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The Long, Slow Death of Stamp Collecting

The Long, Slow Death of Stamp Collecting

A few weeks ago I helped clean out my grandmother-in-law’s house.  My wife’s grandma, now aged 90, had started to experience failing health and found she could no longer care for her modest house.  As a result, grandma departed for a long-term care facility while her relatives were left with the unenviable task of emptying her home of decade’s worth of accumulation.

Because of my experience with antiques and the Pareto principle, I was aware that about 80% of the dollar value of a home’s contents are normally concentrated in 20% of its objects.  My expectations were tempered by the fact that my grandmother-in-law liked gambling in Atlantic City, sewing, costume jewelry and crystal, more or less in that order.  Still, I went into the situation with an open mind because you never know exactly what you’re going to find.

However, as expected, we discovered very little of monetary value in her home.

But one thing of interest I did find was a couple of old, unused Canadian stamps with the portrait of a young Queen Elizabeth II on them.  Now, I’m no expert on stamp collecting, but I know enough about the topic to understand that vanishingly few specimens are worth significant money.  But I liked the classic Mid-Century styling of these stamps and decided to take them with me on a whim.  After a bit of research I discovered that they were Canadian 4 cent stamps in carmine color from 1963 (Scott catalogue #404).  They were certainly interesting, but not worth more than face value.  They are best used for their originally intended purpose – sending mail in Canada.

This entire episode got me thinking.  Over the last two decades the more desirable investment grade antiques market has definitively split from the less desirable collectibles niche.  High quality antiques have increased anywhere from 2 to 4 times in price over that time while glass, memorabilia and countless other collectible categories have simultaneously collapsed in value.  But which side of this divide did stamps fall on?

It didn’t take me long to find the answer: stamp collecting, also known as philately, is dying, albeit a long, slow death.  Prices for most vintage stamps have plummeted; many now sell for only 5% to 20% of stated catalogue value.  EBay has exacerbated this tendency, revealing that many issues of old stamps formerly thought to be rare or uncommon have actually survived in healthy numbers.  Stamp collectors looking to sell their collections to dealers have suffered similar pricing trauma.  Many dealers simply aren’t willing to buy at all as they are already swimming in inventory that they can’t clear.

Some stamp collectors deny the terminal decline of their hobby by pointing to the record prices that a few ultra-rare, ultra-desirable stamps have garnered at auction.  For instance, the 1856 One-Cent Magenta issued by British Guiana sold at Sotheby’s auction house for a jaw-dropping $9.5 million in 2017.  An example of the world famous U.S. “Inverted Jenny” error stamp, accidentally issued in 1918 with an upside-down biplane on it, recently went for a princely $1.175 million at a 2016 auction.

However, record prices for the world’s rarest stamps actually reflect the rise of the super rich in modern society.  A handful of ultra-rare stamps get caught up in bidding wars between Russian oligarchs, Chinese billionaires or Silicon Valley technology CEOs, each of whom is intent on fulfilling his boyhood dream of owning the rarest fill-in-the-blank (stamp in this case) in the world.  It only takes two obscenely rich bidders competing against each other to send the price of a truly rare stamp into the stratosphere.  Ultra-rare and desirable stamps have effectively become trophies for the super-rich.

But this phenomenon doesn’t do much to reverse the slow death of the broader hobby of stamp collecting.  Every year stamp prices slowly drift inexorably downward while the collector base continues to age.  In fact, the average age of a stamp collector is now over 60 years old.  Rising prices for a few super expensive stamps does not reflect healthy demand for more pedestrian stamps from middle-class stamp collectors.

The grim outlook for stamp collecting is not helped by national post offices’ widespread abuse of commemorative stamps and first day covers.  The tendency to blatantly over-issue modern stamps has contributed significantly to the decline of the hobby.  Treating stamp collectors as a profit center may boost government revenue in the short term, but malignantly erodes the hobby in the long term.  In this aspect, stamp collecting shares parallels with the over-issuance of poorly conceived and designed modern commemorative coins by national mints.

As if postal abuse wasn’t bad enough for stamp collecting, a precipitous decline in the volume of physical mail means that many younger people only encounter stamps with shocking infrequency.  According to the U.S. postal service, when measured from its peak in 2001, estimated first class mail volume has collapsed by over 40% through 2016.  And this trend shows no sign of abating in the near term.  Of the physical mail that is still sent, a significant amount is either metered or uses perpetually unchanging “Forever stamps” (at least in the U.S.).  Combine this with the ubiquitous rise of email, texting and online bill pay and it is easy to see that stamp usage, along with stamp collecting, is gradually dying out.

All of these trends contribute to a distinct lack of youth interest in stamp collecting.  And children who do not collect stamps eventually become adults who do not collect stamps.  Many stamp collectors have traditionally started as children who then abandon the hobby in their teenage years when other pursuits became more enticing.  However, those exposed to stamp collecting early in life often circle back to philately again once they reach middle age or retirement.  That circle of life in the stamp collecting community is now in terminal decline.

Now, let me be clear here; I don’t think that stamp collecting is going to completely disappear.  Yes, the numbers of active philatelists will probably decline dramatically in the future.  And if you are hoping to make money by investing in stamps or selling your existing collection, you should probably reconsider.

However, there is a silver lining here.  If you love stamps just for the pure joy of collecting them, then your chosen hobby is likely to become significantly less expensive in the future.  Just don’t expect a lucrative financial return from your vintage stamp collection.

Dead Malls and the Future of the U.S. Economy

Dead Malls and the Future of the U.S. Economy

I recently stumbled across (and promptly binge-watched) a YouTube series by Dan Bell on dead malls.  These shopping complexes are in danger of failing due to high vacancy rates, low foot traffic and high crime rates.

Ever since I watched the Dan Bell series, I have been fascinated by the idea of dead malls.  I think I find them so mesmerizing because in the 1980s and 1990s malls were the physical embodiment of the apogee of the cult of consumerism in post World War II America.  So it is both frightening and captivating to watch the systematic decline of such a culturally important U.S. institution.

Of course it wasn’t always this way.  The concept of the mall, a collection of stores connected by pedestrian walkways and fully enclosed for protection against the weather, only developed gradually during the early to mid 20th century.  It wasn’t until 1956 that the first true fully enclosed, climate-controlled shopping mall opened – Southdale Center in a suburb of Minneapolis-St. Paul.  After this revelation, malls grew rapidly in popularity in the U.S. throughout the remainder of the 20th century.

In the 1980s and 1990s, malls were the place to be.  They took on a cultural significance that is difficult to convey to those who came of age after their greatness had already begun to fade.  In a time before social media or even the internet, malls were the hot hangout spot for teenagers and young adults looking to meet friends and have fun.  Adults loved malls too; in the age before e-commerce they were the best way – and often the only way – to experience almost unlimited shopping choice.

But nothing in this world lasts forever, including the dominance of American retail.  For the last two decades, the U.S. consumer has been relentlessly buffeted by regular financial crises, a perennially weak job market and excessive debt loads.  Given these economic realities, the rise of dead malls was inevitable.

It also didn’t help that retail space, often in the form of malls, was horribly overbuilt in the U.S. from the 1970s until the present.  It is estimated that the U.S. currently has approximately six times the retail square footage per capita of Western European countries like France and the United Kingdom.  American retail culture was bound to face a reckoning eventually and dead malls are just a symptom of that comeuppance.

But there were other powerful secular trends at work in the rise of dead malls as well.  For one, the Great Recession of 2008-2009 permanently changed shopping habits for a wide range of people.  Consumers who had been happy to splurge at the mall before the economic crisis now found themselves pinching pennies wherever they could.

The growth in internet shopping giants like Amazon, Overstock and Newegg also went hand-in-hand with more frugal consumers.  Shoppers can use the internet to compare prices quickly and easily across a range of products.  As a result, it has been said that the internet is the single greatest margin destroying invention in the history of mankind.  Dead malls are a haunting testament to the truthfulness of this statement.

But perhaps the most intriguing thing about the phenomenon of dead malls is the implication for our economic future.  In my opinion, dead malls signal the beginning of the end of rampant, unthinking consumerism.  For decades the unspoken rule that everybody followed was “more stuff is better”.

I think modern society has fully explored the limits of that philosophy.  Unrestrained consumerism is abhorrent, and all too often ends in hoarding, monetary destitution and spiritual impoverishment.  However, I don’t believe this means the end of shopping, or that we will all live as ascetic monks.

Instead, I believe a trend toward luxury minimalism is taking hold.  Luxury minimalism is a philosophy of buying few things, but making certain that what you do buy is of the highest quality.  One of the areas that should disproportionately benefit from this trend is quality antique and vintage goods.

Did you know that it is possible to purchase a stylish vintage Mid-Century fountain pen for less than $100?  Or that you can buy a 1960s era, solid 14K gold retro mechanical wristwatch for around $500?  If other cultures excite you, then fine, handmade antique Japanese lacquerware can be acquired for only a few hundred dollars or less.  There are almost limitless choices, and the best part is that these high quality heirlooms can double as investments as well.

Investing Simplicity Is the Wave of the Future

Investing Simplicity Is the Wave of the Future

I suspect that the concept of simplicity will become increasingly popular in the coming years.  This may take many forms, including simplicity in eating, working and living.  But one of the most important aspects of this trend will be investing simplicity.

As it stands now, most of the world’s investment vehicles are ridiculously byzantine.  Against a more benign economic backdrop, this financial complexity might not be a big drawback.  Unfortunately, we live in an era rife with excess, corruption and incompetence.  All of this means that investing complexity, a trend that has grown exponentially over the last four decades, is rapidly becoming a global headwind.  Your financial future will be much, much more secure if you get a head start on the trend toward investing simplicity.

Most of today’s popular financial vehicles, including mutual funds, ETFs and pensions, are not actually assets themselves.  Instead, they are best described as empty shells that are filled with assets – usually stocks, bonds or real estate.  Notice that most retail investors (that’s you and me) don’t own any assets directly, only these shell vehicles filled with assets.  This layout exposes average investors to a host of risks that are omnipresent, yet poorly recognized at the present.

Pensions, for example, are at the mercy of a board of trustees.  These board members may or may not know anything about investing.  They may also be motivated to approve or deny pension investments based on peer pressure, political leanings or even outright bribery.  This can cause pension funds to be stuffed with complex derivatives or illiquid, poorly vetted venture capital positions.

These situations can easily lead to rapid investment losses that can quickly drive a pension fund into insolvency.  Indeed, pension funds are so underfunded at the present that they are experiencing an existential crisis.  The Pension Benefit Guarantee Corporation, a Federal agency that insures corporate pensions, may go bankrupt within the next decade due to the number of insolvent corporate pensions it must bail out.

Unfortunately for pension holders, a pension’s board members all get to drive home in their German luxury cars to their gated communities regardless of how poor their decisions may have been.  Meanwhile, average people like you and me are left to pick up the pieces of our shattered retirement dreams.

“Actively managed” mutual funds are another financial vehicle in dire need of investing simplicity.  “Actively managed” simply means that a professional money manager makes the decisions about what individual securities will be held in a mutual fund.  It could range from shares of Proctor and Gamble to mortgage bonds to anything in between.

Now, you might be wondering what the problem is.  After all, the money managers making these decisions are “professionals”, right?  Unfortunately, most money managers are subject to a psychological force known as “performance anxiety”.  This is a fancy way of saying that they are under a lot of pressure to match the returns of their performance benchmark.  This is important because a money manager who underperforms his benchmark for a year or two is at great risk of being fired.

The major effect of performance anxiety on money managers is to force them to buy assets that are similar to those contained in their benchmark index.  This phenomenon is known as “closet indexing” and it is a bad thing.

Why?  Well, closet indexing is terrible because you are theoretically paying for the seasoned opinion of an experienced financial professional.  But what you are actually getting is the opinion of an index.  Even if your money manager thinks investing like the index is a bad idea, he really can’t deviate from it very far if he wants to keep his job.  And your money manager really, really wants to keep his job.

Of course, when the benchmark index inevitably plummets later in the economic cycle, your mutual fund will also plummet.  However, as the famous British economist John Maynard Keynes once wrote, “…it is better for reputation to fail conventionally than to succeed unconventionally.”  And your mutual fund’s money manager wholeheartedly agrees.

But perhaps the biggest reason to pursue investing simplicity is because all of these complex investment vehicles cost money.  Mutual funds, ETFs, 401-Ks and pensions all charge fees.  Worse than that, sometimes these investment shell vehicles hold other shell vehicles within them.  For instance, an actively managed mutual fund might hold some ETFs or a pension might hold a hedge fund.  In these cases, you will be charged double fees, usually without even knowing it!

I think the argument for investing simplicity is self-evident.  Complex corporate or investment structures are never created for the benefit of average investors.  Instead, they are always intended to either obfuscate risk or suck extra fees out of the unsuspecting.

This is one of the reasons I like precious metals, gemstones and fine art and antiques as investment vehicles.  They are items you take direct physical possession of.  And they are tangible, meaning they can’t be squandered by an inept board of directors or plundered by a self-interested money manager or lost in a market crash.  Art and antiques are the very embodiment of investing simplicity.  And that is something we desperately need more of today.

The Chinese Antiques Market and Japan’s Cautionary Lesson

The Chinese Antiques Market and Japan's Cautionary Lesson

The Chinese economy has been booming for the better part of 20 years now.  From ignominious beginnings in the 1980s, China has evolved into the manufacturing powerhouse of the world.  One consequence of this development is that a large number of consumer goods available in the West are made in China.  Another is that Chinese GDP has skyrocketed, increasing from about $1.2 trillion in 2000 to around $11.2 trillion in 2016.  As the Chinese economy has flourished, its stock, bond and property markets have also boomed.

For now, the money is flowing like water.  And one of the things wealthy Chinese love to spend their money on is fine art and antiques.  However, they tend to be fairly particular about the type of antiques they buy.  Specifically, they have gone on a spending spree for Chinese antiques.

For most of the 19th and early 20th centuries, China was under the influence (or occupation) of the great Western powers.  This era is referred to as the “Century of Humiliation” in China.  It spanned the period from the start of the First Opium War against the British in 1839 to the final defeat of the occupying Japanese forces at the end of World War II in 1945.  Many Chinese are deeply sensitive about the indignities suffered under foreign imperialism during this time.

One side effect of the Century of Humiliation is that large quantities of fine Chinese antiques and art were exported wholesale from the country.  The British, French, Germans, Americans and Japanese all variously looted or purchased some of China’s finest art works during this time.  These included superb Chinese ceramics, bronzes, jade carvings and lacquerware from the Tang, Song, Ming and Qing dynasties, among others.

Now that the Chinese economy is the second largest on the globe, rich Chinese are reclaiming their national heritage by buying back many of these Chinese antiques from abroad.  For instance, a 17th century Chinese porcelain moonflask sold at Christie’s auction house in 2011 for a stunning $2.65 million.  In the same year a Chinese scroll painting looted from the Forbidden City during the Boxer Rebellion sold at auction for a jaw-dropping $31 million.  An unassuming late 15th century Ming dynasty ceramic cup decorated with chickens sold at Sotheby’s in 2014 for an almost unbelievable $36.2 million dollars.  All of these works were repatriated back to a resurgent China.

Demand for fine Chinese antiques is even more frenetic than it would have been otherwise because of China’s Cultural Revolution between 1966 and 1976.  During this dark time in Chinese history, Mao’s communist government attempted to stamp out traditional Chinese values, philosophy and culture, especially anything connected to the pre-1911 imperial era.  Not only was collecting antiques impossible for Chinese during the Cultural Revolution, but innumerable pieces were mercilessly burned, defaced, shattered or otherwise destroyed during this shameful period in Chinese history.  As a result, modern Chinese antique collectors are desperately buying the only traditional Chinese art that survived the Cultural Revolution unscathed – art from abroad.

Demand for Chinese antiques from the nation’s nouveau riche is so high that China recently surpassed the U.S. to become the world’s largest antiques market.  Right now China appears to be an unstoppable art juggernaut.  But while it might be fashionable to predict eternal Chinese dominance in both the economic and antiques sphere, the sad saga of Japan sounds a cautionary note for those willing to listen.

In the 1980s, Japan experienced its own economic miracle.  At that time, the island nation was a major global exporter, delivering massive volumes of advanced consumer electronics and vehicles to countries all over the world.  By the mid 1980s, this corporate success had morphed into a bubble of epic proportions.

The Nikkei stock index more than quintupled between 1980 and 1990.  Japanese real estate also skyrocketed in value.  The grounds of the Imperial Palace in Tokyo were reputedly worth more than the entire state of California.  A high denomination, 10,000 yen banknote laid on the sidewalk in Tokyo’s posh Ginza neighborhood was worth less than the ground it covered.

Japan quickly became legendary as a land of financial excess.  Rich Japanese housewives drank tea infused with gold leaf.  Japanese salarymen spent lavish sums of money on food, alcohol and entertainment in Tokyo’s most exclusive nightclubs.  Japan’s corporate titans used their great wealth to purchase trophy properties abroad, like Pebble Beach golf course in California and Rockefeller Center in New York City.

They didn’t limit themselves to just buying high profile foreign real estate, however.  The Japanese also indulged their taste for expensive Western art.  A Japanese insurance company bought a version of Vincent Van Gogh’s famous “Sunflowers” painting for $40 million in 1987.  They were later outshone by a Japanese billionaire who paid $82.5 million for another Van Gogh painting.  The sums of money involved were both surreal and utterly detached from reality.

And, predictably, the domestic Japanese antiques market also experienced a boom during the 1980s.  How could it not?  Both the stock market and real estate market were relentlessly rising.  Money was meant to be spent and the future looked bright.

Then the unthinkable happened; the Japanese bubble burst.  The economic malaise that followed is sometimes called “The Lost Decade”.  This is an odd epithet because Japan’s economy has been limping along for over 25 years now, which is substantially longer than just a decade.  Perhaps the Japanese engaged in wishful thinking when they originally named their economic disaster.

If Japan’s bubble experience in the 1980s sounds hauntingly familiar, it should.  Japan’s bubble is almost a carbon copy of the Chinese experience today.  While few people can spot the economic parallels between present day China and 1980s Japan, the similarities are glaringly obvious to those willing to look.  Unfortunately, none of this implies good things about the future direction of the Chinese stock, property, or antique market.

In Japan’s case, all three of those markets collapsed and then stagnated for decades.  As a result, Japanese antiques are currently some of the best values in the entire asset class.  I highly recommend you snatch up some of these bargains if you have the means and inclination.  However, while the situation has been great for bargain hunters that fancy Japanese antiques, it hasn’t been so great for people who bought Japanese antiques in the 1980s.

China, unfortunately, faces a very similar economic trajectory to post-bubble Japan.  Those multi-million dollar auction results for Chinese antiques today will eventually look just as excessive as Japan’s art buying spree of the 1980s.  Yes, the money is flowing like water right now in China.  But reality always catches up with a bubble. Of course, the good news is that you’ll be able to pick up some great Chinese antiques for cheap in about 20 years.