White diamonds as an investment

to the director -

Question: "Are diamonds a good investment in the traditional sense of the word?"
Answer: No

Question: "Are diamonds immediately liquid at investment level pricing?"
Answer: No

Question: "Does the average consumer have access to the venues which will realize him the liquidity and profit necessary to make his diamond a true investment vehicle?"
Answer: No

Question: "Can diamonds be an invaluable asset in the portfolio of a discerning investor who is operating from a position of financial strength and has the right diamond broker advising him?"
Answer: Yes, without a doubt…

Diamond investing is not for the average investor. It takes a savvy investor with a keen eye and deep pockets to truly realize the advantages of this tangible asset. Someone who has an appreciation for the lessons of yesterday, a keen eye for the challenges of today, and a firm grasp of the challenges of tomorrow.

I think we would all agree that the world is now in challenging economic times. In some parts of the world, even crisis. Yet even in the midst of this there are astute individuals and entities who not only survive, but thrive.

"Crisis is opportunity riding on a dangerous wind" is an ancient Japanese proverb.

Right now, there exists a (safe) opportunity on this dangerous wind, via the medium of large, fine diamonds. Investors are looking towards large (3 carats plus) fine (G color, VS2 clarity or better) diamonds like never before as a means to diversify their portfolios and shelter a portion of their income in a proven tangible asset. Major auction house sales of large, fine diamonds are soaring and startling record-breaking prices are being established.

Why is this occurring?

The underlying factors driving the market are easy enough to see. You have a commodity with an ancient history of value, bolstered in the 20th century by a shrewd monopoly using a magnificent advertising campaign and tight pricing regulation. Then you have this commodity pried from the iron grip of the monopoly by the rise of international (non-African) mining competitors who refused to toe the line drawn for them by DeBeers. Add to this the barrage of an anti-trust suit along with the ire of the international community and you have a playing field which has been leveled through the forces of worldwide free market competition.

Now we enter the present day situation. With DeBeers "losing control of the Russian supply of diamonds, the Argyle Mine in Australia breaking away because of the cartel's inflexibility, and other mines following suit, including the world-class mines in Canada"(1) they have now assumed their place alongside others in the market driven supply of diamonds versus the monopolization of it.

Then "with company restructuring underway, DeBeers liquidated their stock pile from 2000 to 2004, resulting in (only) a modest decline in diamond prices as the liquidation supply more than offset new demand coming out of Asia. By 2005, the inventory overhang had been exhausted allowing market forces to drive diamond prices for the first time in a century, resulting in unprecedented price volatility. Diamond prices made a new high in 2007, followed by a violent sell-off in 2008 and 2009 before rebounding to another new high in the summer of 2011. As of June 2013, diamond prices were approximately 15% less the 2011 highs, but remain firm as lower than expected mine output has subdued supply and supported prices". (2)

Let us now look at today's picture. Now a free-floating market-driven commodity, diamond prices are being driven up by these two main factors:

1. The dwindling of supply as no significant new mines are discovered and older mines are playing out.
2. The strong demand of consumers, still led by a (diminishing) majority of US consumers augmented by the emerging (exploding) middle class of China and India along with the significant demand of the Middle East.

Graphs illustrating these factors follow later in this commentary.

So with these factors in mind, why was my answer to the opening question of this commentary "NO" in regards to whether diamonds represented a good investment in the traditional sense of the word?

It can be said in a word: Liquidity

Diamonds have not been traditionally liquid to the average consumer because the average consumer has not had access to the optimal venues in which to sell their diamonds. I call these venues "top of the food chain" sellers. Instead most consumers have been reduced to selling their diamonds to "bottom of the food chain" buyers.

Another thing that needs to be realized about diamonds is that they have to be SOLD in order to realize their greatest return, not LIQUIDATED. Many a consumer has purchased a diamond at high retail, and then in an emergency liquidated on a "quick sale" basis to the only venue available to them, estate buyers buying at liquidation prices.

This gave diamonds a bad rap quickly as an investment vehicle which stigmatizes it to this day. Particularly after the investment "spike" of late 1979 – early 1980 in which boiler room scam artists took advantage of it and the ensuing diamond craze to market "investment diamonds" at high retail prices. Then the buyers quickly faced the stark reality of a market drop combined with poor access to the market to sell their diamonds. It was a difficult learning experience for many.

So how does today's investor overcome this liquidity challenge in order to partake of the unquestionable investment potential of diamonds which is occurring now and will continue to occur for the next several decades (and probably more)?

Here's how:

  • Investor access to diamonds at trade level (wholesale) pricing versus retail.
  • Assurance of diamond quality via internationally recognized grading (GIA certificated stones)
  • Concluding transactions in the most favorable tax environment possible
  • Continuing future transactions of that diamond in the same favorable tax environment.
  • Accessing the world diamond market to buy and sell instead of just local markets
  • Using access to several venues in order to attain maximum liquidity and profit.

At SHERWOODS we recognize this need and fill it by creating seamless transaction solutions which address all these requirements in a discreet concierge manner from beginning to end.

SHERWOODS has not reinvented the wheel. We have merely taken the transaction process used daily by major diamond dealers throughout the world and made it available to the public in a user-friendly no-risk format. You can review this format under the BUYING PROCEDURE and SELLING PROCEDURE guides elsewhere in this website.

Are we recommending diamonds as the "be-all, end-all" investment? No, absolutely not. We are recommending diamonds as a diversification to strengthen the astute investor's overall portfolio, predominantly on a medium-term to long-term basis. However, in some cases, a significant profit can be realized on a short-term basis as well. Consider the recent sale of a 74.49 carat white pearshape diamond estimated by Sotheby's to sell for $9 million to $12 million. The owners were fine with that estimate, ready to sell. The diamond then realized $14.2 million! This is a good (and not uncommon) example of how large important diamonds can yield unexpected and significant returns beyond that estimated in the prevailing market.

Before leaving this topic, I feel additionally compelled to list the advantages of diamonds as a vehicle to shelter money and as a tangible asset whose "survival value" has been proven throughout history many times…often the worst of times.

- DIAMONDS ARE THE MOST CONCENTRATED FORM OF WEALTH KNOWN TO MANKIND
  Nothing is more valuable, gram-for-gram (except plutonium).

- DIAMONDS ARE EXTRAORDINARILY PORTABLE
  A high quality diamond weighing only 2 or 3 grams can be worth as much as 100 kilos of gold and easily carried in a pocket.

- DIAMONDS ARE UNDECTECTABLE
  To body scanners and x-ray detection machines.

- DIAMONDS HAVE A WORLDWIDE RECOGNITION OF VALUE
  From Mazoola, Montana to Magnitogorsk, Russia.

- DIAMONDS CAN STILL BE CONFIDENTIALLY OWNED
  One of the last commodities this is possible with.

- DIAMONDS ARE A TANGIBLE ASSET, VERSUS A "PAPER" ASSET
  What value does a paper asset (or paper money) really have?

- DIAMONDS ARE HELD BY YOURSELF, NOT AN INSTITUTION
  Ask a war-era European or a depression-era American who has seen their institution-held assets disappear before their very eyes, or a Russian who has seen his rubles dissolve to a fraction of their former value.

- DIAMONDS WEATHER GLOBAL MARKET TURMOIL WELL
  See graphs later in this commentary.

- DIAMONDS CAN BE USED FOR EMERGENCY FUNDING
  Survival money…ask the Jews who escaped Nazi Germany.

- DIAMONDS HAVE ESTATE ADVANTAGES
  What diamond?.

- DIAMONDS ARE EASILY AUTHENTICATED
  GIA and other world-class certification.

- DIAMONDS ARE LONG LASTING
  The hardest substance in the world, with the exception of carborundum.

- DIAMONDS HAVE A HIGH MELTING POINT
  3,820 degrees Kelvin.

- DIAMONDS CAN BE ENJOYED WHILE THEY APPRECIATE IN VALUE
  Miniature works of art of dazzling beauty…nature's masterpieces.