Antique Stocks & Bonds: A Guide for Collectors and Investors



INTRODUCTION


Although stock and bond certificates as we know them have been around for approximately 250 years, it is only recently, say within the last 20 years, that they have received the concerted attention of collectors and investors. Exactly why the hobby took so long to develop is not known, but what is clear is that participants today are near the ground floor of an activity that is rapidly gaining a widespread following. Interesting certificates can still be acquired at modest cost and it seems reasonable to assume that as the number of active participants grows, the limited supply of "paper" available will grow ever more valuable.


BACKGROUND


The need for financial instruments such as stocks and bonds evolved at the close of the Renaissance. It was fostered by a number of loosely related events including expansion of free trade, increased private ownership, onslaught of the industrial revolution, and the development of a legal system and other parts of the social infrastructure.


Starting at about the time of the founding of this country and continuing until the present day, thousands of different certificates were issued. At the same time, nearly as many were canceled, voided, or otherwise determined to be worthless. Over the years, the worthless or obsolete securities were either discarded or set aside. A few of those set aside have managed to survive, and some of these have surfaced in the collectibles market.


Today, a stock or bond certificate is an anachronism. Computers are much better suited to maintaining records of ownership and securities transfer. Indeed, the certificates are being phased out, and before long no new names will be entering the pipeline.


THE HOBBY

The activity associated with the collecting of antique stock and bond certificates as a hobby is known as scripophily. The word resulted from a contest conducted by the Financial Times of London. The word is half-English and half-Greek, combining "scrip" (a provisional certificate for shares, share certificates, etc.) with "philos" (to love). It is estimated that there are about 100,000 scripophilists in the world today. Considering that the number of philatelists (stamp collectors) is thought to exceed 15,000,000, scripophily should be a growth hobby for years to come.


Collecting stock certificates is appealing for several reasons. Like stamps, certificates can be extremely beautiful. They are colorful and the engravings are often exquisite. Unlike stamps, which are small and delicate, stock certificates are large and frequently, although not always, printed on durable paper. They are much more accessible. They can be displayed and viewed by a large audience much more readily.


A recent price list catalogs more than 18,000 different stock and bond certificates. Clearly, the collectible universe is rich with material. Also clear is the need for collectors to establish the goals of a collection with well defined constraints at an early juncture.


ABOUT CERTIFICATES


Anyone buying a share of common stock is entitled to receive an engraved stock certificate evidencing ownership. Every corporation therefore has an obligation to create certificates for all the initial and subsequent shareholders.


Printing companies, such as the American Banknote Company, specialize in designing and manufacturing these certificates. The design of the certificate has more wrinkles than might be apparent at first blush. Aesthetic and competitive reasons dictate that the certificate be attractive. However, a certificate is also very functional. The incorporation of the picture or vignette is intended to make the certificate difficult to counterfeit. In the past, provocative designs have helped to create investor interest in the issuing company.


A proposed design may actually be executed in a limited edition to show corporate management the final product. The certificate thus becomes a promotional piece used to assist in winning the contract to print all the certificates. These examples or prototypes are called specimens.


Those certificates introduced into circulation are called issued. Those remaining in inventory are unissued. Unissued certificates may reach the hands of the public if the corporation is reorganized in any way, if it changes its name, or if it ceases doing business.


Whenever ownership of shares changes, the original owner's certificates are canceled or voided and fresh certificates are issued to the new share owner. In the case of mergers, acquisitions, and name changes, new securities are issued and exchanged for the previously existing certificates which are canceled and retired.


In the case of bonds, the certificates are voided when the bonds mature and are paid off. Certificates also change from valuable IOUs to collectibles if the issuer declares bankruptcy and defaults on the issue.


DETERMINANTS OF VALUE


There are about a dozen different factors which might possibly relate to the demand, and therefore the price, of a particular certificate. Given that all or most of the price determining factors are unfavorable, the certificate might be acquired for as little as $1. Given that all or most are favorable, the certificate could command as much as $15,000. The most important factors are, rarity, age, condition, signatures, vignette, aesthetics, historical importance, industry group, and original certificate value. Each of these factors is addressed individually in the paragraphs that follow.


Rarity


Certificates in short supply inevitably command a higher price. Supply is a difficult variable to quantify, however. No running inventory of certificates is maintained and there is no way of telling when certificates are destroyed. A high certificate number is not sufficient evidence to indicate a huge circulation.


Age


All other things being equal, desirability increases with age. Of course, in most cases age also equates with scarcity and condition.


Condition


Of course, condition is an important element in the price equation. Given the range of damage which might befall these delicate paper documents (disintegration, water, folding, stapling, cancellation) it would seem that a universal standard for communicating condition would be an impossibility. Nevertheless, a grading system has been devised. Details can be found in the Appendix.


Signatures


Nowadays, the signatures that appear on financial documents are facsimiles. They are copies and are printed at the same time as the rest of the document. At an earlier time in history, such shortcuts were not taken. Principal parties to a deal signed the documentation. For collectors interested in financial documents, a signature by a notable is just one more reason to acquire a particular certificate. The personalities being discussed here are not financial lightweights. The include the likes of Jay Gould, J.P. Morgan, J.P. Getty, Cornelius Vanderbilt, William K. Vanderbilt, and John D. Rockefeller, just to name a few.


Vignette


The vignette is the engraved "picture" that is a part of most stock and bond certificates. The contents of the vignette are varied. The vignette may consist of an abstract design or a representation of the company's symbol or logo. It may also depict the company's products, or plant and equipment. Although the vignette is traditional, it is not a requirement. In fact, some certificates have no vignette while others may have three (or more).


Aesthetics


Some collectors focus on certificates specifically because of their artistic attractiveness and visual appeal. These are the certificates that get press coverage and the ones that appear on calendars and other Wall Street memorabilia. Naturally, these certificates command a higher price.


Most certificates are printed in black and white surrounded by a colored border. Every color of the rainbow is represented, some in brilliant hues, others in subdued shades. Occasionally, a second color appears, generally in the printing. In rare cases, the certificate is in full color. Expect to pay more than average for such securities.


Historical Importance


Small, obscure companies come and go, and nobody much cares about the financial instruments relating to those companies. On the other hand, the population at large empathizes with a familiar name. The stock and bond certificates of those companies generally elicit greater interest. If the certificates have other attributes, such as rarity, or an interesting signature, the combination becomes unbeatable. The same is true if the issuing company was involved in a major news event of interest at the time the certificates were in circulation.


Industry


The business sector for the issuer of the stock certificate has an impact on value. Some businesses are glamorous while others are dull and mundane. The certificates of the more exciting companies fetch a higher price. Railroad stocks are the prime example. There is just no denying that the steam locomotives depicted on antique certificates are captivating. They are romantic, beautiful, and interesting. Stocks of other industries just do not have this magic. Therefore it is not surprising that railroad stock certificates are in high demand by collectors of all ages and professions.


Original Certificate Value


The original value or denomination of the certificate impacts its current cost. Simply stated, a $1 million bond is more interesting than a $100 bond. Similarly, a certificate representing a 1,000,000 share position is more interesting than the same certificate representing an odd lot position. True, it is the same certificate with the same color and the same vignette. Yet the fact that it represented a large dollar value transaction makes it more exciting and therefore more valuable. Also, major blocks are sometimes associated with major restructurings, inheritances, and the like. The story gives the certificate greater value.


HOW TO COLLECT


Stock certificates are appreciated by investors of all types and almost anyone else associated with the world of finance such as brokers, analysts, money managers, and investment advisors. An appropriate collection for these individuals might include an assortment of certificates for companies representing a cross section of American business, perhaps chosen because of their extraordinary beauty. Alternatively, it could include securities related in some way to an area of special interest to the individual.


The vast number of issues makes it mandatory that the serious collector specialize early on. Otherwise, the collection will quickly become a hodgepodge of unrelated certificates. Examples of specialized collections include issues in a particular industry group, issues with signatures of famous individuals, or issues associated with the Civil War. Even the number of possible collecting themes is nearly endless. Specializing in say, auto stocks, may still not limit sufficiently the number of issues that are candidates for the collection. Collecting the securities of a particular company is also a possible theme. A valuable collection was recently written up that contained only issues of the Standard Oil Company.


There is one piece of advice on which most advisors in the field of scripophily agree. That is, to purchase the best possible items that the budget will allow. Buy historically significant issues in mint condition and signed by famous financiers. These issues will always be in demand and are more likely to appreciate at an above average rate than the more mundane counterparts.


WHERE TO LOOK


Admittedly, the hobby is nascent. However, a little digging will soon reveal that there are numerous dealers eager to exchange hard-earned cash for financial documents. Some provide extensive catalogs (free, or at minimal cost) that are so well annotated that they are terrific educational pieces in their own right. Beyond that, certificates are found in the same places antiques are found in general; namely,flea markets, antique shops, yard sales, and street fairs.


HOW MUCH DOES IT COST?


Like most collectibles, stock certificates are available in a wide range of prices. Certificates without any redeeming virtues can be acquired for less than $1; those with allure sell for thousands of dollars. The bottom line is that a great collection can be assembled at relatively modest cost. It helps if the collector keeps on top of the market and keeps an eye out for bargains.


For the most part, certificates are available at every price level starting at $1 and ranging up to $500. Many of these certificates are scarce and highly desirable, yet they are generally available, and several different dealers could supply merchandise. A price above $500 indicates that the certificate is much more difficult to acquire. At any one time, only one or two examples may be available to the entire collecting community. Nevertheless, most of these rarities can be acquired for less than $2,500.


As the certificate incorporates more and more of the factors that influence value positively, the price escalates accordingly. For example, a recent catalog lists an early (1876) high value ($300,000, a large amount in its day), stock certificate for Standard Oil, signed by John D. Rockefeller. The certificate is in very fine condition. The asking price is $15,000. It meets some important value criteria: a famous company, a small outstanding issue, and a famous signatory.


In January 1995 a certificate sold for $33,000, the highest price ever paid at public auction. The item in question was a Bank of North America 1783 stock certificate.


The above notwithstanding, current catalogs list hundreds of interesting certificates for less than $100. For most individuals, cost should not a limiting factor when building a collection.


DOMESTIC VS. FOREIGN


Just as in the United States, foreign entities use their local (domestic) as well as international markets to raise capital. There is a large supply of stock and bond certificates emanating from these sources.


Adding the foreign dimension increases the number of specializations available to the collector. A collector with a foreign heritage or a collector working for a foreign corporation might find the international option attractive.

Scripophily is an older and more mature hobby in Europe than it is in the United States. Various commentators claim that international collectors managed for years to acquire stock and bond certificates in the American markets at very favorable prices. Of course, foreign artisans are no less creative than their U.S. counterparts. Foreign certificates are available that are magnificent to behold.


STORING AND PROTECTING THE COLLECTION


Antique certificates have many enemies{Special Char 190 in Font "Symbol"}some obvious, some subtle. Light, sunlight in particular, will cause the colored border, vignette, and signatures to fade. Temperature and humidity cycles cause the paper to warp and/or become brittle. Oils transferred through fingerprints eventually turn the paper dark. Contact with other materials such as mounting boards and matting frames will cause dark spots to appear.


A beginner with a few inexpensive specimens in a collection may get a satisfaction from touching and handling the certificates that overrides the seeds of potential destruction being sown. As the value of the individual certificates increases, however, the collector may be less cavalier about potential harm.


To prevent damage, certificates should never be touched. They should be stored in acid free acetate holders and stored in a cool dark place. When framing certificates for display, acid free mounting materials must be utilized.


SUMMARY AND CONCLUSION


Scripophily is the hobby of collecting antique stock and bond certificates. It is a relatively new hobby, becoming popular in the U.S. a little more than a decade ago. The hobby is not well documented and receives little hoopla in the press. At this juncture, collectors and investors have the opportunity to get in on the ground floor of an exciting new pastime.


Current prices present good value to potential collectors. However, the road to riches is not guaranteed. Being a relatively new field, supply and demand have not reached final equilibrium. The total supply is really unknown and it is anybody's guess how increasing demand and the higher prices accompanying that demand, will affect supply. In short, what appears to be rare today may be commonplace tomorrow.


Collectors are advised to select a theme of interest and to acquire certificates of highest caliber. That is, buy the best, focusing on rarity, condition, and beauty. Signatures of the rich and famous will enhance the holdings.


Then engage in the hunt and chase, tracking down choice additions to the collection from dealers, from other collectors, from flea markets, and from garage sales. When the rest of the world finds out about scripophily, maybe, just maybe, the collection can be sold at a tidy profit.


APPENDIX I: GLOSSARY


American Depository Receipt: Documentation evidencing ownership of shares of foreign corporations that have been placed in custody at a bank and reissued in a form that can trade in domestic securities markets. Usually called "ADRs." ADRs are negotiable securities and certificates are issued that are similar to stock and bond certificates.


bearer security: A security not identified in the corporation's books and records as belonging to a specific owner. Possession is assumed to signify rightful ownership.


bond: A corporate IOU. A bond is a debt instrument with a maturity at issuance exceeding seven years.


canceled: Securities that have been voided and stripped of intrinsic value. Cancellation occurs when ownership is transferred, when one issue is substituted for another, or when a bond matures.


certificate: The legal document evidencing ownership of a debt or equity position.


convertible: A type of bond or preferred stock that can be converted into common stock (usually that of the issuer) at the holder's option. Convertibles are negotiable securities and certificates are issued that are similar to stock and bond certificates.


coupon: The interest that the borrower must pay to the lender usually expressed as a percentage of the par value of the debt instrument. The term also refers to small detachable claims attached to some bond certificates which entitle the bearer to the stated semi-annual interest when submitted on or after the stated payment date.


debenture: A corporate IOU. It is debt unsecured by any collateral and thus is junior to other debt securities of the same issuer. See also "bond" and "note."


issued: Certificates that were used; that is, disseminated to investors evidencing ownership of the specified asset.


note: A corporate IOU. A note is a debt instrument with a maturity of seven years or less.


odd lot: A common stock position consisting of less than 100 shares.


paper: Wall Street's affectionate moniker for securities in general.


par: The value of a security at its final redemption date. This is generally $1000 for bonds and $25, $50, or $100 for preferred stocks.


preferred stock: Another form of the equity portion of the capitalization of a corporate entity. Preferred stock has a fixed dividend, expressed either as a percent of par or as a dollar amount.


registered: Assigned to a specific owner (individual, institution, corporation, etc.) and so carried on the books of the corporation or its agent.


round lot: A common stock position of 100 shares (the basic unit of trading) or any multiple of 100 shares.


scripophily: The hobby that includes the collecting, trading, and investing in old business financial documents.


specimen: A sample or prototype certificate produced by an engraving company to show the actual execution of a proposed design. It may be used as a sales piece to win the printing contract for the certificates that are ultimately issued.


stock: The equity portion of the capitalization of a corporate entity. It represents a share in the earnings and assets of the corporation.


subordinated: Terms of a security indicating that, in the event of financial distress, principal and interest are paid only after claims of other security holders are settled.


unissued: Certificates printed and intended for immediate or future distribution but, for a variety of reasons, never placed in circulation.


unregistered: Securities issued without specific ownership indicated.


vignette: The engraved picture or design appearing on stock and bond certificates.


warrant: An option granting the right to purchase common stock (usually that of the issuer) on terms specified. Warrants are negotiable securities and certificates are issued that are similar to stock and bond certificates.


APPENDIX II: CONDITION & GRADING


A grading system has evolved that provides an absolute scale from which documents can be rank ordered based on condition. The resolution is high enough that a collector can get an accurate portrayal of the condition of a security when visual inspection is not possible. The scale is as follows:



UNC

=

"Uncirculated," like new, in mint condition, with no signs of use

EF

=

"Extremely Fine," no defects, very slight traces of handling

VF

=

"Very Fine," minor folds and creases, shows evidence of normal handling

F

=

"Fine," very creased or worn, some noticeable staining or soiling, but printing still clear

VG

=

"Very Good," normally with some substantial type of damage or staining, extremely creased and worn



APPENDIX III: BIBLIOGRAPHY


Anderson, William G. "The Price of Liberty - The Public Debt of the American Revolution." Charlottesville, VA: University Press of Virginia, 1983.


Ball, Douglas B. "Financial Failure and Confederate Defeat." Urbana and Chicago, IL: University of Illinois Press, 1991.


Braun, Hans. Historic Shares of the USA, Volume I. Mainz, Germany: Verlag Hermann Schmidt Mainz, 1996.


Cox, Terry. Stocks and Bonds of North American Railroads: collectors' guide with values. Port Clinton, OH: BNR Press, 1995.


Criswell, Grover C., Jr. 2nd ed. Confederate and Southern States Bonds. 2nd edition, Ft. McCoy, FL: Criswell's & Criswell's Publications, 1979.


Drumm, Ulrich and Hensler, Alfons W., and May, Erich J. Old Securities. Dortmund, Germany: Harenberg Kommunikation, 1978.


Falater, Lawrence. American Automotive Stock Certificates: A Collectors' Guide With Values. Port Clinton, OH: BNR Press, 1997.


Garrison, G.H. Haley, Jr. The Insiders Guide to Antique Securities. Williamsburg, VA: privately published, 1987.


Hessler, Gene. "An Illustrated History of U.S. Loans 1775-1898." Port Clinton, OH: BNR Press, 1988.


Hessler, Gene. The Engraver's Line: An Encyclopedia of Paper Money & Postage Stamp Art. Port Clinton, OH: BNR Press, 1993.


Hollender, Keith. Scripophily: The Art of Finance. 2nd edition, New York: Museum of American Financial History, 1994.


LaBarre, George. Collecting Stocks and Bonds. Hudson, NH: George H. LaBarre Galleries, Inc., 1980.


Yatchman, Bill. The Stock & Bond Collectors Price Guide. Sedona, Arizona: Greentree Stocks, 1984.



APPENDIX IV: PERIODICALS


Bank Note Reporter, Krause Publications, 700 E. State Street, Iola, WI, 54990. Published monthly. $29.95 for one year (12 issues).


Friends of Financial History, Museum of American Financial History, 26 Broadway, Room 200, New York, NY, 10004. Published quarterly. $25.00 for one year (4 issues).