COLLECTING is a compulsive activity that is also self-feeding. Witness my prolific portfolio of shares in rare businesses. My passion for shares has precluded me from collecting other asset classes such as art, fine jewellery and wine.

But with shares in Stanley Gibbons, the philately company, I can both capitalise on increased investor appetite for alternative investments, such as rare stamps, and indulge my obsession with buying and holding shares or funds in great businesses.

Stanley Gibbons is quoted on the Alternative Investment Market and capitalised at just £34 million. But this is a small company with a big asset: its brand is imbued with an unblemished reputation for expertise and honest dealing. That is quite a commercial advantage in an unregulated, fragmented trade in which malpractice is not unknown.

The company trades in less than 1 per cent of the global market in rare stamps, so its potential for growth is substantial. Currently it buys and sells only rare stamps from Britain and the Commonwealth. But it is poised to capitalise on the new wealth in Russia and China by extending its range to rare stamps from those nations, as well as increasing its focus on stamps from India, in which it already has 150 years of expertise.

This is no fusty firm, but an aggressive enterprise that three years ago launched what it calls “financial-based investment products” on the back of proprietary research that backdated by 50 years rare stamps with a retail value of more than £1,000 each. The data showed that the value of those stamps grew by an average of 10 per cent a year.

The initiative was launched when interest rates were low and the stock market was in the doldrums. So Stanley Gibbons gained new, financially motivated collectors.

Its investors invariably store and insure their stamps with the firm, at no extra cost, and eventually sell their collections either directly back to it for cash or at one of its auctions. In the case of the latter, commission is between 10 per cent and 20 per cent.

Its research was based not only on its speciality of rare British and Commonwealth stamps but also on a “shopping basket” of 100 commonly traded stamps in those two categories. It then established three indices based on each component in its research. It publishes a monthly valuation of the commonly traded index on its website and in its magazine, while the indices for rare stamps are updated annually. The Great Britain rarities stamp price index rose 20 per cent last year.

It buys 40 per cent of its stock (valued at £4 million) at independent auctions, 30 per cent from collectors and customers and the rest from members of the trade. It also sells autographs and stamp- collecting accessories and holds £1 million of stock in each of those two product categories. It had £2,585,000 in cash at December 31.

The company’s internet sites have increased its visibility in overseas markets, attracting new investors who invariably research prospects online but buy stamps offline.

The explosion of overseas interest last year resulted in a 65.4 per cent rise in pre-tax profits to £2.8 million excluding exceptionals. Sales soared 36.1 per cent to £13.6 million. Total dividend payout was

50 per cent higher at 3p, giving a yield of more than 2 per cent. Its value has risen more than eight times from £4 million when it was demerged from Flying Flowers in 2000.

While I would be nervous of holding perishable little pieces of paper in the form of rare stamps, I believe that the adequately liquid shares in Stanley Gibbons will lick future inflation and produce superior total returns. I am buying at 136p.

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