Lessons Learned, Investor Builds Portfolio of Stamps
PIMCO Director's Rare Collection on Display

By Neil Irwin
Washington Post Staff Writer
Saturday, May 27, 2006

In the 1940s, a woman in Middletown, Ohio, set aside a stack of postage stamps, expecting them to appreciate in value over time and thereby pay for the college education of her young son, Bill Gross.

When Gross went to the big city 20 years later to try to sell the stamps, dealers gave him the bad news: They were worth less than his mother had paid.

He went to college anyway, thanks to a scholarship, and became William H. Gross, managing director of Pacific Investment Management Co., controller of more than $600 billion in fixed-income investments and perhaps the most influential bond investor in the world. Somewhere along the way, he decided to give a try at assembling a stamp collection with better financial staying power than his mother's -- and in the process learned that building a portfolio of rare stamps is not all that different from building one of bonds.

"I knew stamps could be a money-losing proposition," he said yesterday. "Being a bond investor, I wanted it to be a hobby, but a successful one. I just didn't want to lose my shirt."

He hasn't.

His collection, along with dozens of others, are on display at the World Philatelic Expo over the next week at the Washington Convention Center. Gross's collection is in competition to be named, in effect, the most impressive stamp collection in the world.

He owns -- and has put on display -- every stamp the United States produced from 1847 to 1869, including the 1868 1-cent "Z Grill," a specially embossed stamp with the image of Benjamin Franklin, of which only two are known to exist. It cost him $3 million, via a trade in which he gave up four 1918 24-cent "Inverted Jenny" stamps. In total, his collection is valued in the tens of millions of dollars. (Forbes magazine estimates Gross's net worth at $1.1 billion.)

It has been a good few years for rare stamps. There are no reliable indexes of the values of rare stamps, but Charles Shreve, of Shreve's Philatelic Galleries, said that in a typical example of recent appreciation, an 1869 15-cent stamp with an inverted center sold at auction in 1993 for $209,000 and in 2004 for $418,000. It just traded hands this week, he said, for $800,000.

Gross examines that rapid appreciation in the last couple of years through an economic prism as well. It is a function, he said, of excess liquidity sloshing around the globe, a result of easy money policies in Japan and the United States.

"The liquidity provided by central banks over the past two, three, four, five years has led to asset appreciation not just of homes, but of stamps, collectibles, gold and commodities."

He started out as a serious stamp collector in the early 1990s, when he was becoming wealthy from the investment-management business. He fondly remembered collecting stamps as a young man but hadn't engaged in the hobby in decades.

So Gross went to see a stamp dealer, who offered to sell him a group of stamps for $2,000. In trying to make that transaction work, he used his business training.

"Being a bond trader, I wasn't about to pay face value," Gross said yesterday, as workers set up booths on the vast convention floor. "I told him I'd pay him $1,800 and promise to make him my dealer as I built my collection over subsequent years."

"He said 'No deal.' I said, 'Sorry.' I figured the person I wanted to do business with would have to be flexible."

Eventually he settled on such a person, Shreve, who serves as Gross's "philatelic adviser." For years, he did not publicly identify himself and was known in auctions only as "Monte Carlo," spurring widespread speculation in the stamp world. He identified himself only recently and agreed to interviews about his collection for the first time this week, to publicize the Philatelic Expo.

Just as he intensively researches the characteristics of fixed-income securities before he buys them, Gross built a library of records of past auctions at his home in Laguna Beach, Calif. When he is considering buying a stamp, he researches its history at auction. By examining what price it sold for in 1928, for example, and 1953, 1974 and 1992, he can get a sense of whether the stamp is sufficiently rare to appreciate at roughly the same rate as U.S. economic growth.

This helps him avoid the trap his mother fell into -- buying stamps too common to rise in value over time.

Moreover, it is his strategy to make purchases only when he feels he has some edge on price, such as when a seller is eager to unload a stamp. He said he has followed that strategy consistently ("I have bought well," he said) -- with one exception: the Z-Grill, part of an experimental production in which only 1,000 were made. Two are known to exist; the other is on display at the National Postal Museum.

That was the last stamp he needed to complete his collection of mid-19th-century U.S. stamps. In that case, he lacked leverage.

"I think they knew I was an eager buyer."

The World Philatelic Expo, held in the United States once every 10 years, is at the Washington Convention Center 10 a.m. to 6 p.m. each day through June 3. Admission is free.

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