Stamp grading was introduced by Professional Stamp Experts (PSE) in 1998. PSE developed a very through methodology for assigning a number grade to stamp with the number ranging from 30, the lowest grade, to 98 superb, the highest grade (note there is a grade 100J, jumbo gem, however there are no known examples for a lot of stamps). The methodology considers soundness and centering to arrive at a final grade. The grade of 80 is equivalent to very fine and is the grade used as the basis for prices in the Scott catalog.
The PSE system did not have a big impact on the stamp market the first few years, but after a while, collectors began to realize that the highest grades were much rarer than had been noticed and prices for highly graded stamps really took off. For a while, every auction reported new record prices for 95′s (extra-fine-superb) and 98′s (superb). I think most dealers, including myself, where pretty concerned because it appeared to be a speculative bubble. And when the recession hit in 2008, there was a big tumble in prices. Highly graded stamps took a big hit. The worst part of the carnage was in fairly common stamps, like stamps from the Presidential series, that had reached 100′s of dollars in grades of 98.
It appears to me that the market has finally stabilized. The SMQ indicates with a plus or minus whether or not a stamp has fallen or risen in price from the previous issue. I counted the pluses and minuses in the most recent issue up to about Scott number 400. There were 106 pluses and 74 minuses. Note I counted the changes independent of whether or not the stamp was NH, Used, previously hinged or what the grade was that the price change occurred in. Nor did I attempt to keep track of the dollar amount of the change so this is not the most scientific analysis, but it does indicate that the market is finally stabilizing and at more reasonable prices. I thought the most encouraging sign was that most of the changes occurred in the mid-range grades of 75-90. There were very few changes in the highest grades and virtually no changes in the grades below 75.
I am a big fan of grading, even for stamps grading below 75 (fine/very fine). Most collectors do not have the time to carefully understand the pricing of stamps. Additionally there are a lot of faults that are very difficult to spot. I consider myself fairly expert and I miss small faults more often than I care to admit. And when your collection is sold, the buyer will assume faults and price down your collection unless you have the certificates to support a higher price. But once you have the certificate with the grade, there are a lot of references that provide sound price information. The most recent Scott catalog includes a section on prices based on the same number system used by PSE. And of course you can refer to the Stamp Market Quarterly. One note of caution. It is not uncommon for stamps to be priced somewhat above the prices in the grading references. This is because the grading references do not capture all the cost information. If the price is based on auction results, it is usually the hammer price. And since the auctioneer charges the buyer and seller each 15-20% (net 30-40%) the resell price will reflect that. Additionally, there is the cost of the certificate, which adds $30 or more to the price of the stamp. Paying 15% or so over the price in the quality guides is usually fair and reasonable, but beware of stamps selling at huge multiples to the prices in the quality guides. Some time in the future, your collection will get sold and if you paid 2 times the price in the quality guides, you will not like the price you get when you (or your beneficiaries) sell out.
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