Statistical Analysis of Diamond Pricing

[jyliu86]

So couple points to address

1)The last data set I uploaded only contains like 10 data points. I'm surprised no one caught this I'll figure out what went wrong when I can get back my computer that ran the crawler.

2)

I'm wondering how tight you could get a model even within a subset of these C's: eg. G-H (maybe even I?), VS1-2, 1.0-1.2 ?

I did a quick filter on my data: GIA, 1.0 carart, Ideal Cut, I color, SI1 diamonds.
Samples: 303 diamonds
Range: 4241 - 7123 (7123 looks like outlier)
Average: 5320.521
STDDEV: 384.92
Median: 5300

3 sigma is +/- $1200. That's pretty big. So given that, I don't think I'm going to really be able to narrow down my model without including stuff like table, depth, and vendor.

3)

If the objective is to better understand the macro market forces, your analysis will lead you in that direction. But when it is time to choose a diamond, it will be of limited help...Moreover, it's better to think more in terms of value than price.

This is exactly where I'm going. I'm all about considering the "typical" value of a diamond, or better yet, specific parameters of a diamond. Now, I was hesitant to post this, because everything I'm about to say is wrong. My model sucks. Garbage in, garbage out. But, in some fantasy land where I successfully described diamond pricing, here are some conclusions I could draw.

Please note that none of these conclusions relate to the physical appearance of a diamond AT ALL. I'm only talking money.

Here's what my first draft model tells me:
PRICE = -9172.929 + 9073.0*Carat + 1538.85*Cut + 3173.84219*Color + 4315.93*Clarity

Carat is the single largest factor in determining a diamond's price. How does this translate into my purchasing habits? Well, to me diamond diameter is the most important factor of a diamond's size. And given the square - cube law, downgrading on size is the first thing I should do if the price of a stone is too high, and I should be hesitant to upgrade on weight.

My (admittedly weak) first model tells me that each clarity grade is worth $392 and each color grade is $317 and each cut grade is worth
$256. Each carat is worth $9073. (Note this isn't how diamond really pricing works) If this was true, it's a really easy way to make a sound decision if upgrading or downgrading on any parameter is a good idea. I can decide if upping on X parameter is worth Y dollars.

I can't do that yet. But, if I'm successful, and I can eventually draw similar conclusions with a better model. That kind of information, would have been REALLY useful while shopping. Yes, I get each diamond is a special and unique. And exceptions exist to every rule. But at the same time, I'd like to know that this gorgeous diamond someone is trying to sell is in fact 20% above or below market value. Then I can make an educated decision if that 20% is worth it or not.

4)

In the final analysis it's necessary to understand more about the combination of individual characteristics of the diamonds themselves in order to make an excellent buy. And the overall value-added proposition associated with a specific purchase including the merchant's reputation and policies.

Agreed. If we want to treat diamonds like a differentiable product, then this whole exercise is pretty meaningless. If they're commodities, this kind of analysis holds.

I could get into other value-added propositions too. Though that's a much more challenging problem. For example, the assistant manager at my local jeweler is a great guy. Super nice, super helpful. Purchasing through my local jeweler would cost me $4500 to buy a stone I like. Buying a stone with the same specifications online would cost me $3800.

Buying locally I would:
a) get to work with a nice guy (I was surprised how much this actually mattered to me. Learn something new every day.)
b) better warranty
c) get to see the stone in person before buying

Buying online I would:
a) Save $700.

I'm the person that would decide my $700 is more valuable than the other intangible benefits. If it was only say $4000 to buy locally, yeah, I might say that's $200 well spent.

5)

I'm just curious, but what do you do for a living?

Engineer, though I doubt that's a surprise.

 

[the_universe]

its cheaper to fly to thailand or indonesia (bali) buy a huge rock, live like a king for under 400 a month and fly back than it is to buy a smaller diamond retail here in the states. the diamond market here in the USA is offensively inflated and everyone seems to just go along with it because of a life time of social conditioning and advertisements. South east asia is the place to be if you want to buy beautiful stones close to their true market price and can make a vacation of it. the trick is to know who the trustworthy gem dealers are in the area. Another thing is you can bargain with them like crazy too. Im talking about offering 50% less than their asking price (its in their culture to be like this).

to get a 2 carat diamond ring here in the states retail you are looking at around 10k give or take (if its good quality). so lets say you spend around 3k for round trip ticket to indonesia and living there is very cheap (few hundreds of dollars per month which is more than enough to eat at restaurants every day). That leaves you with around 6k to spend on a ring. 6k in indonesia would net you a ring way more impressive than a 2 carat stone (more like 3-4 carat give or take) and youd get a beautiful vacation life experience too. The bigger your budget the better value you get because the plane ticket is a fixed cost.

there are so many documentaries on youtube about diamond hyper inflation in the US. As the world becomes more globalized and interconnected and people become more educated, these inefficiencies in price disparities from country to country will get smaller and smaller as the middle men (with expensive overhead) are squeezed out.

also dont believe the hype. Diamonds are not an investment. this is not to say that diamonds are not beautiful though.

 

[jyliu86]

I... didn't even know that was an option. I'm actually a huge fan of that kind of thinking. To be honest, I'm pretty jaded about the whole engagement ring thing, but for the right girl, I'm willing to compromise on some things in life.

Unfortunately, while I'm more than happy to spend hours doing math and exploring the Internet, I am significantly less confident in my ability to navigate foreign markets, haggle in person, and tell if I'm getting a good deal or not. So in this situation, I believe that's a time and money premium I am willing to pay.

Out of curiosity, is there a place I could get international pricing information? I'd like to run the numbers on that data set too.

 

[heididdl]

in the meantime can we help you find an actual stone and ring,.. need budget shape and size .....and what type of gold and style

 

[Dancing Fire]

to get a 2 carat diamond ring here in the states retail you are looking at around 10k give or take (if its good quality). so lets say you spend around 3k for round trip ticket to indonesia and living there is very cheap (few hundreds of dollars per month which is more than enough to eat at restaurants every day). That leaves you with around 6k to spend on a ring. 6k in indonesia would net you a ring way more impressive than a 2 carat stone (more like 3-4 carat give or take) and youd get a beautiful vacation life experience too. The bigger your budget the better value you get because the plane ticket is a fixed cost.

Where can I buy a good quality 2ct for $10k? ... Why don't you go to Indonesia and buy some diamonds so that you can make a big profit here in the US?..

 

[drk14]

This is an interesting thread, and I hope the discussion can stay math-positive.

The goal of this diversion is evidently to attempt to gain some insight into what factors affect diamond prices. Isn't this type of pursuit more or less how one Mr. Rapaport got his start?

1)The last data set I uploaded only contains like 10 data points. I'm surprised no one caught this I'll figure out what went wrong when I can get back my computer that ran the crawler.

I did notice, but wasn't able to post until now. People have definitely been looking at your data set, because your Google drive hit its download bandwidth limit for a while... In any case, looks like you have 293,681 blank rows in the range $608-$6959.

You have much to learn yet about both diamonds and statistics, Grasshopper, but your enthusiasm is laudable, so keep on keeping on!

 

[Texas Leaguer]

its cheaper to fly to thailand or indonesia (bali) buy a huge rock, live like a king for under 400 a month and fly back than it is to buy a smaller diamond retail here in the states. the diamond market here in the USA is offensively inflated and everyone seems to just go along with it because of a life time of social conditioning and advertisements. South east asia is the place to be if you want to buy beautiful stones close to their true market price and can make a vacation of it. the trick is to know who the trustworthy gem dealers are in the area. Another thing is you can bargain with them like crazy too. Im talking about offering 50% less than their asking price (its in their culture to be like this).

to get a 2 carat diamond ring here in the states retail you are looking at around 10k give or take (if its good quality). so lets say you spend around 3k for round trip ticket to indonesia and living there is very cheap (few hundreds of dollars per month which is more than enough to eat at restaurants every day). That leaves you with around 6k to spend on a ring. 6k in indonesia would net you a ring way more impressive than a 2 carat stone (more like 3-4 carat give or take) and youd get a beautiful vacation life experience too. The bigger your budget the better value you get because the plane ticket is a fixed cost.

there are so many documentaries on youtube about diamond hyper inflation in the US. As the world becomes more globalized and interconnected and people become more educated, these inefficiencies in price disparities from country to country will get smaller and smaller as the middle men (with expensive overhead) are squeezed out.

also dont believe the hype. Diamonds are not an investment. this is not to say that diamonds are not beautiful though.

As someone who spent alot of time early in my career traipsing around the world as a gem trader, I find your narrative wistfully romantic. Sadly, it's not at all in alignment with reality.

Diamonds are traded in a dynamic global marketplace. Over the past decade information technology has made it even more so. The merchants here and elsewhere serve an international market. We in fact recently delivered a 4ct to a customer in Kuala Lumpur who had been shopping hard for months during which time he was in discussions with multiple vendors.

If there somehow happened to be pockets of the global market that were making fat profits, you can be sure that they would quickly be filled by competition. In actual fact, the opposite is true. Margins have become so compressed that many companies have failed, and many more are struggling for profitability.

There has never been a better time to be a diamond consumer in terms of your ability to get exactly what you want at prices excruciatingly close to production cost.

 

[Texas Leaguer]

I... didn't even know that was an option. I'm actually a huge fan of that kind of thinking. To be honest, I'm pretty jaded about the whole engagement ring thing, but for the right girl, I'm willing to compromise on some things in life.

Unfortunately, while I'm more than happy to spend hours doing math and exploring the Internet, I am significantly less confident in my ability to navigate foreign markets, haggle in person, and tell if I'm getting a good deal or not. So in this situation, I believe that's a time and money premium I am willing to pay.

Out of curiosity, is there a place I could get international pricing information? I'd like to run the numbers on that data set too.

I detect a little tongue-in-cheek You can rest assured that the data that you are accessing is suitable for your exercise. It is "international" in nature. But one of the many variables to consider is that much of that inventory is "virtual". With virtual inventory pricing is not based upon conventional business models and will tend to skew your results. Some of these diamonds will not actually be available, others may be priced as loss leaders or bait. Generally, if available they will come with a minimum of added value, often simply drop-shipped from the supplier and not even evaluated by the merchant.

 

[jyliu86]

I did notice, but wasn't able to post until now. People have definitely been looking at your data set, because your Google drive hit its download bandwidth limit for a while...

Hm... I might need to setup a dropbox or something. Generating new data set. 314280 / 477585 diamonds loaded.

 

[the_universe]

Why don't you go to Indonesia and buy some diamonds so that you can make a big profit here in the US?..

I was just pointing out that there are some beautiful areas on planet earth that just so happen to be cheap vacation spots, that just so happen to also have a thriving gem trade where you could snipe a very nice gem at a fraction of what it would cost here in the USA. its something I have had good experience with.

As far as middle manning gems for "big profit" its not for me. Unloading inventory such as this can be a pain without the right connects. I dont know enough about it nor do I have the interest or passion to get good at it.

 

[Dancing Fire]

Why don't you go to Indonesia and buy some diamonds so that you can make a big profit here in the US?..

I was just pointing out that there are some beautiful areas on planet earth that just so happen to be cheap vacation spots, that just so happen to also have a thriving gem trade where you could snipe a very nice gem at a fraction of what it would cost here in the USA. its something I have had good experience with.

As far as middle manning gems for "big profit" its not for me. Unloading inventory such as this can be a pain without the right connects. I dont know enough about it nor do I have the interest or passion to get good at it.

Show us an example ...

 

[Texas Leaguer]

Why don't you go to Indonesia and buy some diamonds so that you can make a big profit here in the US?..

I was just pointing out that there are some beautiful areas on planet earth that just so happen to be cheap vacation spots, that just so happen to also have a thriving gem trade where you could snipe a very nice gem at a fraction of what it would cost here in the USA. its something I have had good experience with.

As far as middle manning gems for "big profit" its not for me. Unloading inventory such as this can be a pain without the right connects. I don't know enough about it nor do I have the interest or passion to get good at it.

There are indeed some lovely places on the planet to visit and you can make your vacation dollar go far. We'll have to agree to disagree on the rest of your statement. There is no problem "sniping" cheap diamonds at cheap prices anywhere in the world. But the idea that you can buy quality diamonds at lower prices than the US market is pure fantasy.

 

[kenny]

Don't worry TL.
Nobody here take these two posters seriously.

They'll be gone soon.

 

[Dancing Fire]

Why don't you go to Indonesia and buy some diamonds so that you can make a big profit here in the US?..

I was just pointing out that there are some beautiful areas on planet earth that just so happen to be cheap vacation spots, that just so happen to also have a thriving gem trade where you could snipe a very nice gem at a fraction of what it would cost here in the USA. its something I have had good experience with.

As far as middle manning gems for "big profit" its not for me. Unloading inventory such as this can be a pain without the right connects. I don't know enough about it nor do I have the interest or passion to get good at it.

There are indeed some lovely places on the planet to visit and you can make your vacation dollar go far. We'll have to agree to disagree on the rest of your statement. There is no problem "sniping" cheap diamonds at cheap prices anywhere in the world. But the idea that you can buy quality diamonds at lower prices than the US market is pure fantasy.

Exactly!...

 

[Karl_K]

Buying diamonds in a foreign place outside the established market is a good way to end up in jail or dead.
Dealing with the wrong person can cause you to take a nice vacation in club fed for many many years if you don't just disappear into a prison somewhere or get robbed and killed.
Read up on the patriot act and Kimberly process.

 

[jyliu86]

Newest data set:
https://drive.google.com/file/d/0BxYqR2TzgIgaRXp4SzV1LUJHeFE/edit?usp=sharing

Let me know if anyone starts seeing any bandwidth limits. File's too big to view in the default viewer, but you should be able to download it. I logged out of my account to check it and downloads seemed ok.

Search Criteria Used:
Carat Size: 0.5 - 5.0
Price: $600 - $90,000
Round Brilliants
Multiple grading labs included, so do post processing to filter GIA only stones. Given time, I'd like to see how GIA, AGS, EGL, etc. are price compared (not appearance) but that's farther down the line.

 

[Texas Leaguer]

Newest data set:
https://drive.google.com/file/d/0BxYqR2TzgIgaRXp4SzV1LUJHeFE/edit?usp=sharing

Let me know if anyone starts seeing any bandwidth limits. File's too big to view in the default viewer, but you should be able to download it. I logged out of my account to check it and downloads seemed ok.

Search Criteria Used:
Carat Size: 0.5 - 5.0
Price: $600 - $90,000
Round Brilliants
Multiple grading labs included, so do post processing to filter GIA only stones. Given time, I'd like to see how GIA, AGS, EGL, etc. are price compared (not appearance) but that's farther down the line.

Just a note since you mentioned labs, when you get to the point of analyzing pricing between labs you should filter out the EGL that are NOT marked EGL USA. Of the various labs going under the EGL name, EGL USA is aparently the only one attempting to stay reasonably synched up with GIA color/clarity grading standards.

 

[Texas Leaguer]

Don't worry TL.
Nobody here take these two posters seriously.

They'll be gone soon.

Thanks for reeling me in Kenny. The nonsense was making me a little cray-cray.

 

[drk14]

Search Criteria Used:
Carat Size: 0.5 - 5.0
Price: $600 - $90,000
Round Brilliants
Multiple grading labs included, so do post processing to filter GIA only stones. Given time, I'd like to see how GIA, AGS, EGL, etc. are price compared (not appearance) but that's farther down the line.

Jyliu,
Is there a reason that you feel a need to put any limits on price? Since you are trying to model price, excluding diamonds less expensive than $600 and more expensive than $90,000 will skew the data to the point where it will be difficult to draw any meaningful conclusions.

This semi-log plot of your latest data set illustrates the repercussions of censoring the price data:



Do you see how it is only possible to discern actual trends in the narrow range of data between 0.7-2 ct (red box)? Outside this range, your upper and lower bounds on price truncate the data and obscure the dependence of price on carat weight and other factors.

Thus, I would recommend that you remove any limits on price. If you are concerned about having too many data points, I would suggest that you instead limit by carat weight (e.g., consider only diamonds less than 3ct). However, I would not put a lower limit on carat weight, either, just an upper bound (if you need to limit the size of the data file).

It's a very interesting data set -- I look forward to seeing the results of your next crawl.

 

[TC1987]

Resources:
https://www.pricescope.com/diamond-search-results
https://www.pricescope.com/tools/hca
http://goodoldgold.com/4Cs/
http://goodoldgold.com/Articles/MinorFacets/
http://niceice.com/diamond-buying-secrets/5-minutes-diamond-buying-success/
Not all GIA triple Excellent are excellent at light return. Some are dogs. Some are "steep/deep." AGS 000 grade has tighter specs than GIA 3X. Sometimes we say "Just look at AGS 000" if you are in a hurry. Or, look at Crafted by Infinity.

Not all diamonds are alike. Although they might look alike or similar on paper, there are nuances of cut than make one H&A superideal have a slightly different personality from another.

Pricing: You get what you pay for. There have been people come on here in the past and fight with us about how diamonds are overpriced, overrated. And then they mentioned how they begrudge even having to buy an engagement ring. Here's my take on that, and I am a woman in engineering: How much housecleaning and childrearing drudgery do you expect your wife to do? 100%, 75%, 50%? Do you expect her to have a career outside the home and do all that drudgery as a 2nd shift after she gets home, every day, for years and years and years? Personally, I think the higher the drudgery workload on that woman, the more impressive the e-ring ought to be, because household drudgery is damned expensive if you have to pay hired help at market rates to do it. Know what I mean? Obviously, I don't plan to remarry anytime soon. Once was enough, and I'll just buy my own diamonds from here out, because that way I'll get something that someone didn't begrudge me. And I have almost no drudgework at all.

Have a great evening.

 

[kenny]

Don't worry TL.
Nobody here take these two posters seriously.

They'll be gone soon.

Thanks for reeling me in Kenny. The nonsense was making me a little cray-cray.

And I'm sitting here thinking only people who actually price diamonds for a living know how nuanced it is and the futility of someone thinking they could 'math it out'.

 

[smitcompton]

Hi,

Now admittedly, I was in a time-out from PS for several months during July & August, so I may have missed the discussion, if any, on the new Rappaport designations or parameters for pricing diamonds. They have changed their criteria including angles for their A+,
A, and A- designations. In case our OP isn't familiar, Mr. Rappapot puts out a monthly price sheet for diamonds that vendors follow closely.
**edited by moderator, please review the policies**

Mr. Rappaport has been trying to commoditize (sp) diamonds for some time. He is well respected in the diamond field and his report is well used. He must calculate his prices from something. I don't know exactly, but this thread reminded me of it. Vendors want small differences in stones so they price each differently. Rappaport wants other value added specifics, such as upgrade policy and service, to differentiate vendor ,which is what Texas Leaguer was suggesting.

I have no idea why some people are so critical. Carry on if you wish.


Annette

 

[Karl_K]

I have no idea why some people are so critical. Carry on if you wish.


Annette

I don't think the trade members are being too critical but we are chuckling.
Having seen a pricing matrix from a large producer if you could make sense of it you have me beat.
I can't share details due to nda but there ended up being something like 500+ possible prices for a H-si2 range diamond with gia equivalent grading.

 

[Texas Leaguer]

I have no idea why some people are so critical. Carry on if you wish.


Annette

I don't think the trade members are being too critical but we are chuckling.
Having seen a pricing matrix from a large producer if you could make sense of it you have me beat.
I can't share details due to nda but there ended up being something like 500+ possible prices for a H-si2 range diamond with gia equivalent grading.

Yes, I don't think anyone is criticizing the effort. And, who knows, maybe a methodology can be developed that will be useful at the consumer level. But those of us that have been around the business for a while are skeptical because of the countless small variables at play. You can develop data on a macro level that is valid, but it will probably be of nominal value when it comes to making a buy decision on an individual diamond.

And from what I could tell by the OPs comments, it is in a sense more of a mental exercise. Sort of "sport" for a statistician. And that is fine. But I'm skeptical that it can lead to anything more than understanding trends. And remember that the market itself is dynamic and ever changing based upon global economics, mine production and new discoveries, as well as societal dynamics.

Rapaport's role has been mentioned in determining market prices and to some extent even driving them. As expert as his analysis of the market might be, prices on the system can range 50% below to 20% over list prices.

So yes, the attempt to "math it out" will only take you so far. For the consumer there are better ways to approach the goal of choosing a diamond. Going from macro analysis of diamond pricing as a starting point is backwards in my view. Consumers are better served by first determining what combination of quality characteristics are personally most important and then using the existing tools to filter a pool of qualifying stones. From that subset looking at value added features, and THEN comparing prices.

 

[smitcompton]

Hi,

TL, when the Vice-President of a company calls a potential customer cray-cray, that is more than having a chuckle, as Karl suggests.

You apparently were holding back until Kenny, came along to free you to speak.

Karls way is fine, the older statesman can chuckle, and I don't find it rude, but Kenny talking about the fact of these people will be gone soon, reeks of feelings of superiority. Uck.

Annette

 

[Texas Leaguer]

Hi,

TL, when the Vice-President of a company calls a potential customer cray-cray, that is more than having a chuckle, as Karl suggests.

You apparently were holding back until Kenny, came along to free you to speak.

Karls way is fine, the older statesman can chuckle, and I don't find it rude, but Kenny talking about the fact of these people will be gone soon, reeks of feelings of superiority. Uck.

Annette

I think you need to re-read the thread. I was not referring to the OP. This is a conversation that I have been following, have found interesting, and have made constructive contribution to. My reference to being annoyed was in reference to comments made by a poster who was making completely erroneous comments about the diamond market, not at all related to the thread.

 

[Karl_K]

Hi,

TL, when the Vice-President of a company calls a potential customer cray-cray, that is more than having a chuckle, as Karl suggests.

You apparently were holding back until Kenny, came along to free you to speak.

Karls way is fine, the older statesman can chuckle, and I don't find it rude, but Kenny talking about the fact of these people will be gone soon, reeks of feelings of superiority. Uck.

Annette

I think you need to re-read the thread. I was not referring to the OP. This is a conversation that I have been following, have found interesting, and have made constructive contribution to. My reference to being annoyed was in reference to comments made by a poster who was making completely erroneous comments about the diamond market, not at all related to the thread.

My comment above on the same issue (buying diamonds outside the diamond market in a foreign country) like Bryan's are about someone giving advise that if followed could and most likely would get someone arrested and or killed not about the pricing conversation by the OP.

 

[kenny]

Hi,

TL, when the Vice-President of a company calls a potential customer cray-cray, that is more than having a chuckle, as Karl suggests.

You apparently were holding back until Kenny, came along to free you to speak.

Karls way is fine, the older statesman can chuckle, and I don't find it rude, but Kenny talking about the fact of these people will be gone soon, reeks of feelings of superiority. Uck.

Annette

Annette, I have feelings of superiority.
Everyone does.
I'm just honest.

Apparently you, like most, think the superior way to be is to not feel superior, (rather to hide it from others and even yourself).
You see, you cannot escape it.

My self-acceptance and honesty annoys the HELL out of people who have worked so hard all their life to suppress and deny their inescapable nature.

 

[heididdl]

Hi,

TL, when the Vice-President of a company calls a potential customer cray-cray, that is more than having a chuckle, as Karl suggests.

You apparently were holding back until Kenny, came along to free you to speak.

Karls way is fine, the older statesman can chuckle, and I don't find it rude, but Kenny talking about the fact of these people will be gone soon, reeks of feelings of superiority. Uck.

Annette

Annette, I have feelings of superiority.
Everyone does.
I'm just honest.

Apparently you, like most, think the superior way to be is to not feel superior, (rather to hide it from others and even yourself).
You see, you cannot escape it.

My self-acceptance and honesty annoys the HELL out of people who have worked so hard all their life to suppress and deny their inescapable nature.