Over the years I have successfully, and at times unsuccessfully, sold stamps in overseas markets. The costs of learning how to do so have been high, but the fun has also been high. You can do it too.
The first premise I work with is this one: I am only interested in shipping material bought at normal, wholesale levels here, that can be sold 'there,' at at least our normal retail levels, on their wholesale market. Normally, if I buy something here below wholesale level, then I'll probably sell it here and avoid the bother of working the overseas market. On the sell side, my thinking is that, if I can avoid retail overhead costs here, and achieve nearly the same result from an overseas wholesale buy price, then away it goes.
My decision gets tipped in favor of selling overseas when these factors occur:
- the type of material being purchased dictates it;
- I am paying regular wholesale or a little better for it here (and think I can stretch my profits by working the foreign markets);
- I can get our retail or better on their wholesale market.
Other factors in working the arbitrage market include the turn-over time on your capital, the safety of your principal investment, and the probable return on your investment. I want to have a better return on my investment when selling overseas than I can get domestically, and I want to have a little fun at the same time.
My impetus for entering the stamp arbitrage market, as I call it, came from noticing US dealer Buy Lists, which many times were higher than domestic retail prices. I learned two things about those Buy Lists: first, those advertisers were mostly shipping their purchases overseas. Second, they were generally not all that successful in their buying. (Even if a buy ad would offer full catalog for a certain set of stamps, it takes a special mind set on the collector's part to remove it from a collection and go to the trouble of shipping it.)
When I first started dealing in the foreign markets, the differential between our standard catalog, Scotts, and the main overseas references - Gibbons, Michel, Yvert and Sakura - were mostly 3 to 10 times or more our prices. If all things were equal, which they are not, long ago we would have seen all of our stamps that were any good at all leave our market for foreign ones. That hasn't happened in the last 50 years for various reasons: after World War II, the Americans had the money, so the stamps came here; then the exchange rates were in our favor; when foreign markets and economies got stronger, at first they were only interested in their own domestic stamps; the 70's and 80's turned markets upside down, catalog relationships changed, currencies changed, and the foreign buyers started expanding their wants. Today, the market(s) are much more sophisticated, and you can no longer use a shotgun approach to them like before.
A critical part of the arbitrage formula is to develop good relationships in the markets you choose to work. I have made dozens of trips, and have strong relationships in England, Germany, Switzerland, Japan, Australia and South Africa as a result. Before I built my network, though, I paid to learn. Travel isn't cheap, and not knowing who you are dealing with can be expensive too. By mail over a period of time I sent multi-hundred dollar shipments to a dealer some years ago in Rhodesia (Zimbabwe). Everything went along just fine until I sent a package worth ten thousand, and although I know he received it, I never heard from him again. A South African auction firm almost got me too, but I managed to buy my way out through buying back from the auction. Later he went bankrupt. Close call. There are impossible, irresponsible, and/or crooked people in every country. That is why you must personally meet and slowly develop these relationships. Don't forget to spread your risk around a bit. Even a good relationship can go bad over time.
Where else have I lost money? Exchange rates. During one year I shipped 3/4 of a million dollars at cost to England, only to see my profits wiped out every time as the exchange rate changed. By the time I had gathered enough to send, shipped, sold my material and was paid, the pound was down another 10 cents. This lasted all year, and I didn't make a cent on that turnover. Devaluations make this way of doing business even more iffy (remember the Mexican peso?). You can partially protect yourself by:
- faster turnover, or
- have your buyers visit you, and get your funds on the spot.
There are other things that can be done (anyone for a forward currency contract?), but stamps are usually too small of a game to play them.
Every year, as a new catalog arrives, you need to fine tune your knowledge of the ratios that exist between the foreign and domestic markets. These ratios do change, and not just across the broad spectrum, either. Sections of countries can become hotter (or colder), and you need to pay attention to that too. Are you aware that Albania (of all places) was terribly in demand, especially the souvenir sheets, and worth 3 to 10 times Scott in Germany two years ago? Are you aware that, yes Virginia, there is a market for Framas and International Reply Coupons (and many are worth good money) in Europe?
If a stamp is worth 10 times Scott in Germany, can you get 10 times wholesale here for it? The answer to getting that same ratio when the foreign catalog is more, is generally no. The short hand answer to this confusion is that whereas a US auction firm might evaluate an item for a net price of 1/2 catalog (Scott), in the foreign sale it is probably going to be evaluated for 10 or 15% of their catalog. In the US sale your $100 catalog might gross you $50, while in 'x' country, yes it does catalog $500 locally, but you will probably only receive $50 to $75 before costs. As you can see, this is a tough game to play, but it does work if you really know your foreign markets.
Before you start on your way, don't forget that you have to factor some other things into your equations. The other costs of the stamp arbitrage market must include some or all of the following:
- freight
- exchange
- bank
- wire
- letter of credit
- phone
- travel
- time
It is not for the weak of heart, and does require enough volume to cover the charges in order to be successful.
Finding what your foreign market wants and staying on top of trends is critical. In addition, you will have to keep an eye on local and international politics and economics.
You can avoid some pitfalls with superior and current knowledge. From the famous dealers just off New Bond Street, London, the rather condescending response to an inquiry of mine was, "we know what these things are worth," while they asked $1,000 for an item worth $400 everywhere else. In Germany a dealer told me, with a straight face, "the Michel catalog is the selling price here," for items worth only 15% of Michel at auction, or retailing at 60% Michel everywhere else. Lastly, paying $3,500 for $2,500 Scott catalog People Republic, which wholesaled at $5,500, and in China is worth what, a million?
Stamp arbitraging can include keeping up with emerging markets. What is the next China? Is it Poland and Hungary - did you know that activity is starting to stir here? Is it Egypt and Turkey? Maybe. How about Brazil and Mexico? After the average person hears about these, it is of course too late. Get ahead of an emerging market - arbitrage today's value against the hoped for, future value. If you don't know which way to turn, it would pay to hire a stamp buying consultant to guide you. It would be worth it to avoid the pitfalls.
Arbitraging is great fun, and somewhat dangerous. Done right, you can make a few dollars too!
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