Thu, May 08, 2008

The Forever Stamp Strategy

The U.S. Postal Service introduced the Forever stamp last spring.  The idea is that each stamp, no matter when purchased, will be sufficient postage for a 1 ounce letter forever (as long as there is a Postal Service).  Last May around this time, I dropped by the Kendall Square Post Office on the way to my office in Cambridge.  A customer at the counter was buying stamps and the first-class rate was scheduled to rise from 39 cents to 41 cents the following week.  The postal clerk asked her if she wanted to buy Forever stamps; she inquired as to why she should buy them rather than the regular ones.  Without skipping a beat, he replied, “Because if you buy the Forever stamps today and you go into a coma tomorrow and wake up five years later, the stamps will still be good for mailing letters.” Clearly, the Postal Service has been giving exceptional sales training to its employees; she bought several books of them on the spot.

This year, with first-class postage going up one cent, people are reportedly snapping up the stamps at a rate of 30 million a day.  I confess that I considered buying some extras myself earlier this week, even though I already have plenty.  I’m sure the Postal Service is thrilled for people to buy the stamps and not use them for months, but my own buying impulse made me wonder: how good an investment are these things? 

If you have a bunch of letters to mail next week, buying the stamps is a terrific investment; whatever you buy this Saturday will increase in value by 2.44% in a mere two days, guaranteed.  If you could somehow get that yield to compound repeatedly every two days, it would amount to something like 7,500% in a year.  The problem is that the return doesn’t compound every two days.  If you buy a bunch of Forever stamps this week and don’t use them until next April, you’ll still only have stamps worth 2.44% more (hopefully the USPS will have the decency to wait a year before a new increase) than what you paid for them.  At that rate, you’d be better off with a money market account.

If Forever stamps had existed in 1971, when first-class postage was 8 cents, buying some then and holding them until next week would have produced an annualized yield of 4.58%.  Over long periods, postal rates tend to go up at about the rate of inflation.  So at best, the Forever stamp is an inflation-linked investment, albeit not one with which you can hedge a portfolio.  Not, at least, until one of the big investment banks figures out a way to derivatize them.