Investment Diamonds Again?

I am not sure what, if anything, diamonds have in common with pork bellies, orange juice, and soybeans. Some in the industry, however, insist on trying to commoditize diamonds. I suppose there are premium pork bellies and VVS OJ, and I suppose, too, that there are highly qualified experts who know one pork belly from another.

Why we need to transact diamond business like a commodity exchange has not been explained and certainly not been positioned in a way that industry players understand the benefit.

When I first joined the jewelry industry, two experiences occurred that come to mind now. In one instance I was walking along 48th Street in New York with an industry colleague. We both were dressed in a corporately appropriate manner in navy suits, white shirts, and the requisite striped ties. We looked like we were employed by Merrill Lynch or IBM. A member of the industry, passing in the opposite direction looked at the two of us and yelled, “What are you two corporate types doing on this street. You don’t belong here.” We both chuckled and walked on our way.

The second situation was a chance meeting of a neighbor who did work for an investment house. The meeting occurred on the commute back to Yardley, Pa., from New York. The investment community had discovered diamonds as an investment opportunity, and a D Flawless had jumped in price from around $15,000 per carat to around $60,000 per carat. The question on the mind of the investment broker was, “Do you think diamonds are a good investment?”

Neither commoditizing diamonds nor investment diamonds make any sense to me. Corporate America exists on the periphery of the jewelry and diamond businesses. The gray and black suits finance the business, provide the resources to write about it, and chuckle about how quaint the business is, smiling knowing smiles to their colleagues about what bozos operate in such an arena. Reality in this business requires that you have to know the difference between a VS1 and a VS2. And you have to know what each is worth on the market.

Diamonds are expressions of love, affection, and achievement. Their value is the perception of what they are worth as symbols, though differentiating among the various qualities takes real training, skill, and experience.

My answer to the investment professional was diamonds are not good investments. Six months later I saw him on the train again, and he told me how the market for investment diamonds had cratered, teaching an important lesson to the investment community. Regular readers of Counterpoint know well that one of my favorite quotations is “Those who fail to learn from history are condemned to repeat it.” Diamond auctions are an interesting idea whose value has yet to be explained.