The Harder They Come

Forbes ^ | 7/31/2007 | William Baldwin

[bruinbirdman]

You want a rock-solid investment? Consider a clear and crystalline lump of carbon. For a 1-carat D flawless piece, a benchmark in the diamond trade, the wholesale price comes to $14,480. That's $33 million a pound. The rarer stuff featured in Susan Adams' cover story is worth seven times as much per carat. A denser concentration of dollars is hard to find.

In the inflationary blowup of the late 1970s, diamonds were the subject of considerable investment fervor. In the postinflationary 1980s they crashed. Now, after a long slumber, the speculators are back. There is talk in Antwerp of giving the market more transparency and liquidity via a futures contract. By this mechanism diamonds might conceivably take their place alongside stocks, bonds and cash in a balanced portfolio. Rocks would have a particular sparkle for someone brooding about inflation.

Donald Palmieri, a gem certifier and market analyst (and source of the pricing data used in the chart), is skeptical of the idea, and not only because he was himself burned in the 1981 diamond crash. Make diamonds into a commodity? Doesn't that, he wonders, diminish their mystique and their allure? Mystique is worth something. A diamond engagement ring has no more functionality than a peacock's feathers. But it has mystique, and it has great value as a signaling device.

Jewelers have their own reason not to like the idea of making diamonds an investment and publishing prices alongside the stock tables. Transparency would shine an unpleasant light on their markups.

Now let me offer a third reason why diamond investing is a bad idea. A bet on hard assets is a bet against human ingenuity. A stockpile of oil, gold or diamonds is a bet that people will not be imaginative about uncovering natural resources, or using them more efficiently, or inventing synthetic substitutes. A bet on stocks is a bet in favor of ingenuity.

Ingenuity triumphs. If you had bought stocks 35 years ago you would have multiplied your wealth ninefold--this despite inflation and despite the ferocious bear market near the beginning of your adventure. Diamonds would merely have held their own as a store of value. In providing a real return, something you can live on, diamonds are a dud--unless you use one on a ring.

[Hoosier-Daddy]

DeBeers, it is said, is sitting on a large stockpile of diamonds, to keep the price up. Any ceack in that structure would bring values way down.

[Mygirlsmom]

It's getting to the point that lab created diamonds are pretty darned close to the real thing - so much so that even "experts" can have a hard time picking them out.

Maybe it's just me, but given the choice, I'd rather spend my money on a fabulous fake in a custom setting and let people wonder how I could possibly have afforded it.

[anymouse]

Russia is sitting on a bigger stockpile of diamonds. DeBeers cut a deal with them back in the early 1990s to keep most of them off the market. Of course deals with the Russians have been known to be broken, when it suits their interests. ;)

[1_Of_We]

Are the stocks worth more... or are the dollars required to buy them worth less?

[Jimmy Valentine]

Don't forget all of thediamonds coming out of Africa that Debeers cannot control, as well as the Russians who have tons also.

Diamonds are beautiful, but as a true storehouse of value they are on a par with pea gravel.

[RipSawyer]

Diamonds are beautiful, but as a true storehouse of value they are on a par with pea gravel.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

What? What? Now you are scaring me! I have a huge hoard of .............pea gravel.

[MarkL]

DeBeers, it is said, is sitting on a large stockpile of diamonds, to keep the price up. Any ceack in that structure would bring values way down.

Ron White got it right...

"The DeBeers company's new advertising campaign ALMOST tells the truth... 'Diamonds: Leave her speechless.' You know what they really mean is 'Diamonds: That'll shut her up... for a minute.'"

Mark