President's Corner May 2012 - Portash Learns About the Financial Markets

Leibish and his dog, Portash

Leibish and Portash out for a Morning Stroll

At 6.45am sharp, I walk my dog, Portash. We discuss the important news of the day.

Labradors, or at least my dog, have a crazy habit of eating paper on the street - tissues, sandwich bags, you name it, they eat it. It took some time, but I finally succeeded in convincing Portash not to eat it any more.

Maybe he has taken over the distaste for paper values watching tv, or maybe my sermons about the latest IPOs made the affect. Portash doesn't like paper any longer, and he isn't the only one. Most investors today lost the illusion in paper as well.
Portash never put money in CITI or UBS and he did not even blink, when Chow Tai Fook or Facebooks IPO ended in a fiasco. If you issue 100 billion in paper, well - that is not for my dog.

Perhaps Portash inherited his aversion of stocks from me. I am not a big fan of stocks, but I love pink diamonds and other rare colors as well. I covet some of the stones we sold years ago to the extent that I would love to buy them all back.

 0.80ct Fancy Vivid Pink Emerald

0.80ct Fancy Vivid Pink Emerald

0.50 carat Fancy Vivid Purplish Pink

 0.50 carat Fancy Vivid Purplish Pink

 0.52 carat Fancy Intense Bluish GREEN

0.52 carat Fancy Intense Bluish Green

 0.60 carat Fancy Vivid Blue

0.60 carat Fancy Vivid Blue

It has happened many times that while in contact with our clients, I offer to buy back a stone I sold years ago, but the owners rarely want to part from their diamonds.

If I compare investments in stocks and fancy color diamonds, it almost brings a tear to my eye when I reflect on the price increases of the diamonds. When you buy stock, you give money and get a piece of paper. Now that’s what I call a good business…as long as you are the one issuing the paper.

Still, Rio Tinto wants to sell its diamond operations; or perhaps pretend to. The basis of all warfare is deception. Maybe they will use the cash to expand their iron ore business? I am no expert on Iron and Commodities, but to sell diamonds to buy iron ore doesn’t seem like the smartest thing in the world. As my friend, Julian Sinclair, Head of Talisman Investment Fund, put it - It will be the biggest mistake they ever make. Investing in Iron Ore is yesterday's business. 
I was always weak in mathematics. In the eleventh grade I even failed the course and had to repeat the exam in the summer, keep that information discreet. I try to make sense of the financial data and understand what is happening in the world economy, but perhaps I am too dumb, as the figures don’t add up or make sense.

I have written in the past about the two Greek fishermen who could not make up their mind, whether to accept the bail out and save Greece or not to accept and therefore pull the market down in New York. I feel the situation repeats itself time and time again and all optimistic forecast over America is a lot less promising today. Greece, whose economy is marginal towards America, can cause such an indigestion in the belly of the US.

It appears that the world economy is in big trouble, yet just a short time ago Edvard Munch’s masterpiece, The Scream, sold for the enormous sum of $120 million. The countries are going broke, but many of the cities are still prospering.

At the same time, even though Berkshire Hathaway reported record earnings of $10 billion, its stock continues to slide. Five years ago Berkshire BRK-A was trading at USD120,000. I was perplexed to see, that Berkshire also closed yesterday at the same price, USD120,000. Berkshire earned in 2011 – $10 billion, meaning they are loaded with money and triple A assets. It has $37 billion cash on hand.

So the question that comes to mind is why are the people lining up each year to buy jewelry from Warren Buffett and valuing his stock so low?

The market seems to have lost its sentiment completely for paper whether it be Warren Buffet or Government bonds. Securities don’t seem to be so secure any more. The illusion is gone.

I received a mail just this morning from a client on the West Coast who bought a beautiful 0.72ct Fancy Vivid Purplish Pink diamond about 2 years ago. I offered him a very good profit to sell the stone back to us. He refused to part from his stone. He wanted to know, “Is the diamond market still going strong, even in the face of economic uncertainty?”

 0.72 carat Fancy Vivid Purplish Pink

0.72 carat Fancy Vivid Purplish Pink

I will reveal to you what I replied to him – “Fancy color diamonds are going strong and they don’t depend on the world economy.” I have said it before and I will say it again, the diamond market and US economy has officially been divorced. The Fancy Color Diamond prices are still holding strong while the world economy is suffering a chronic disease.

Maybe that is the reason that my favorite jewelry promoter, Warren, wants to sell jewelry again. I was concerned that he may need to supplement his meager $1 per year compensation as Berkshire chairman? He could easily take an extra 5% of his company’s 10 Billion dollar earnings to help compensate his pocket and nobody would blink an eye.

A lot of avid gold buyers today, who don't believe in anyone or anything in the investment market, are suddenly looking at fancy color diamonds as part of their portfolio.  Moreover, they are asking to set their stone in a fine piece of diamond jewelry to enjoy the investment while on hand.

5.01ct Fancy Vivid Yellow Diamond Ring 

The seventh item in the 'Mike and Lisa Four Seasons Color Collection' Diamond Investment Portfolio

A 5.01carat, Fancy Vivid Yellow Diamond Ring 

What can you do with your money to both conserve its purchasing power and have fun with it at the same time? If I study the charts of how investments performed over the last 12 years, nothing can compare to fancy color diamonds.

Gold performed well until last year. Since 2011, the fun of buying gold has gone. The metal is down 15 % from last year and gold stocks have vastly underperformed gold.

Let me ask you a humble question. If you have to spend a million dollars, preserve the value of your money and have fun at the same time, what would you prefer?

 Prosperity Pink Diamond Ring

1.68ct Fancy Vivid Purplish Pink Diamond Ring | 路發

If you decide to go for the pink diamond, let's keep in touch.

Leibish Polnauer

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