Of Diamond investments and Dividends
We recently received an email from a potential new customer asking that if they invested $50,000 in fancy color diamonds, when would they start to receive dividends? Initially, I was taken aback by the question, as obviously fancy color diamonds don't generate dividends - buying a fancy color diamond differs vastly from buying dividend paying stocks.
Taking a position in a stock, or buying bonds, places you in a market that is open to anyone. These securities are easy to liquidate, and you can see their value at any given moment. You also have to report their realized income or loss annually. However, a diamond in your portfolio may not be subject to any taxes payable.
An investment in stocks or bonds is recorded and routed via a regulated financial institution that is part of a regulated financial system. After all, a stock or bond certificate confers ownership. A potential financial meltdown, as seen numerous times during history or a swindle a la Bernie Madoff, can make these assets literally not worth the paper they’re printed on. This does not mean I am against investing in stocks – on the contrary.
A fancy color diamond, on the other hand, is a quiet and hidden instrument to store wealth. A diamond is not as regulated as most other financial instruments. It can sit in a vault for years or be worn as a piece of jewelry and it will never wear out or lose its color. In many respects, it is like a painting or important piece of art. However, although you can have daily pleasure from a Picasso, a fine pink diamond ring can also be worn on your finger wherever you go.
4.09 ct Fancy Purplish Pink Radiant Diamond Halo Ring
We have a dear client in China who, although he is very wealthy, does not keep any money in banks as he has an extreme distrust of the financial system. His caution is obviously extreme, but he is a good example of a diamond investor. However, if someone is looking for steady income and a liquid asset producing profits after 3 years, they should not buy diamonds. To attain maximum benefit from diamonds, you have to think in terms of a generation and not even consider selling them within 10 years of purchase. Actually, Warren Buffet, the greatest investor of all time, takes the same position in stocks.
About 10 years ago we had a lady in Canada who wrote to me saying that she was dying and that she wanted to give her daughter a pink diamond. We sold her a 0.50 carat fancy deep pink round stone - nearly red if I recall correctly, for about $50,000. Today, this stone is worth about $130,000 – a very nice way to remember a loved one.
When Richard Burton gave Liz Taylor the famous Taylor-Burton diamond he did not make the calculation that it would one day sell for 20 times what he paid for it…
Leibish Polnauer, President and Founder of Leibish & Co. Fancy Color Diamonds