There are both advantages and disadvantages to stamp investing. Many of the disadvantages are not readily apparent, so they will be discussed first.
Stamps are perishable: After all, they are made of paper. And unlike stock certificates, which are also engravings on paper, stamps do not represent or give title to an item of value. They are in fact, like art, the item of value themselves. Stamps can be affected by light, heat, and humidity, and must be stored in a proper place. Though one can, and should, insure stamps against destruction and theft, it is extremely difficult to insure them for wear and tear. Many investors place a stamp in their safe-deposit box immediately after it is purchased so that the handling danger may be mitigated. With proper skill and practice, though, anyone who can tie shoes can learn to handle stamps properly, with little danger of man-made faults. But remember, nibbing a perforation even slightly will adversely affect value.
Stamps are not “leverageable”: Many investors, especially those who dream of making great killings, prefer to increase the investment clout their money gives them. This is often done by leverage, which cannot be used for stamps. But most stocks can be margined up to 50 percent of their value– a form of leverage that means if you buy 100 shares of General Motors at $100 per share, you need only put up $5,000, not $10,000, which is the cost of the stock. The brokerage firm will lend you the rest, usually near or below prime,, and keep the stock for security. Suppose the value of the stock goes up 20 percent in a year (excluding interest deductions and dividend payments, which later the subject a bit), you have made $2,000. But when you figure the $2,000 was made on an investment of $5,000, which is all that you had to put out, your effective yield is 40 percent. Think of “leverage” as a shorthand way of referring to the use of borrowed money where the object purchased is the collateral. But, of course, leverage, like a pendulum, can drift both ways; you may find a relatively small drop in a highly leveraged investment, such as the commodities market, wiping out your entire investment in a very short time.
Anybody who has ever bought a house and paid for it with a mortgage has used leverage. In fact, if it were not for the high degree of leverage available to homeowners (that is, the low down payment of only 20 percent in the total amount of purchase), home ownerships would not be nearly the fine investment it is thought to be today. When prices rise, there is nothing so financially rewarding as working with someone else’s money. But of course, screws do turn.
And the inability to leverage stamps as an investment means that the pure investor, who would buy potato spud futures in Chad if they were the best investment, has not entered the stamp market. For stamps must produce yields greatly in excess of leveraged investments in order to be competitive with them. So as long as the strict investor stays removed from the stamp market, collector pressure will push up stamp prices, but with nothing like the velocity that we would see if the potato spud bugs got into the game.