INvesting in diamonds

[Karl_K]

Is this somewhat clear? If so, can you see this is not some side-aspect, to be catalogued under the header 'policies'. It is the heart of the matter why a certain weight-color-clarity sells for $10K.

I see where you are coming from, yes.
I am not certain many consumers look at it that way however.

 

[Paul-Antwerp]

In this, the trade is using and avoiding that aspect of the diamond-purchase at the same time. We all love to hint at long-term-value of diamonds in general, and basically depend on it. If I did not believe that a certain weight-color-clarity will have x basic value in the year from now, how could I take the risk of purchasing diamonds in order to be cut and commercialized in the weeks and months to come?

Yourself and stocking dealers are both betting they will hold value. Historically that has been a safe bet with a few exceptions but it is still a bet.
The entire industry is based on a stable and mature market for the finished products.
Which is why the downturn of 2008 put many out of business.
They did not have the capital to survive, mainly because they have not had to have it the way the industry was structured.

I think that you have an incorrect perception of what happened in 2008. Many big diamond-companies were using easy capital to invest in real-estate and stock-markets, while their diamond-activity took care of obtaining that easy credit. Their demise therefore was not really diamond-related.

But that is a totally different subject, so if you want to talk more about this, let us start another thread.

Live long,

 

[Paul-Antwerp]

In the purchase of a diamond, if one would compare a well-cut diamond to a well-cut CZ, differences in looks and 'performance' are minimal. There must be a reason why so many consumers are willing to pay 1000-fold for the diamond. Romantics would argue that it is because of diamond being a natural product, but in the end, I think that it is because there is a perception of long-term value in diamonds.

The perception of long term value does make it easier for many people to buy them.
Still most will be bought because of tradition demanding it.
I do think the many perceptions surrounding diamonds makes people feel better when they give into tradition.
How many of those perceptions are real and how many are myths is another topic.

My colleague John Pollard suggested to use the term 'store-of-value' instead of 'investment-aspect', and I think that is correct.

Granted, the tradition-aspect plays a role, but I would add that the store-of-value-aspect most probably feeds the tradition.

In the same way, if one buys a house to live in, not ever dreaming of selling it, the price one pays still is determined largely by the store-of-value of the house's location.

Live long,

 

[Paul-Antwerp]

At the same time, the trade is avoiding the matter when it comes down to individual diamonds. The popularity of loose certs is a classic example, as the loose cert gives the impression of a huge underlying value (carat weight, color and clarity) for a relatively cheap price. If one does not acknowledge the investment-aspect of a diamond-purchase, one cannot truly explain to a consumer that they are getting a bad deal. Explaining that color and clarity of said lab cannot be trusted often does not convince the consumer, as the diamond still looks good to his eyes and he has a so-called grade on paper, while the 'savings' can run up to 25% or more. The key to solving this is to make the investment-aspect a conscious part of the decision, not the currently unconscious one.

There is a lot of truth to that.
I think the argument that you know what you are actually getting with a much better degree of certainty with first level grading reports than with second and third level reports is the best argument against soft certs.
Resale value certainly is a part of that.

Indeed. 'What you are actually getting' however has no meaning if one simply looks at a diamond as a nice, shiny rock that one loves to wear because of its emotional meaning.

'What you are actually getting' again refers to the store-of-value-aspect. Only if one considers that aspect consciously, 'what you are actually getting' becomes meaningful and important. That is why the trade in general will avoid the matter, as clear communication about 'what you are actually getting' will probably change a lot of purchase-decisions.

Live long,

 

[Paul-Antwerp]

Is this somewhat clear? If so, can you see this is not some side-aspect, to be catalogued under the header 'policies'. It is the heart of the matter why a certain weight-color-clarity sells for $10K.

I see where you are coming from, yes.
I am not certain many consumers look at it that way however.

I would love some consumer-participation in this thread too.

Therefore, the following direct question:

Suppose that you are considering two diamonds to buy: One priced at $10K, the other at $9K, and the latter one seems more attractive to you because of its price.
If the vendor would tell you he will give you an unlimited buyback of 70% on the first stone, but only one of 50% on the second stone, would that change your preference to the first stone?

Of course, you may also ask follow-up-questions to the vendor, for the reason the buyback-difference.

Live long,