The Global Guru: What Is 'Bond King' Bill Gross's Favorite Investment?

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Last week, an anonymous buyer, bidding by telephone at Sotheby’s on the Upper East Side in New York, paid a record $9.5 million for a British Guiana One-Cent Magenta postage stamp from 1856.

The winning bid was almost four times the previous record auction price for a single stamp -- 2.87 million Swiss francs (about $2.2 million) set back in 1996. It was also a far cry from the $35,000 Utica, N.Y.-based textile magnate Arthur Hind paid for the stamp back in 1922.

David Beech, longtime curator of stamps at the British Library, called the stamp the "Mona Lisa" of the world's stamps. And after collecting a 20% commission on the sale, it's no wonder David Redden, Sotheby's vice chairman, called the auction "a truly great moment for the world of stamp collecting."

Stamps as an Investment

If you're like most retail investors, you've probably never thought of stamps as an investment.

So you'll also be surprised to learn that stamps are billionaire bond king Bill Gross's favorite asset class.

Over the course of his lifetime, Gross has spent reportedly between $50 million and $100 million buying stamps. That's not an insignificant chunk of his $2.2 billion fortune.

Rare stamps also have generated Bill Gross some terrific investment returns. At a charity auction in 2010, Gross sold a small part of his stamp collection for 4x his cost, and has called investing in rare stamps "better than the stock market."

Nor is Gross alone in looking at rare stamps as a place to invest.

At least one third of the estimated 60 million stamp collectors across the globe are Chinese. Another third are based elsewhere in Asia. According The Hurun Report, 64% of Chinese millionaires invest in luxury goods, primarily in rare stamps. That makes it very possible that the buyer of the British Guiana One-Cent Magenta was from China -- and that the stamp's new home is nearer to Beijing than to Boston.

Why Invest in Stamps

Rare stamps offer a triple play of diversification, stability and significant upside potential. Rare stamps have little correlation to any publicly traded securities market. They are thankfully immune from the vagaries of the stock markets, offering slow steady returns over time. And like the Energizer bunny, the price of rare stamps just keeps going and going -- consistently appreciating in value.

And stamp investing has come a long way.

Rare stamps feature prominently in the Knight Frank Luxury Goods Index. Rare stamps were the second-best-performing luxury asset class over the 10 years through Q3 2013. Only classic cars fared better.

You can now also track the price performance of rare stamps just like you can any stock market. London-based Stanley Gibbons Ltd., the largest and oldest stamp dealer in the world, runs the GB 30 and GB 250 indices which track the price performance of rare stamps.

According to Stanley Gibbons, the GB30 Rarities Index has never fallen in value in the past 60 years. And during the stock market crash of 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 compound return of 13.18% over the 10 years ending in 2013.

To put that in perspective, Warren Buffett's Berkshire Hathaway (BRK-B) generated just a 7.7% return for investors over the same period.

How to Invest in Stamps

To start, you need to find someone who knows what he or she is doing. After all, 99% of all stamps issued around the world are not worth investing in. It takes specific expertise to invest in the right 1%.

Bill Gross himself puts as much analysis into investing in stamps as he does into investing in any fixed-income instrument. By keeping track of the price history of rare stamps at auction, Gross has reportedly built a private library of price records that support all of his purchase and sale decisions.

The good news is stamp investing no longer is the province of the global rich.

If you want to get on board the stamp-investing bandwagon, one place to start is Maryland-based broker Asset Strategies International (ASI), the North American representative of London-based Stanley Gibbons. ASI offers U.S. investors its Rare Tangible Assets Program for rare stamps for as little as 10,000 GBP, or about $17,000 at current exchange rates.

The Chairman and CEO of ASI, Michael Checkan, told me this week in London that there has been a huge uptick in interest among his clients in stamp investing, boosted by last week's headline-grabbing sale of the British Guiana One-Cent Magenta.

And for investors worried about the big recent run-up in the U.S. stock market -- or just looking to put their eggs in more than just one basket -- rare stamps just might offer the alternative they've been looking for.

In case you missed it, I encourage you to read my e-letter column from last week about why you should consider investing in Brazil. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.

Sincerely,
Nicholas Vardy, CFA

Editor, The Global Guru
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Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Travel and Lifestyle

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