My curiosity was piqued recently when I began to hear a number of conservative radio talk show hosts promoting diamonds as an investment. For those who are my regular readers, you know that I don't much put stock in the investment advice of talk radio hosts as they seem to be willing to pitch anything. We have covered extensively a company called Goldline which is aggressively promoted by Sean Hannity and Glenn Beck. Goldline sells gold and gold coins and was criminally charged in 2011 and recently settled those charges by refunding $4.5 million dollars to affected customers.
It seems like the latest hot investment to hit talk radio is diamonds. Michael Medved, Dennis Prager, and Laura Ingraham, are among those promoting diamonds as an investment. I have always been very skeptical about unusual investments such as this. After all, what's wrong with good old mutual funds, stocks, and bonds? Many people simply feel that this is too boring of a path for them and they have a need to go on a hunt for the exotic.
The typical listener to one of these radio shows has zero experience investing in diamonds. This is what makes me deeply concerned about this. I have spent most of my adult life working in the investment world and I know nothing about investing in diamonds. In fact, for several days I have been doing research for this article and in the end I think I am more confused than when I started.
To determine the value of a diamond you have to take into consideration the 4 C's
The claim is that diamonds rose 22% in value last year. That may be true, but I have no way of independently verifying this as there are far too many variables. Perhaps the more important question is what the retail markup is of these diamonds? As I have pointed out in prior articles on gold coins, in some cases you must see a 30% or more increase in value just to break even. That is because you are paying retail and must sell your coins back at wholesale. A quick review of the legal disclosure on Pinnacle's website suggests that the 'spread' between retail and wholesale would be 20% and 35%. Who would buy an 'investment' that was worth 20 to 35 percent less on the first day they owned it? Based on this disclosure, even if you had invested with them last year and earned 22% you would most likely not be able to sell your diamonds back for what you paid.
The truth is that the average listener to one of these talk shows has no business investing in diamonds. Just like investing in art, collectibles, antiques, and the like, I believe that the only people that should invest in diamonds are those that are experts in that field. There are far too many variables and subjective determinants to calculate a fair market value.
Another reason to be wary of diamonds as an investment is that one corporate entity largely controls the diamond market. De Beers at one time maintained a virtual monopoly in the diamond market and still control an estimated 40% share. This one of the major reasons why diamonds do not trade as legitimate commodities such as gold and oil. There is a move afoot to form an exchange traded fund that would buy diamonds. I have to admit that I find this interesting and if I were to ever invest in diamonds I would probably do so within the framework of an ETF such as this.
For now, I would have to give diamonds a big thumbs down as an investment. Agree or disagree, please use the comments section below and let's start a conversation.
Helping you make the most of God’s money!