Some of the most beautiful natural colored diamonds are also considered the most concentrated form of wealth available today. The reason many have taken such an interest in utilizing these stones as an investment, often referred to as 'investment grade diamonds,' is because they can be used as a hedge against economic and political instability, all while being enjoyed by the owner. Read more about the color diamond business.
When looking at prices of public auction results over the past 20 years, pink diamonds specifically, have outperformed all major natural resources, the most famous North American indices, as well as many of the major world leading corporations. When compared with Dow Jones, Nasdaq, S&P, Gold, Silver, Oil, BRK.A, and even Coke, Fancy Intense Pink diamonds between 1 and 2 carats almost double the top performers in the market. Read more about the success of pink diamonds in the market.
20 Year Analysis, 1-2 carat Fancy Intense Pink diamonds vs. other Indices For full view, click image
In the first week of March 2015, Martin Rapaport, of Rapaport Diamonds, sparked a massive industry-wide controversy when he was featured in an interview on CNBC's Squawk box. In the interview, while discussing using diamonds as an investment, he was asked about the allure of color diamonds, and if they could or should be utilized as an investment asset. His answer was that although they are amazing and selling at very high prices, he didn't see them as a very liquid asset, he felt they lacked price transparency, and as a result wouldn't consider color diamonds as a wise investment. Regardless of their market performance, he preferred to focus on the liquidity aspect, which is obviously a very important part.
Leibish & Co.'s investment strategists felt the need to share their own opinions on the points that Martin raised. We would love to hear what you have to say about this newly controversial topic.
Martin Rapaport was correct to say that fancy color diamonds are more of a challenge when it comes to liquidity or price transparency. However, what wasn't discussed was the important contribution that fancy color diamonds bring to the investment community. Since the realized prices that these diamonds see when they are traded on a regular, constant basis are indeed hidden from the public eye, what we can do is assess the information available to us all from public auction results, available on the auction house websites. What can be concluded from these results is that the prices of investment grade fancy color diamonds are dramatically higher than white diamonds over the past 20 years.
Rarity & Demand
More importantly was the true essence to why these diamonds manage to retain so much value. The diamonds that are recommended to be used as investment stones, such as pink diamonds, blue diamonds, or even yellow diamonds (of a high clarity over two carats), have a high market demand while at the same time are rather difficult to obtain. Natural fancy color diamonds are an incredibly rare asset, and that is a proven fact!
In addition, the fact that fancy color diamonds are only growing in demand while still being so rare is one of the main reasons that keeps their value on the higher end, and in fact causes their value to increase during financially turbulent times.
"Should an investor be more concerned with the aspect of liquidity, colorless diamonds should be considered similar to bonds, but will also increase less in value due to higher supply. On the other hand, should an investor choose to proceed with a more aggressive and long term approach for a higher potential return, fancy color diamonds would be similar to equities, and more exotic financial products, due to rarity."
We give Mr. Rapaport much credit for acknowledging the important aspect of the involvement of the investment community with our industry, and the potential of our fellow members. I salute you for taking this initiative.
Steps to Liquidate
The liquidity of an asset is an extremely important point to consider. So much so, that it would be a mistake not to first learn the steps that will eventually be required of him to take in order to liquidate his investment. However, not recognizing the rarity of these stones is an outright mistake. Although price transparency is an important aspect to an investor, it is the fact that fancy color diamonds do not have a spot price or a suggested price list similar to Rapaport, which makes them so valuable. Historically, many major financial instruments, such as FOREX, LIBOR, as well as commodities, had and continue to have a spot price, which gives comfort to investors. Yet, in the past five years or so, many major global financial institutions were slapped with over $6 billion in fines for having manipulated all these instruments, and I believe there will be many more to come So, perhaps those investors that are in for the long run, actually prefer this unregulated and pure financial instrument (Fancy color diamonds) to ensure capital preservation and wealth accumulation as a safe heaven.
Leibish Polnauer, president and founder of Leibish & Co. appeared on CNBC himself only a short time ago. He made the point about color diamond rarity at the time that if one were to look for a 5.00 carat D Flawless diamond on 47th Street, they would likely find 50 stones in under 10 minutes. However, he said, if the same person began their search for a 5.00 carat natural pink diamond, after a week they would be lucky to find even two!