Diamonds as an investment?

[kelsey]

When purchasing my first diamond engagment ring, I knew nothing about diamonds. Quite a few diamonds later, I have found that I still know very little. My last couple of purchases were HOF which appears to be nice, but I am obviously still learning from apparent mistakes. I am really enjoying your forum and all the enthusiasm and knowledge that is shared here. It is apparent that wisdom is what I have lacked in my past choices and I hope someone here will spare a little time to answer a few questions that are very important to me.

First of all I am looking for hard assets to hedge against possible hyper-inflation. It doesn''t take a course in Econ 101 to know we are in trouble here. So, are diamonds, OR "certain" diamonds a good investment? Diamonds are beautiful and my wife loves them. With this in mind, I am thinking that something that is the size of a large sweet pea, could house the wealth of a gold bar, (that stored in a vault cannot really be enjoyed).

My feelings are hurt as I have found that Mall outlets are not an option for smart buyers. When told that diamonds are poor investments, I am quite certain that those advisors were Mall shoppers too.

Any advise will be appreciated.

 

[Hudson_Hawk]

Diamonds are not a good investment because their value is falsely inflated in the consumer marketplace. Getting a 100% or more return on a stone is rare and in most cases, unlikely.

 

[Rockdiamond]

For many years I discouraged clients from considering diamonds financial investments.
After the events of the past few years, I''ve re-thought that stance.

The main problem consumers have is how to sell a diamond.
Generally speaking, if a consumer bought a diamond within the past 15 years or so, they probably won''t recover what they spent- although diamonds probably held more value that any other item they bought, excepting real estate.
If it''s an older purchase, they might be able to get back what they spent.
Making it not all that great in terms of percentages, but then again, they had the use, and hopefully enjoyment from it for the time they owned it.

If I had to pick specifics for types of diamonds that I''d feel do best, it would be fancy colored diamonds.
The more exotic stones like pinks and blues seem to have done pretty well over the past 25 years.....

 

[Todd Gray]

I''ve always discouraged clients from purchasing diamonds as a form of investment because as RD stated, it is often difficult for them to be able to resell them effectively.

A friend of mine recently sent me a copy of the book Patriots to read (links to Amazon, not an affiliate link) along with a note that said "you have to read this since it''s all about you" which I didn''t understand until I read the first page and realized that I share names with one of the primary characters in the book which is written by James Wesley Rawles who is a leading blogger within the survivalist movement and a former Army Intelligence Officer.

Anyway, I found it interesting that as part of the story Rawles suggested that people who had purchased large quantities of precious metals and gems found it difficult to carry and trade if the items were large in quantity, such as gold coins, bullion, etc. and what was more sought after were silver coins minted prior to 1965 due to the silver content and ammo such as .22 / 9 mm / 45 which actually when you think about it makes a lot of sense...

Now I''m not suggesting that people need to run out and stock up on small change and ammo, I''m just passing on a concept that I read in a book - which was certainly and interesting and insightful read - I''m just addressing the question at hand by sharing a perspective that I had never thought about.

 

[kenny]

You and I buy at retail prices.
We must sell at wholesale, about half of retail.

This means your "investment" went down in value 50% the moment you get it.
Diamonds would have to double in value for you to just break even.

Buy and enjoy diamonds because you love them.
Invest elsewhere.

 

[WinkHPD]

Unless you can buy large extraordinary diamonds I believe that they are not a good investment. The cost to buy and sell is simply too high. Let''s say that you spend ten to fifteen percent over cost, and have some how figured out how to sell also with only ten to fifteen percent discount from wholesale. (Not at all easy by the way, unless you have an extraordinary diamond that can be sold at auction for a reasonable price, such as a large named diamond or an incredible fancy blue or red for example.)

If you were able to buy and sell for only a 10% premium, highly unlikely, you would need diamonds to go up a minimum of 22.22% to break even. If you were able to buy and sell for only a 15% premium, also highly unlikely, you would need diamonds to go up a minimum of 35.29% to break even. So to show any kind of a modest profit you would actually need diamonds to go up in the 50% range so it would take many years at current rates of appreciation, and quite frankly it is unlikely that you will be able to show a profit even then unless you are actually in the business of buying and selling diamonds.

By the way do you know the best way to become a millionaire in the diamond business?

You start with ten million and quit when you get down to a million.

Sadly, for most that is more true than you would want. Just witness the massive closures at both the retail and wholesale levels in these past few years. It turns out these are a hard assett that is really hard to move when you need to move them quickly.

Now, for catastrophic value, ie, fleeing Europe with nothing but the clothes on your back and what ever jewels you were able to sew into the lining of your clothes.

A fine friend of mine when I was younger told me of the days when his family fled Europe and arrived in NY with a small trove of such treasures.

"Wink, we got pennies on the dollars, sometimes only fractions of pennies, but those pennies were the basis of our current family fortune. We paid the rent and got bread to eat with them. Had we the money we spent for them it would have been worthless as hyperinflation had completely destroyed the deuchmark. Thank God for the "investment" we made in diamonds and jewels!"

For something to protect against catastrophic loss, you do not want large and hyperexpensive, but rather smaller easily traded sizes. Just know in advance that this is not for profit, but for possible survival, if you are strong enough to keep them, in incomprehensibly tough times that I pray we never see!.

Wink

 

[WinkHPD]

LOL! The problem with taking a few minutes to formulate a good answer and doing other things like answering the phone is now you are way down the list of respondants and sounding like a "Me Too, Me Too" guy instead of like an original thinker...

I suspect you will get many similar answers to the fine ones above.

Wink

 

[kelsey]

You are not the first to mention this book. Supposedly it''s a fictional work by an author who is a professional in the field of survival. If I am correct, it educates one on how to deal with a crisis situation through fictional characters.
Talk of survival and preparedness may seem a strange topic here, but it appears inevitable for our county. Your response deals directly with where I was going with my question. Diamonds may not be a fine investment, but the "Dollar" is a terrible investment now and will be worse in the near future. We are on the brink of economic disaster and I am thinking that when we come out of it diamonds will recover where alot of stocks and bonds will not. In the mean time the beauty would be quite a consolation.

Thanks for the reminder, I am going to see if Books a Million has this book.

 

[kenny]

I believe a diverse portfolio is wise.
Things like precious metals and a very large D IF may be the only surviving wealth in a portfolio if economic catastrophe strikes.

But usually when someone uses the term investment we think of it as something that goes UP in value over time, not something we pay $50,000 for and may one day buy us some loaves of bread, as those around us starve.

But I have to admit, in that situation those loaves of bread are priceless.

 

[serenitydiamonds]

Well said comments above.

I''m a fan of investing, but not with diamonds.

To put diamond as investments in financial investing terms. The spread between the bid and ask price is very very high. The liquidity is very very low. There is an added complication that no two diamonds are exactly alike, so pricing can be (and very usually is) inconsistent and fluctuate wildly (for an investment product). While diamonds are a material, their value is not placed purely on the material itself. They are priced in beauty and rareness. The first item being very subjective.

Diamonds are not the best choice for a financial investment. Diamonds best used as an emotional investment in the symbolism and beauty of a lifetime emotional commitment.

--Joshua

 

[Hudson_Hawk]

Date: 3/19/2010 1:05:24 PM
Author: kelsey
You are not the first to mention this book. Supposedly it''s a fictional work by an author who is a professional in the field of survival. If I am correct, it educates one on how to deal with a crisis situation through fictional characters.

Talk of survival and preparedness may seem a strange topic here, but it appears inevitable for our county. Your response deals directly with where I was going with my question. Diamonds may not be a fine investment, but the ''Dollar'' is a terrible investment now and will be worse in the near future. We are on the brink of economic disaster and I am thinking that when we come out of it diamonds will recover where alot of stocks and bonds will not. In the mean time the beauty would be quite a consolation.


Thanks for the reminder, I am going to see if Books a Million has this book.

True, however if true catastrophe struck and the value of the dollar totally bottomed out, how do you know diamonds would be considered valuable at all? Maybe coffee beans or sea shells will become currency. You just never know, so why risk it? Diamonds are luxury items to most people and the first things to get cut when tying the purse strings tighter is luxury.

Clearly being told that they''re not a wise investment is not what you want to hear. Perhaps you should build a home roasting process for coffee so you''re prepared when on-hand liquid currency is required.

 

[serenitydiamonds]

Date: 3/19/2010 12:33:42 PM
Author: kenny
You and I buy at retail prices.

We must sell at wholesale, about half of retail.


This means your ''investment'' went down in value 50% the moment you get it.

Diamonds would have to double in value for you to just break even.


Buy and enjoy diamonds because you love them.

Invest elsewhere.

I wish wholesale was half of retail, nowadays the margins are significantly smaller.

--Joshua

 

[kenny]

Date: 3/19/2010 1:20:51 PM
Author: serenitydiamonds

Date: 3/19/2010 12:33:42 PM
Author: kenny
You and I buy at retail prices.
We must sell at wholesale, about half of retail.
This means your 'investment' went down in value 50% the moment you get it.
Diamonds would have to double in value for you to just break even.
Buy and enjoy diamonds because you love them.
Invest elsewhere.

I wish wholesale was half of retail, nowadays the margins are significantly smaller.
--Joshua

Still, whatever the exact numbers are, diamonds are not a good investment for 99% of the public.

 

[NJDeac]

If we ignore for a moment the somewhat ludicrous premise that we're destined for an economic apocalypse, in the event of some kind of Zimbabwe-esque collapse of the dollar you're probably better off "investing" in firearms and canned goods rather than diamonds, gold, or other luxury commodities.

 

[WinkHPD]

Date: 3/19/2010 1:19:08 PM
Author: Hudson_Hawk

Date: 3/19/2010 1:05:24 PM
Author: kelsey
You are not the first to mention this book. Supposedly it''s a fictional work by an author who is a professional in the field of survival. If I am correct, it educates one on how to deal with a crisis situation through fictional characters.

Talk of survival and preparedness may seem a strange topic here, but it appears inevitable for our county. Your response deals directly with where I was going with my question. Diamonds may not be a fine investment, but the ''Dollar'' is a terrible investment now and will be worse in the near future. We are on the brink of economic disaster and I am thinking that when we come out of it diamonds will recover where alot of stocks and bonds will not. In the mean time the beauty would be quite a consolation.


Thanks for the reminder, I am going to see if Books a Million has this book.

True, however if true catastrophe struck and the value of the dollar totally bottomed out, how do you know diamonds would be considered valuable at all? Maybe coffee beans or sea shells will become currency. You just never know, so why risk it? Diamonds are luxury items to most people and the first things to get cut when tying the purse strings tighter is luxury.

Clearly being told that they''re not a wise investment is not what you want to hear. Perhaps you should build a home roasting process for coffee so you''re prepared when on-hand liquid currency is required.

A worthy thought, but where in heck will you get the beans???

Wink

 

[Hudson_Hawk]

Date: 3/19/2010 1:28:36 PM
Author: Wink

Date: 3/19/2010 1:19:08 PM

Author: Hudson_Hawk

Date: 3/19/2010 1:05:24 PM

Author: kelsey

You are not the first to mention this book. Supposedly it''s a fictional work by an author who is a professional in the field of survival. If I am correct, it educates one on how to deal with a crisis situation through fictional characters.


Talk of survival and preparedness may seem a strange topic here, but it appears inevitable for our county. Your response deals directly with where I was going with my question. Diamonds may not be a fine investment, but the ''Dollar'' is a terrible investment now and will be worse in the near future. We are on the brink of economic disaster and I am thinking that when we come out of it diamonds will recover where alot of stocks and bonds will not. In the mean time the beauty would be quite a consolation.



Thanks for the reminder, I am going to see if Books a Million has this book.

True, however if true catastrophe struck and the value of the dollar totally bottomed out, how do you know diamonds would be considered valuable at all? Maybe coffee beans or sea shells will become currency. You just never know, so why risk it? Diamonds are luxury items to most people and the first things to get cut when tying the purse strings tighter is luxury.


Clearly being told that they''re not a wise investment is not what you want to hear. Perhaps you should build a home roasting process for coffee so you''re prepared when on-hand liquid currency is required.

A worthy thought, but where in heck will you get the beans???


Wink

Oh shoot! Good point Wink. I guess we''re scre*ed up here in the Northeast. Think they''ll take snowballs as currency?

 

[Lady_Disdain]

Date: 3/19/2010 1:12:45 PM
Author: serenitydiamonds
Well said comments above.

I''m a fan of investing, but not with diamonds.

To put diamond as investments in financial investing terms. The spread between the bid and ask price is very very high. The liquidity is very very low. There is an added complication that no two diamonds are exactly alike, so pricing can be (and very usually is) inconsistent and fluctuate wildly (for an investment product). While diamonds are a material, their value is not placed purely on the material itself. They are priced in beauty and rareness. The first item being very subjective.

Diamonds are not the best choice for a financial investment. Diamonds best used as an emotional investment in the symbolism and beauty of a lifetime emotional commitment.

--Joshua

Yup.

Diamonds and jewelry are assets that can be easily hidden and carried in your pocket. This is handy in a war situation or if you need to get out of town quickly. In those situations, you are looking for things that retain their original value, just for things that can get you enough to survive and, if you are lucky, to get restarted.

You can make money on unusual coloured stone finds (Mahenge spinels, for example, have gone up a lot) but you need to have a very good gem education and market feeling for this to work out. You need to buy early (before most people realise the well priced, unusual beauty) and buy what will become a trend, at wholesale prices (which means knowing people in the beginning of the marketing chain). I still think this is way too risky an investment and discourage it.

 

[kelsey]

Wink,
You don''t know how much I appreciate your time and the example you shared. I do think a similar situation is eminent and the condensed story shared by your friend has helped me make a decision already. I hope a few more common responses will be made and then I must figure out how to find the right deal.

You mentioned extraodinary diamonds may not be the ticket. For beauty and value what would you look for in 35-4,500.00 diamonds? Eye appeal should be most important, correct?

Should I sacrifice quantity and increase this price range? I know that opinions will vary, (some people have no budget), but if we could reach somewhat of a consensus, about what price range does true beauty begin for, say, .8ct diamonds?

 

[Firestone]

I think the people who have responded here have given you very good advice. I would not view a diamond purchase as an investment. A diamond purchase is pure luxury.

 

[partgypsy]

Do what the man who fell to earth did: have a bunch of gold rings, sell one in each town (sorry couldn''t resist).

 

[kelsey]

I suppose all the diamonds we own were bought for the purpose of luxury. Buying a diamond with the hopes of it increasing in value was not what I had in mind. The laws of economics will not allow this economy to survive. If you understand what I am talking about, I don''t think you would recommend my Toyota stock as a good investment. Circuit City stock is probably not nearly the investment of diamonds.

If someone had cash to invest, under our current situation, I am not so sure a few loose stones wouldn''t be a bad way to secure some wealth.

Maybe you are right, I certainly am no expert on diamonds, but I do understand a little about economics and our current state of affairs. If the essentials are provided, and you need to maintain and secure some amount of wealth in a small package,... ohh well...it was just an idea. Some do it rare coins, I tought gems may be a solution.

Btw, if you are basing your conclussions on 1980s and 90''s markets, you might ought to look into what your local Federal Reserve is doing with it''s printing press. Your going to be needing those beans.

 

[kenny]

If the goal is to buy something that will always have SOME value after world economic collapse precious metals are wise (just make sure you store them in your house).

Which diamonds to buy?
Personally I'd buy one single natural Fancy Deep or Vivid Blue (or green) Internally flawless diamond (per GIA report) of the largest size I could afford.
Alternatively I'd buy ONE round GIA D IF diamond of the largest size I could afford.

I suspect the most rare diamonds will hold proportionally more of their value compared to diamonds that are less rare.

 

[kelsey]

Kenny, please forgive me, but will an AGS report give me the same information?

 

[Todd Gray]

Date: 3/19/2010 1:28:36 PM
Author: Wink

Date: 3/19/2010 1:19:08 PM

Author: Hudson_Hawk

Date: 3/19/2010 1:05:24 PM

Author: kelsey

You are not the first to mention this book. Supposedly it''s a fictional work by an author who is a professional in the field of survival. If I am correct, it educates one on how to deal with a crisis situation through fictional characters.

Talk of survival and preparedness may seem a strange topic here, but it appears inevitable for our county. Your response deals directly with where I was going with my question. Diamonds may not be a fine investment, but the ''Dollar'' is a terrible investment now and will be worse in the near future. We are on the brink of economic disaster and I am thinking that when we come out of it diamonds will recover where alot of stocks and bonds will not. In the mean time the beauty would be quite a consolation.

Thanks for the reminder, I am going to see if Books a Million has this book.

True, however if true catastrophe struck and the value of the dollar totally bottomed out, how do you know diamonds would be considered valuable at all? Maybe coffee beans or sea shells will become currency. You just never know, so why risk it? Diamonds are luxury items to most people and the first things to get cut when tying the purse strings tighter is luxury.

Clearly being told that they''re not a wise investment is not what you want to hear. Perhaps you should build a home roasting process for coffee so you''re prepared when on-hand liquid currency is required.

A worthy thought, but where in heck will you get the beans???

Wink

The characters in the book who survived the best, had built up stores of food, gasoline, toiletries, etc. and did use them as currency - more than traditional forms of currency. And they had some pretty interesting methods for keeping the stored food, rice, grains, beans, flour, etc. in stable, usable condition.

But I have to say, I''m more of an optimist than a pessimist and I would like to think that things will gradually improve and all the worry will be for naught. Then again, I''m also a realist and it''s just good common sense to have a little sustenance, water and supplies set aside because we never know what is coming - such things are good to have around for a power shortage which might last a few days, an earthquake, a snowstorm... a visit from the in-laws... oh wait, in that event, it is the escape route that is important and not the staples stored up at home!

 

[WinkHPD]

Date: 3/19/2010 1:34:37 PM
Author: kelsey
Wink,
You don''t know how much I appreciate your time and the example you shared. I do think a similar situation is eminent and the condensed story shared by your friend has helped me make a decision already. I hope a few more common responses will be made and then I must figure out how to find the right deal.

You mentioned extraodinary diamonds may not be the ticket. For beauty and value what would you look for in 35-4,500.00 diamonds? Eye appeal should be most important, correct?

Should I sacrifice quantity and increase this price range? I know that opinions will vary, (some people have no budget), but if we could reach somewhat of a consensus, about what price range does true beauty begin for, say, .8ct diamonds?

I will respond to your request, but first let me state that I do NOT believe that such a situation is eminent. Just call me Pollyana, or should that we Winkyanna, but I think we will be just fine. We have had a hard few years and may have a few more, but such swings have always happened and the fact that it has been longer than normal does NOT mean we had grown immune to them, just unused to them.

If, and I emphasize that I am not, nor do I plan to, I was buying diamond for armeggeddon I would have a selection of quarters, thirds and halves avaialble and sown into one or two pieces of clothing that I could easily wear while running. These would be small enough to carry a significant number of without being obvious that I was carrying. I would not bother with super ideal cuts, no one but me will care and if you are living in that kind of a world I will not be there so it won''t matter.

Thus you will have a tradable commodity that may or may not be usable in such time, but I am betting that they will be. So long as there are women, and if there are not then I especially do not want to be there, then there will be a need for pretty things to give them and such things will have some value.

I think for what you are wanting bigger stones are not going to be useful, and your return will be even fewer pennies on the dollar than you will get for your smaller gems.

Enjoy your buying, but I pray you will never need to sell them.

Wink

On second thought, do buy some super ideal cuts so that when you end up not needing them then you will have some beautiful gems to give the kids and grandkids.

Wink

 

[Rockdiamond]

What would you rather have- diamonds or Bear Stearns stock?

 

[kenny]

Yes an AGS report will give you about the same information and is also a highly respected lab.

I prefer AGS to GIA as I perceive them to be more pro-consumer whereas GIA appears to me as more pro-industry with their loosie goosie cut standards that give an Excellent cut rating to some steep deep rounds.

But you say you are seeking a diamond that will be worth as much as possible (and be as easy to sell as possible) in a hypothetical crisis situation.
I have no proof but I suspect a less-informed buyer who is being very cautious may be more familiar and comfortable with GIA than AGS.

 

[Dreamer_D]

NOT good invenstments. This question gets asked a lot, run a search on "investment diamond" and something like 10 pages of threads will appear. They all say the same thing. DIAMONDS are NOT and investment.

Unless you plan to upgrade over time, then it is as good a place as any I suppose to put the money.

 

[Rockdiamond]

My point is that what was traditionally good safe places to put money have proven to be less than dependable.
It''s not that diamonds got better as an investment- the reasons have been outlined clearly here why they are not.
BUT, many other investments have shown themselves to be far less attractive that we thought- making diamonds look better by comparison, if for no other reason.

 

[Dancing Fire]

Date: 3/19/2010 3:09:41 PM
Author: Rockdiamond
What would you rather have- diamonds or Bear Stearns stock?

i'd rather own Exxon stocks then paying $60K for a D IF 1ct diamond in the early 80's. today i can buy a beautifully cut 1 ct D IF for $20K.