Investment

[lacina]

Okaynow,

Some cutting houses do use a high tech cutting machines. I agree the machines can get even more sophisticated in the future,and give the diamond true "hand cut" character, however the "Ideal cut" is determined by the shape of rough . The cutter or the machine cuts to maximum recovery of the rough.
Optimized has a good point, there are different opinions on "Ideal cut". The Asian, American or European markets do differ in opinions on Ideal proportions mainly because of the "practical" performance of diamond,...

Best Regards

George

 

[Richard Sherwood]

-----------
Anyway Richard, I'm really enjoying this thread, and I hope you are
too!
-----------

Immensely. I love these forums, don't you? The only problem is, with four kids, two grandkids, a busy practice and a high maintenance wife (my favorite chore), I'm not sure I can keep up with you.

Here. Let's just make it simple. You're wrong, and I'm right. Case settled.

No? Darn...

I'm not used to you young whippersnappers questioning my sage wisdom and expert knowledge. Now I'm going to have to go back and look up all those facts and figures again...

 

[optimized]

Been busy the last few days but, with a lazy Sunday upon us, I have some time to delve back into the thread. Here comes another of my "signature" long posts.

fire&ice,

First, I just want to say to you the same thing I said to Richard, which is that I'm really enjoying this thread and I don't want you to think I'm attacking you in any way. I've gotten into the habit of pointing this out periodically because I am aware that my "point/counterpoint" style of posting can sometimes seem confrontational, which is not at all what the intent is. I'm glad you decided to jump into my little corner of the thread, and I hope you're enjoying it too.

"Opt & hellof - may I venture a quess that you all are relatively young."

I guess that depends on what "young" is. I'm in my early 30s. I'm very curious as to why you ask. I may know why, but I'd like some clarification before I comment further on that statement.

"I had my husband read the very first post by abbott. I asked him what he thought - phrasing it to be - what he thought about the investment quality of a diamond. His response - it's moot. She wants to rationalize a diamond purchase. Opt, you have a lot to learn."

I reread the post as well, and while I can see how there could be a hidden agenda in the question I still don't really see how the "she wants to rationalize a diamond purchase" jumps out of it to the point where you would characterize me as "having a lot to learn." Since I think we all have a lot to learn about various things in this world, I can't disagree with the statement on its own, but within the context of the paragraph in which it was stated I'm left wondering what you meant by it. I certainly have a lot to learn about women, but I've yet to meet a man who doesn't.

"I maintain that one could put their money in worse purchases; but, I have made quite a healthy living in the Art & Antique world hedging when to buy & when to sell. The demand for great items EXCEEDS supply even in these unsettling times. Humans need to surround themselves with "beautiful" (one's own perception inserted here)objects."

I agree that there are almost certainly worse speculative purchases than diamonds, but that sort of goes without saying. The question originally was to the effect of, "are diamonds a GOOD long-term investment," not "are there worse long-term investments than diamonds?"

I have no doubt you have been successful with art and antiques. My mother owned an antique shop locally for many years and I know she always did very well with that business, usually by knowing enough about antiques to be able to acquire desirable pieces from people who didn't know the market value for a given item, then turning around and selling it at a fair market value. I understand what it means to "be informed" about the market, but I wonder how informed anybody can really be about an industry whose inner-workings are as shrouded in mystery as the diamond industry under De Beers control, and where so much information about the industry is spoon-fed by the same cartel. Granted, the industry is undergoing some major changes with De Beers going private, but that will almost certainly serve as another means for the industry to become less transparent since De Beers will not even be required to disclose information about their business to investors anymore. Knowing when to buy and when to sell may become more difficult than ever.

I also wonder how much of their new emphasis on transitioning from a self-styled "custodian" of the industry (that's one way to describe a monopoly, I suppose) into a "premium brand" has been forced by the slow erosion of their control of the world's diamond rough. Without an overwhelmingly dominant monopoly controlling the pricing of diamond rough, it's quite arguable that the future price structure of the industry is very much in question. Lest we fall back into the "diamonds have been valued for far longer than De Beers has been around" argument, I remind anyone interested that diamond output was a small trickle in the days before De Beers as compared to today, so prices arguably were based more on true "rarity" than they may be today.

It's also worth briefly noting that while there certainly is some truth in what you said about demand for certain items remaining strong even in unsettling times, the recent performance of the diamond markets themselves would add an element of uncertainty to that statement as it relates to diamonds. The market for diamonds has fluctuated significantly over the last several years as the U.S. economy has gone through its problems (and with Japan's economy slamming the diamond trade in that country for a while now), and prices and sightholders' allotments were definitely affected. Although it appears the industry has recovered quite a bit, apparently demand wasn't so high that the industry was able to go on with business as usual without seriously manipulating the supply through sightholder allotments and pricing adjustments.

One of the issues I was trying to emphasize (as addressed in your post with the "The demand for great items EXCEEDS supply even in these unsettling times" line) is that human ideas of what a "great item" is can be quite fluid. As the last sentence in the paragraph of yours I excerpted attests, a personal "perception" of what is beautiful, desirable or valuable is a critical part of the equation. Although I myself am not an expert on art or antiques, I do know that different segments of the art/antique world are in vogue and more desirable at different times, due almost solely to the fact that people's perceptions of what is great or desirable is so fluid. The timing of a purchase within that cycle will have a direct impact on what sort of return can be expected when the need or desire to sell appears. This all plays into that human fickleness I've mentioned a few times. Since the "value" is derived from a human emotional response rather than an overriding intrinsic value, it is nearly impossible to predict authoritatively what the future value will be. I've yet to hear an authoritative proclamation that diamonds are somehow "magical" and have a supernatural ability to transcend this fact, although many people (and the industry itself) have come pretty close to saying just that.

Another factor that is somewhat unique to art and antiques and would seem to have far less potential to affect diamonds (and thus make them less-than-ideal examples to use for comparison) is that art and antiques are often valued in large part for their age and the irrevocable rarity that comes with it. While owning a Rembrandt represents a rarity that can never be threatened (unless he comes back from the dead to create more art), cut diamonds are only getting more plentiful all the time. Diamonds are mined in quite large volumes and they tend to last quite a long time, making their "irreplaceability" far less certain.

"Any investment counselor will dictate "past perfomance *INDEED* indicates future performance". - ran that one by my broker. That said, one needs to track present day performance. After all, we all *bought* diamonds. History has indicated that electronics drop in prices hedged away by new technology, etc."

No, that statement is absolutely false. Past performance by itself is in no way indicative of future results, which is what I've been saying throughout this thread. I suppose if there appeared a hypothetical scenario in which past performance was the only allowable predictor of future performance, the statement might make sense, but that is never the case. It's certainly true that past performance is factored into any informed speculation of future results, but as the next statement in your paragraph alludes, it is only one factor of many. Economic theory doesn't end at "Let's buy it now 'cause it has performed well in the past, and that's good enough for us." Current and predicted market realities and strategies are always factored into any meaningful analysis of future earnings or appreciation, and depending on those realities the past performance may be summarily discarded (under certain circumstances). A more accurate statement would be: "Any investment counselor will dictate 'past performance' is a useful tool when incorporated into a comprehensive assessment of the current and future potential of an investment vehicle." In other words, there's a reason why virtually every financial prospectus that contains references to past performance also has a disclaimer to the effect of "past performance is no guarantee of future results." To briefly go back to the horse whip analogy, once the automobile began to gain a foothold and eclipse animals as beasts of burden, I'm sure it didn't take long for the financial world to realize that the successful "past performance" of the horse whip business was meaningless in the face of completely new market realities. If your broker said what your statement makes it sound like he/she said, my advice would be to seek a more knowledgeable consultant.

In the case of diamond value, I have no idea if they will become more valuable, less valuable, or remain static in the future. But, I do know there are serious risks involved in trying to base an estimate of future returns on "past performance" in an industry whose value is weighted heavily toward perceived "rarity," yet has produced far more product in the last sixty years than throughout the rest of recorded history. In a case like this, one must wonder how relevant past performance is.

Market saturation is a very real and problematic principle in business that the diamond industry by rights should not be immune to, although the cartel(s) will certainly try to prevent it. There have been various times throughout the last sixty years when diamond surpluses were held back and stockpiled by De Beers and others. This was done in an effort to keep prices high by restricting supply during periods that threatened to see a saturation of the market, which in turn would cause prices to drop precipitously as supply overwhelmed demand. The industry has already proven that it is capable of outstripping demand for its goods on a temporary basis, so who's to say that they won't someday cross the threshold permanently?

Here's another possible (although probably unlikely) thing that illustrates just how weird the world of speculative investment can be: If diamonds are as rare and labor-intensive to acquire as we are led to believe, at what point do the "environmentalists" latch onto diamond mining as a scourge upon the planet that destroys nature and saps resources for the sake of "elitists" bent on satisfying their petty materialistic urges at the expense of the planet? Perhaps just as furs are increasingly seen as an unnecessary extravagance that harms nature, diamonds may one day be seen as a badge of callous disregard for the planet. Imagine walking down the street wearing a nice piece of diamond jewelry and having mud thrown on you by an environmentalist screaming "planet killer!" at you, reminiscent of the red paint attacks on fur wearers. Like I said, not a likely scenario right now, but also not that far out of the realm of possibility. After all, just look at the "conflict diamonds" nightmare that almost caused so many problems for the industry (but was deftly dealt with by De Beers in a manner that helped push their products while simultaneously denying sales to their competition). I don't really see this scenario playing out anytime soon, but it's just the sort of thing that would be typical in our world today (and that no amount of "past performance" analysis would catch), and could conceivably have a pretty devastating impact on the industry.

"Opt, it is admireable to put your desire to please your to be before your 'rational' thoughts. Personally, I don't think *that's* going to change. Hence, my thought on the 'staying power' of diamonds."

Indeed, that may not change and diamonds may be a great investment for some. It's just not a "sure thing" at all, IMO.



Richard,

" -----------
Anyway Richard, I'm really enjoying this thread, and I hope you are
too!
-----------

Immensely. I love these forums, don't you? The only problem is, with four kids, two grandkids, a busy practice and a high maintenance wife (my favorite chore), I'm not sure I can keep up with you."


Yes, I do enjoy the forums. I like the friendly "community" feel, the large number of helpful folks around, and admittedly I also enjoy the sorts of intellectually stimulating themes in some of the threads (like this one!). I agree that I am at an advantage in respect to family and whatnot. My fiancé and I are just preparing to get started with our own life together so we don't have some of the things you mention weighing us down (yet). At this point in my life I'm enjoying perhaps the final months of being able to spend a significant amount of time surfing the web and participating in online communities like this one, so I've been trying to enjoy it to the fullest. As much fun as I've been having, I don't think I'll be able to keep up the four-hours-of-sleep-a-night routine for too much longer.

"I'm not used to you young whippersnappers questioning my sage wisdom and expert knowledge. Now I'm going to have to go back and look up all those facts and figures again..."

As you hopefully already know, I certainly don't question your wisdom or knowledge about diamonds at all! For as long as I've been lurking on the boards I've enjoyed your informative and often humorous posts. As it turns out, the discussion that has unfolded in this thread has a lot to do with the uncertainties of trying to predict the future, so ultimately most of what I've been talking about is not really related specifically to diamonds per se. Economics and psychology are a big focus of my perspective.

I hope this thread is interesting enough to you for you to want to give me more of your perspective. During my diamond search over the last year or so I've learned a lot, but by no means do I think there isn't an awful lot more that I haven't heard. If you find the time, I'd love to hear more of what you have to say on the topic.

Anyway, as I've said before, in no way am I trying to be a doomsayer predicting that the diamond market is on the verge of collapse. Nor am I trying to say that others here are wrong in their assessment. This whole exchange started because I personally perceived the tone of the thread to have an overall cavalier tone of casual confidence in diamonds as a long-term investment, as if it was written in stone that they would continue to go up in value indefinitely. I originally tried to interject a reasoned analysis of why caution was warranted, and I hope I've shed some light on "the other side of the coin." I don't know what the future holds for diamond value, but (with all respect to the folks who have contributed to this thread) neither does anyone else. In one respect, since I just bought a nice diamond, I sort of hope the prices keep going up. On the other hand though, if they drop maybe I'd be able to buy and enjoy a lot more diamonds in the future, which would be nice too!

-Tim

 

[fire&ice]

Tim,

I say you have a lot to learn & believed you to be young (which you are) because as you age, one learns (but never masters)the subtle nuiances of the other sex. ....an entertaining journey.

This one's a classic. Women vent. Men want to solve. This thread is an indication of such. So, when I start to "vent" (complain), hubby states: Do you want me to solve your problem or are you simply venting?

You are correct that the very nature of the Art & Antique lends itself to be "rare". I am not addressing the collectible market - which is indeed a fickle market - sometimes based on nothing but the whims of others. I made my money (and continue to make money) banking on "future" markets. I can not put diamonds in the same league..........BUT,

Diversity & distribution of money is something that one must consider. If I only had $10,000 to "invest", I would never consider investing in diamonds. If I had considerablely more than that, I would buy a diamond to wear & enjoy. I would certainly (based on past performance) believe that my diamond is an asset. Being an Art & Antique dealer, I am more versed on estate liquidation. Other than cash, stock, bonds, real estate, the next thing on the list is jewelry. Jewelry is considered a "permanent asset".

I may have a different view about what I consider "investing". An investment is something that one hopes will maintian or increase in value. ALL investments are at risk. I'm a big believer in diversity. I could think of worse places to park cash.

As far as rarity, one can make the same argument about real estate. We have a vast planet. Land is not rare. Perceived value of land is in location. The value of land where I am from increases because of restrictions by government on development (dicatated also by road system & sewers). My analogy - land is not rare - but the ability to access land & develop land dictates the market. Debeers is doing such.

All this said, I don't think diamonds should be considered an "investment" if one is not able to put the "investment" at risk.

Interesting discussion. I'm not taking it all that seriously though. I have my big rock - just plain enjoy it - and have the illusion that it will maintain it's value.

 

[Richard Sherwood]

-----------
because as you age, one learns (but never masters)the subtle nuances
of the other sex. ....an entertaining journey.
-----------

God I love those nuances.

One thing I would like to point out about the original poster is that she mentioned she had "done well in Art".

Anyone who has "done well" in Art probably intuitively understands the complexities of the "luxury asset" market. She also mentioned she had a "passion" for diamonds.

Those with an understanding of the luxury asset market and a passion for their luxury item of choice are liable to be astute "investors". Not only that, but they have considerable fun in the process. Art & gems are much more fun to buy, own and enjoy than most your dry and boring traditional investments.

 

[divergrrl]

George...enough with the yellow radiant cut. I am drooling...total Pavlovian response. Someday.....I'd love a canary yellow diamond, they are so intriguing to me.

 

[lacina]

Divergrll,
I too love strong yellow diamonds,...
I am still saving up for a good sized honker so it would be noticeable on my finger! The downside is I sell theese things but the price keeps jumping up like crazy at wholesale. will I ever be able to save up that much?
In the last 5 years it jumps 20-30% per year!
George

 

[DiamondOptics]

Very Informative thread!

Kirk Konst

 

[fire&ice]

worthy of a bump!

Glad to see your still looking Abbott!

 

[Richard Sherwood]

With 1600 viewings, this thread definitely created a lot of interest!

 

[Garry H (Cut Nut)]

I always told people who ask about investment diamonds that they shold see a broker or bank, but they can not enjoy looking at and showing off their share certificates.

Maybe the way investments have gone, and the obvious interest in sparkly investments, I should change my tune

 

[pricescope]

Garry, what do you think about our latest discovery in on this subject?

 

[Garry H (Cut Nut)]

What he means folks is if you bought an e-diamond 2 or 3 years ago, it is now worth 5 to 20% less because of the competitive effect on sell prices caused by one Dr Leonid Tcharnyi.

Anyone remember that it was once posible for a sailor to round the Horn and sell a bag of pepper for 10,000% margin.

 

[Richard Sherwood]

-----------
What he means folks is if you bought an e-diamond 2 or 3 years ago, it is now worth 5 to 20% less
because of the competitive effect on sell prices caused by one Dr Leonid Tcharnyi.
-----------

No way... Is that for real?

Leonid, you're gonna make your way onto somebody's hit list if that's true!

 

[Rank Amateur]

20% less?!?

Just wait 'til I get my hands on that bastard!!

 

[Rank Amateur]

One thing worth mentioning about buying stock in a company is that a company has earnings and profits which influence the price. So while both diamonds and stocks have a certain value placed upon their desirability and public demand, stocks actually do something other than just sit there.

Of course my argument is tempered by the tech industry's invention of stock in companies with no earnings or profits. That and people will still by Coca-cola at a P/E ratio of 75 or 100.

 

[Garry H (Cut Nut)]

Diamonds definitely must do something, because it is a well known fact that they improve hetrosexual mens sex lives!

 

[lawmax]

LOL!!

This was a great thread!

Nevermind all the $$$ investment talk. Where's your passion?

Machines cutting all diamonds...no more artisans? Ugh...

lawmax

 

[lacina]

Yeah, Cut Nut must be right about the improved sex life. I have a client who has purchesed 4ct F/VS1 from me about a year ago,... It was a $50000 "investment" and working well for him. I think,...
We have re mounted the stone several times since then,.. Every time different style and size. Each time to fit finger of different lady.

I personally don't think this is the way to do it , but he has a great pleasure from it.( return on investment?) Go figure,...

George

 

[Garry H (Cut Nut)]

You would escribe it as a re-mounting diamond?

 

[lawmax]

A what? LOL

Still waiting for that joke Garry.