Alpha Beta Anemia
This headline probably won't make sense to anyone, apart from those that follow the regular writings of Bill Gross, Chief Investment Officer of PIMCO; the world's largest bond trading company. PIMCO has over US$600 billion in funds under management, while Bill Gross also publishes a regular Investment Outlook. It is often quoted in the financial media not only because Gross is a highly successful bond trader, but also because he presents his opinions on investment markets and economics in down to earth, plain English. In his Investment Outlook for November, he touched on why he kicked off stamp collecting in a reasonably serious way. (He's only the second person to have ever built a complete set of 19th century US stamps – just one acquisition in October 2005 was for US$2.97 million.)
Mr Gross recounted how he was glad he pursued philately (which is a very similar activity to numismatics – both are tangible assets that are portable and have a timeless appeal), because the logic in his collecting reflected the logic used in his trading.
In what seems (to me anyway) to be a huge leap in logic, Mr Gross figured that if stamps and / or collectibles could be regarded as a valid asset class, then their total return should be somewhat similar to more “legitimate” assets such as stocks, bonds, or real estate. As Bill Gross is recorded by Forbes as having a nett worth of US$1.2 billion and mine is somewhat less than that, I'll accept that it's a conclusion that isn't completely based in insanity. Even so, how in blazes could the value of stamps (or coins, for that matter) track the overall growth of the economy?
Gross admits that there was an “element of hope” in his assumption, but said that as values in each asset class (stamps & collectibles included) are related to nominal GDP growth (which is itself a reflection of purchasing power / wealth creation / economic production – many of us will agree that these factors do have a definite influence on the amount of money in the rare coin market), then asset values should track nominal GDP growth over long periods of time. Given his forecasts for nominal GDP growth in the US in the near term, it's his opinion that what Americans have to look forward to are a maximum of 6-7% average annual returns over the immediate future from stocks, bonds, and real estate in total (stamps too!).
I raise this discussion for a couple of reasons – mentions of investment in or trading of collectibles in the mainstream media are far and few between so this is interesting, but also because it is a different way of looking at market values. I'll cover off how the Australian rare coin market could be shaping up in the years to come next week.