“Diamonds are a girl’s best friend” was the title of Marilyn Monroe’s song in the movie “Gentlemen prefer blonds.” What if we told you that diamonds can also be an investor’s best friends? Diamonds are a form of investment that has attracted the attention of seasoned investors as currencies and regular form of investments lose value across the world due to the consequences of the last financial crisis that hit the United States and the European Union.
The value of diamonds as an investment is of major interest to the general public, as they are expensive gemstones, often purchased in engagement rings, due in part to De Beers ‘ successful marketing campaign of the 20th century. The difficulty of properly evaluating the price of an individual diamond of gem quality makes the situation more complicated. In the second half of the 20th century, the demise of the De Beers monopoly and new discoveries of diamonds have lowered the resale value of diamonds. Recessions also resulted in increased interest in securities that show safe haven or hedging assets that are uncorrelated to equity market investments. Academic studies have shown that investment in real diamonds is more safe-haven than investment in diamond indices.
The industry is notorious for its lack of transparency, making it difficult for investors to evaluate risk factors and analyse profit opportunities. Getting reliable, up-to-date pricing is not always easy, making investment decisions more complicated.
There are also plenty of opportunities for diamond investors, particularly when prices drop. The idea of investing in diamonds is not for the novice investor nor is it for someone with limited assets. The sector is primarily for investors who have resources and would like to diversify away from the stock market and other traditional investments. A rule of thumb among diamond traders is this – “the greater the investment in diamonds, the greater the return.” That’s why so many rich people invest in diamonds.
Historically, the real and most significant reason was portable wealth. That’s the reason why diamonds are the best and easiest form of wealth transfer in history – a tradition that continues today all over the world. Gemstones (a term generally comprising diamonds, sapphires and emeralds) are a good investment in many ways, given their high relative value and the fact that precious stones are usually in high demand. Since the number of diamond stocks, such as DeBeers or Rio Tinto, is quite small, you may be tempted to buy actual diamonds on your own, just as many hard asset investors are doing. The downside is that diamonds aren’t a good liquidity option, i.e. they aren’t easy to sell if you need cash quickly. Like gold, you can’t just go to a diamond seller or buyer and get the diamond value you’ve seen today. What buyers are searching for is the value of a gemstone and the cash that a buyer is willing to pay and the two arbitrary variables that can keep you from achieving your best-selling price.
Investing in diamonds requires a large budget and this should be taken into consideration. However, for people who are capable of having a budget such as that, there are many opportunities to make a profit and grow their wealth.