Stamp acts

tauringhuang.

Sep 13th 2008
From Economist.com

A collector divests and rebuilds


WILLIAM GROSS started collecting stamps because his mother made a mistake. When he was small, she had bought sheets of newly issued stamps in the belief that when young Bill was 18, they would be so valuable that they would pay for his college education. But when he tried to sell them, he found they were worthless. Still, the story has a happy ending.

Mr Gross won a scholarship to college, studied math and applied his learning to the card table, where he concluded that the best policy is to not to buy and hold, but to trade. He went into the bond market and traded so successfully that the PIMCO Total Return fund that he manages became the world’s largest bond fund.

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Forbes lists him at number 897 among billionaires, a ranking that will presumably change when his collects his share of PIMCO’s $1.7 billion profit from its massive bond holdings in Fannie Mae and Freddie Mac, which rose in value after last weekend’s bailout. It seems odd, then, that at present Bill Gross’s principal activity as a stamp collector is as a seller rather than a buyer.

He never forgot his mother’s adventure in stamp collecting. “She had the right idea,” he says. “She just bought the wrong stamps. When I was 40 and I’d made some money, I got the notion that I would do it right.” He developed his own system, designed to take the guesswork out of the stamp market.

Mr Gross’s theory is that prices of all collectibles are heavily influenced by a nation’s wealth: therefore a stamp’s price should rise in tandem with the GDP. He studied auction catalogues going back 60 years to trace the relationship between price and prosperity. “No one had ever tried to value stamps this way,” he says.

Applying his system meant that he bought stamps that were undervalued because their price had risen more slowly than GDP, and he bought on a grand scale. After almost 20 years of collecting, he has become a legend. He admits to spending more than $100m on a collection that includes stamps from America, Britain and the British empire, and Scandinavia.

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As his acquisitions multiplied, his system failed to keep pace with his ambition. To complete his collection of 19th century American stamps, he needed the 1868 one-cent Z-grill (pictured above). But only two existed. To obtain one, he took part in one of the most famous swaps in the history of stamp collecting, exchanging a sheet of four “inverted Jennys” for his Z-grill. His Jennies (on which an aircraft is printed upside down) had cost him $3m, but he went ahead nonetheless—for him, the stamp he needed was beyond price.

Mr Gross’s pricing system had also stopped working for British stamps. A strong pound and an influx of petrodollars into the market for British stamps meant prices were rising faster than his system dictated they should. Consequently, he decided to sell his British collection in June 2007 and donate the proceeds to Médecins Sans Frontières, an international medical-aid charity. The British collection had cost him $2.5m and his dealers, Spink Shreves Galleries in New York, hoped to double that at auction. In fact, it sold for $9.1m. “It’s better than the stock market,” said Mr Gross.

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This year, Mr Gross has put two more of his collections on the market. His Scandinavian stamps were sold in May, and his British empire collection goes on sale in New York on October 3rd at Spink Shreves. It includes a rare 1849 Indigo Blue two-pence from the island of Mauritius. The estimate for this one stamp is $75,000 to $100,000, and the total for the 138 items is $1.25m to $1.5m. For these sales the charitable beneficiary is the Millennium Village Project at Columbia University's Earth Institute.

Of course, Mr Gross is still collecting. “My stamp collection is drawing inward, towards my home country, and I’m adding to my US collection,” he says. “I’m not done yet.”