaps 30 cents. If you wanted to buy a plate block (a block of four stamps with the plate printing number on it) it would have cost you 12 cents. You could probably have bought the plate blocks of all of the stamps issued for a total of $1.20 each year.

In 1971, however, the federal government formed the US Postal Service and stamps jumped to 8 cents. Furthermore, the Postal Service relied on postage for revenue so they issued as many as 25 different stamps each year. Some of the stamps were multiples, requiring collectors to buy a block of many stamps. So for a child to collect one of each postage stamp for the year might cost $3.20. Plate blocks were often large multiples of stamps (as many as 20) so a single plate block might cost $1.60 — which was more than the cost of buying all the plate blocks for a year in say 1955.

I continued to buy most plate blocks every year as recently as 2005. But in 2005, the cost of each postage stamp was 37 cents. Typically, 20 stamps made up a plate block and that cost about $7.40. But some stamps were issued in sheets of 50 different designs requiring you to buy all 50 for a cost of $18.50. To buy all the plate blocks that came out each year could easily cost you over $100. Just a few weeks ago, the USPS raised the prices of stamps to 50 cents. Fortunately, I stopped the expensive habit of buying plate blocks in 2005 or so.

If in 1958, you had faithfully bought and kept every plate block of that year, it would have cost you $1.20. What do you think that $1.20 worth of stamps would be worth today? Based upon the idea that old stamps should have kept up at least with the price of stamps, you might guess each 1958 stamp would be worth about 50 cents now. That $1.20 would be worth say $20 — but that’s not the case. You can probably sell those 1958 stamps at about 85% of their original face value. In fact, that kind of valuation is probably what all the stamps you collected are worth today. You would have lost not only from an inflation standpoint but you would have lost out on the simple face value of the stamps as well.

And this trend is not new. Bill Gross, the Bond King, once remarked that his mother had bought him a sheet of every US stamp for many years and thought of them as an investment that would pay for his college.

My mom started [collecting] in the late 1930s in anticipation of her three kids going to college and bought newly issued commemoratives, [paying] $3 for a sheet of 100. She hid them away for 20 years or so, and by the time I was 17, she presented them to me like magic beans. She said to take these into San Francisco, sell them, and whatever you get is going to pay for your college education. They must have weighed a hundred pounds. There were hundreds of them. So I hopped the train [to] San Francisco. I took them with high hopes to four [stamp dealers], and none offered me more than what my mother had paid 20 years ago. I knew that wouldn’t pay for my college education. The magic beans weren’t worth anything. The look on my mother’s face was total depression. Fortunately, I got a scholarship to Duke otherwise, I was going to junior college. (this modified excerpt originally appeared in the Bond King’s commentary from Pimco)

In spite of his early experience with stamp collecting, Bill Gross decided that the key to investing in stamps was to buy stamps only issued before the mid-1930s and to specialize primarily in 19th century stamps. It’s estimated that he spent between $50 million and $100 million buying old stamps. At one point, he sold a small part of his collection at a charity auction in 2010 which netted the charity about four times his original cost. That prompted Gross to say that “investing in rare stamps was better than investing in the stock market.”

Gross has been an impressive collector. He bought a plate block of the inverted airmail stamp for about $3 million (it was a one of a kind) and then traded that for the only Z-grill stamp available for sale (the other one was permanently locked in the collection of the NY Public Library). At one-point Bill Gross had compiled a complete US stamp collection. He is probably the only man to have ever achieved that and probably the only man who ever will. Eventually, Bill Gross donated his complete US stamp collection to the US Postal Museum.

I remember visiting the US Postal Museum in Washington DC some years ago because it was displaying the NY Public Library Collection. I saw both Z-grill stamps in existence, Bill Gross’ copy and the NY Public Library copy. There I was in this fabulous place looking at all of these incredible stamps and it should have told me something that I was the only person in the exhibit.

Around 1999, I had bought 5 rental properties in Virginia through an investor from John Burley’s real estate bootcamp. It was a $35,000 investment for me and for the first few years, it earned about a 50% return. As a result, when this investor told me a few years later that he could now buy homes in Tennessee for 1% down and thus make better returns, I jumped at the chance. I invested another $35,000 and the next thing I knew I had 15 properties in Tennessee. My investor, however, had broken all of his investing rules and he paid full retail for the properties. Suddenly, he wasn’t sending me any profit checks because he couldn’t pay his bills (much less the mortgage payments). The net result was that from 2007 to 2009, I took a loss in the Tennessee properties of about $350,000.

I stopped collecting stamps after 2007 when I was missing only about fifty 19th century US stamps. Most of those would have cost me between $5-10K each to obtain because only 30 to 50 stamps existed for each. After the real estate investment loss, I never really got back into collecting but I estimated that I had invested about $250,000 to $300,000 in stamps over many years. I hoped that my collection had at least doubled in value. Part of me doubted that, however, because I continued to monitor on eBay the auctions for the stamps I still needed to complete my collection. I would save the search and it seemed that the same stamps were still available at the same price — a year or two later.

When I was in London last October, I talked to the people at Stanley Gibbons to get some advice about possibly selling my collection. They said they’d sell it for me if I gave them the entire collection. It would take about a year to organize but they would feature a Van Tharp collection at auction. They probably charge a 15% buyer’s premium and they would charge me a sellers premium of 5%. I would have to wait a year but that seemed OK.

I had told my wife that if something ever happened to me, the easiest way to sell my collection would be to call Gary Posner, Inc and ask the people there to buy it. I decided to do that myself last month. We are in the process of buying a new house (before we have sold our current house) so I decided that I’d pretty much accept any offer for my collection over $175,000. I intended to keep my complete airmail plate block collection rather than sell that too but I am also really into surrendering to my Internal Guidance — which told me to sell everything and take whatever was offered. I did that.

What happened? Posner said the best way for me to get the most money was to sell the collection on consignment. They would sell it for what they could get and take a 15% commission. They offered me to pay me $50,000 up front and the rest in six weeks after the sale. They told me that the stamps would probably bring between $100,000 and $125,000. I don’t know if that amount was before or after they subtracted their 15%.

Hearing the news about how much the collection is worth now made me really sad for a day or two. This was right before my Infinite Wealth workshop last month. One of the principles I teach in that workshop is to turn non-productive assets into productive assets. Certainly, something that pays no income and goes down in value is not a productive asset. As a contrast, I put $30,000 into cryptocurrencies a year ago and by year end, it was worth about $150,000 (but it’s probably now at about $75,000).

Gary Posner told me that the stamp business is totally dying. People who used to be regular buyers are selling off their collections. Stamps that sold for say $80 perhaps 10 years ago are now worth little more than maybe $10 today. But he said that he has one collector who has invested about $3 million. He only buys stamps for which there are 30-50 in existence and he buys every one he can get of those. Perhaps he read my newsletter when I wrote about a strategy of buying up any of the remaining limited quantity stamps.

Last month, I also read the following post from June 2014 during the period when Posner said the stamp market was dying.

Tuesday’s sale of a British Guiana One-Cent Magenta postage stamp from 1856 — the only one of its kind still in existence — for a record $9.5 million at Sotheby’s has put stamp investing back into the headlines.

The price fetched for the world’s most famous stamp trounced the previous record auction price for a single stamp, which was 2.87 million Swiss francs (about $2.2 million) set back in 1996.

The article also said that there were 60 million stamp collectors in the world (a long way from 50% of the 1950s US population, much less the world’s population) and that one third of the current collectors are Chinese. More than 60% of Chinese millionaires invest in luxury goods, primarily rare stamps. Furthermore, Stanley Gibbons stated that the GB30 Rarities Index has never fallen in value in the past 60 years. During the year of the stock market crash in 2008, the GB30 actually gained 38.6%. Overall, the GB30 Index has generated an average annual compound return of 10.27% since 1998. The newer and broader GB250 Index has generated an average annual compound return of 13.18% over the 10 years ending in 2013. Stanley Gibbons used to offer an investment program in rare stamps with guaranteed returns but they don’t do that anymore.

My point here is that value is all perception. Most people in the United States used to collect stamps but today it is a dying hobby. Still, stamps for which only 30-50 exist continue to sell for about $5,000.

Gold and silver have value because 1) they are rare; 2) they are used in jewelry and other goods; and people think of them as a backup to money. There have been many times in the last five years, however, when gold should have taken off but it didn’t. That seems to correspond with the development of Bitcoin. Is this a coincidence or not?

Cryptocurrencies are being talked about as a bubble waiting for a total collapse. As an example, however, Bitcoin has had three falls of 75% or more and three years when it went up nearly 100 fold. Right now the only way you can buy other cryptocurrencies is through Bitcoin.

And what about fiat currencies? We all think that our paper money has value because everyone accepts it and the government tells us that it is real — but it is just printed paper which governments created out of thin air. Nothing backs any currency except for debt in some cases and debt can actually be used to create more money in circulation.

The bottom line is that the value of anything depends upon the perception people have of it — which also changes over time. Look at the examples I’ve given:

  • Rare stamps
  • Gold (which was once used as the basis for money and backed paper money)
  • Silver
  • Fiat currencies now
  • Cryptocurrencies

Become more aware of your beliefs about the concept of value and about what you value.

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