Monday, August 29, 2011
Investing in Old Stock Certificates
QUESTION: I’ve been unpacking some old boxes of things left to me by my father. In one of them I discovered some old stock certificates. Are they worthless or do they have investment value?
ANSWER: Old stock certificates, especially those from defunct companies, are only worth the paper that they’re printed on. But some, especially those with signatures from famous people, famous companies, or those involved in major scandals, can be worth quite a bit.
What exactly is a stock certificate? A stock certificate is the physical piece of paper representing ownership in a company and includes the number of shares owned, the date, an identification number, usually a corporate seal, and signatures. They’re larger than a standard letter-size piece of paper and many also have elaborate engraved designs to discourage counterfeiting.
Stocks represent partial ownership in a company. Today, most companies keep records of ownership electronically but some allow their shareholders to request a paper version. Each certificate starts out as a standard design to which the company adds the date of issue, identification number, and other information, including the printed signature of the chief executive. Executives on older certificates signed them in ink.
According to financial historians, partnership agreements dividing ownership into shares began to be used in northern Italy during the Middle Ages. However, these early shares were only intended to be in effect for a short time and only included a small group of people. Eventually the idea of shareholding spread to Belgium, and it’s believed the concept caught on in the trading town of Bruges. It was here that the idea of the stock exchange originated.
Eventually, shareholding took its next big step in Amsterdam in the early 17th century when the Dutch East India Company, formed to encourage trade in spices from Indonesia, issued shares that were tradable. The company compensated its shareholders well for their investments. In 1621, the market saw the issuance of shares for the Dutch West India Company, and much financial innovation ensued. Stock exchanges in the New World didn’t appear until 1790 in Philadelphia and then two years later in New York.
Old certificate values vary depending on their rarity, beauty, collector interest, historical importance, and autographs, and industries for which they’re issued. Like all collectibles, supply and demand determine value. Interesting pieces create a lot of demand while supplies vary.
What affects the market for stock certificates? Above all, general economic conditions tend to influence the prices of old stock certificates because many collectors of them are also involved in the real stock market. The law of supply and demand, as with other collectibles, governs this market as well. And Internet auctions have increased not only the availability of old stock certificates but their ease of purchase.
What determines the pricing of old stock certificates? Two important price boosters are signatures of important people and newly formed companies. For example, a Standard Oil Company certificate that John D. Rockefeller signed is worth nearly $8,000 today. Prices have leveled off in the last few years and finding rare certificates at reasonable prices has become a real challenge.
As with postage stamps, pricing can be affected by the rarity of a certificate—the rarer it is, the higher the price. An autograph of someone famous of the stock company with which he was involved also raises the price. Whether a stock certificate has ever been issued also influences it value, as does its age and decoration. The location and history of the company don’t affect the price of a certificate as much as, say, its condition and whether its canceled or not.
As with any collectible, you should always collect stock certificates that are in excellent condition, have been issued, and are uncanceled. You should also collect certificates from industries that you’re familiar with or in which you’re interested. Early companies issued their stocks in small quantities, thus limiting the number of their certificates in today’s market. But there are lots out there for sale at low to reasonable prices.