The news on Bloomberg that a group of ex employees of Rapaport are setting out to start a diamond fund is surprisingly unsurprising, writes Charles Wyndham on www.polishedprices.com.
It is no secret that the noise about the possibility of setting up some form of diamond funds has increased quite sharply recently.
That it should be ex employees of my dear friend Boney* who are reported to be rushing to do it does bring a wry smile to my face.
Boney has been talking about doing this for ages and presumably his polished tenders launched with a huge crash of cymbals and which disappeared beneath the waves even more efficiently than the Titanic was all part of his great scheme.
The simple truth is that it is impossible to have any third party investment product based on good old Boney’s list, its blatant obfuscation kills the notion stone dead.
Presumably, his ex employees realise this and are coming up with a better idea, on the basis that what they are trying to develop is based on real transparency, good luck to them.
Transparency is a dirty word in our industry, which I take to be a translation for when Saul Singer who is one of those trying to create this new fund, describes the industry as ‘“very closed, self-centric and complex.”
Ours is an industry that revels in self induced complexity, large chunks of which are present quite specifically to muddy the waters at best and sometimes simply to cheat.
Looking at polished, ours is an industry where the vast majority of players turn their noses up at the concept of diamonds as an investment, yet the classification whereby miniscule variations in a diamond, variations which even the tutored eye often cannot discern and which the untutored eye or consumer has not a hope in a month of Sundays to pick up, make huge differences in price.
Looking at the difference between a ‘flawless’ stone and a VVS1 stone the variation in value can amount to tens of percent.
The ability to pick up a VVS1 in a set stone is nigh impossible for anyone be they an expert or not, let alone the punter.
Secondly, the definition of ‘flawless’ is based on some arbitrary choice of magnification, if you magnify any diamond enough it will of course contain imperfections; that is if something that cannot be detected in normal circumstances in a product which as a ‘gift of love’ is meant to be worn and admired at a reasonable distance, can indeed be called an imperfection.
I would argue that the classification, so beloved of the industry, has unwittingly been a natural development for the commoditisation of diamonds, which so many in the same industry fight so hard to deny.
The industry has used much of this classification for enhancing the fundamental shortage of diamonds and therefore prices.
For example, it was not that long ago that people were not that concerned about fluorescence in diamonds.
The idea that a diamond glowed on the disco floor was not bad advertising in a way for diamonds or the wearer, especially if it was a clonker.
Suddenly it became part of the certification for diamonds and in extreme cases fluorescence can wipe almost half off the value of a stone in comparison to one that is fluorescence free.
This is without any reference to whether fluorescence in the particular stone makes it more or less attractive, instead a criteria set by third parties is determining the price, which specifically is not being based on what might look better for the consumer.
When I read the spokeswoman for the Antwerp World Diamond Centre saying, “We do not want to undermine the emotional and symbolic value of the diamond,” my lower lip twitches as I think of the De Beers successful Shadows campaign with the catchy tune as, at the same time, I recall some of the past problems that arose with false certification of some diamonds and even more so the industry’s reaction to the scandal.
The certification scandal raises an interesting point as it proves that it is the paper that is so often more valuable than the actual stone or whatever symbolic value of the diamond as claimed.
A sentiment that is not reduced when I also read there are those for whom there is no desire that diamonds should be treated for investment in the same way as gold, which to my mind is a curious comparison.
The greatest use for gold, apart from investment or a store of value, is jewellery... just like diamonds.
I have read several articles by those that decry the surge in the gold price as they cannot understand why people are so keen to invest in such a useless commodity, which has no practical uses etc. and most importantly pays no dividends.
The fact is that gold apart from jewellery does have a practical purpose for some, i.e. a hedge against the insane antics of governments to devalue their various currencies, a price for which some are prepared not to receive income or they see benefit in an ‘inert’ investment.
Whether the gold bugs prove right or wrong is in fact immaterial as it will depend entirely on the timing of each individual investor, as gold like everything (including diamonds) goes up and down; what does not change is that there are times when it is very popular as a hedge.
It would be interesting to know how many gold mines there would be if there was no investment element in the metal.
Whilst the industry has been extremely successful in hyping the scarcity of diamonds, the fact is that fundamentally they are scarce and going to get scarcer, which is about the only thing that everyone can agree on.
They are also a commodity, which is why they are reported on the commodities pages of the financial press, an obese individual is still fat even if political correctness demands some descriptive euphemism such as ‘physically challenged’.
To read in the Bloomberg article a miner saying that he didn’t “want to call a diamond a commodity, because it is not” was curious as I do not know what those that have just agreed to invest another fifty million or so in his mining company think they are buying into... it sure as hell is not dreams.
The reason for it not being a commodity, according to the miner, was that in the diamond industry “things are done on a handshake and my word is my honor”, not an idea with which his investors would, I think, readily concur as the basis for their 50 million, nor I have to say in much of my own experience in this industry.
Diamonds are a commodity.
There are huge opportunities for those within and outside the industry if a sound investment opportunity could be created which of course it can, though that is not to say it is without its own difficulties.
Once a successful mechanism is found the industry will drop all its objections as it rushes to try and make money from the change.
In the meantime, the industry will fight the change as it is perceived and will intrude upon the current opaque business practices from which the industry so much revels in.
A successful fund, i.e. a transparent fund, would help in making the industry get a little closer to the open business it tries to portray to the outside world and to which it so singularly fails to achieve in practice.
*Charles Wyndham, owner of PolishedPrices, Rapaport's main competitor in diamond pricing, is often very critical of Martin Rapaport's prices and personality, often referring to him as "Boney", a comparison to Napoleon Bonaparte (http://en.wikipedia.org/wiki/Martin_Rapaport).
