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EXCERPTS FROM:
Adding some Color to your portfolio
By Benji Margolese

In today’s versatile market finding the right asset class is clearly a common goal. The interest rates found in the traditional stocks and bonds are often quite conservative, real-estate infrastructure seems to have an unsettled base and people will do anything they can to steer far away from the fiscal cliff of 2013, regardless of any potential impact from the American Taxpayer Relief Act, signed by President Obama on January 2.

“Questions surrounding those trusty sovereign bonds that protected so many portfolios from the crisis of 2008′s ripple effects were exacerbated by Eurozone uncertainty. To say that there was increased interest in alternative investment approaches would be an understatement,” said Brittany Ryan, Executive Producer of the marcus evens Alternative Investments Europe Summit 2011.

Many private investors, economists and financial institutions have demonstrated curiosity in alternative opportunities such as precious metals. However, the advantages of some more tangible assets such as fancy colored diamonds have shown a number of very intriguing points which seem to be moving this asset class up the ranks.

What are Colored Diamonds?

pic2Diamonds have been an international symbol for wealth and luxury for hundreds of years. However, when it came to natural fancy colored diamonds, only the most powerful individuals managed to acquire these precious gems. As they became more available, some of the general public began collecting and trading these stones. In the past fifteen years the custom of using them in engagement rings was adopted which highly increased their exposure to the public eye.

Although diamonds became very popular, as a result of the rarity of some colors, certain stones still remained almost untouchable. Fancy colored diamonds were and still remain a collector’s item, and are often sought after by the rich and famous. The combination of the beauty and the rarity of these stones automatically place them as a rank above all others. However, as a result of their increasing market demand, rising exposure to the general public, and actual depleting supply, their value continues to rise on a consistent basis. Therefore, these pieces have been gaining a lot of recognition of one of the more exceptional investment opportunities today.

A natural fancy colored diamond is quite similar to the diamonds we all recognize and have come to love with its luster and brilliance. However, the big difference is that rather than looking at the famous “4Cs” (the four main attributes by which all diamonds are assessed), the most essential grading of a colored diamonds is the color grading both in their intensity and the wide variety of colors they display. There are twelve different colors, over ninety secondary hues, nine intensity levels, and over two hundred and thirty color combinations found.

The Rarity of a Natural Colored Diamond

Colored diamonds are among the rarest items in the world. In fact, less than 0.1% of diamonds mined are considered quality colored stones. Just to emphasize this point, Josephine Johnson manager of Argyle Pink Diamonds, said that ’although the Argyle diamond mine currently supplies approximately 90% of the world’s pink diamonds, astonishingly, a whole year’s worth of production of stones over half a carat would fit in the palm of your hand.” Diamonds that contain colors more difficult to find, such as straight red, a vivid pink, or an intense purple are considered far more valuable than other more common colored stones.

When it comes to selecting the right asset, recognizing a high demand and acknowledging the lack of supply is critical as it will translate to a direct effect on the increase in value. Colored diamonds, which are internationally recognized, well established goods, have therefore managed to place themselves as worthwhile investments in addition to beautiful jewelry pieces.

pic3Publically Displayed Price Performance at Auction

Fancy colored diamonds should be considered by those who are looking to make a long term investment. Economists hoping to quickly trade and turn over a profit should probably look into something more traditional.

In the 1970s, a gentleman purchased a blue diamond from a store in Rome as gift for his wife for $1.4 million. That very same diamond, now referred to as the BVLGARI Blue Diamond, sold at Christie’s New York in 2010 for $15.7 million. Although it was a 30-year investment, during which that man and his wife were able to enjoy a fantastic piece of  jewelry, he later realized an amazing 1021 % return on his investment. Similarly, a Radiant-shaped, 3.17-carat, Fancy Intense Blue diamond with an IF clarity, was sold twice within five years at Christie’s auction house. In 2006, the diamond was sold for $320,000/carat. The very same stone was sold again in 2011 for $755,000/carat. This was an increase of over 110% in only five years’ time (22% annual return).

Advantages of Investing in Fancy Colored Diamonds

So, what are the main points a potential investor needs to consider before selecting a stone for investment? This can be broken down into three easy steps.

  1. Understanding the asset class
  1. Recognizing the benefits
  1. Building the right connections

 Understanding the asset class, and educating one’s self is integral. Even someone well versed in colorless stones needs to understand that colored diamonds are in a world of their own. No one single diamond is exactly the same as another. In fact, colorless diamonds are sold according to a generic price list that Rapaport releases monthly. With fancy colored diamonds, such a price list is impossible. Two diamonds with the very same color descriptions and possessing the same diamond attributes could look entirely different from one another, often resulting in a significant difference in value between the two stones.

Colored diamonds are the only asset class that contains all of the following advantage points:

  • Well Established – Colored diamonds have been collected by the members of royalty, the rich and the famous for years. They are widely traded, internationally recognized goods.
  • Long Term Growth – Ever since fancy colored diamonds have been purchased and traded by the general public, they have moved in only one direction - up. Even during the GFC (Global Financial Crisis) of 2008, as people looked for tangible hard assets they could hold on to, colored diamonds continued to retain their value.
  • Portability – As a result of their size, colored diamonds can be easily transported from one place to another. Even in an emergency situation, they can easily be stored and concealed in ones pocket or clothing completely unnoticed.
  • Multi-Function Asset Class – This point is better known as the “Fun Factor.” As well as being a truly exceptional investment opportunity, color diamonds make for the most fantastic and fashionable pieces of diamond jewelry around.
  • Privacy – Diamonds require no reporting for tax purposes. They can be easily stored for safe keeping without ever sharing the information publically.
  • Extremely Durable – Both figuratively and physically, diamonds are among the hardest elements on the face of the planet. Physically, as a result of the atomic structure of the stones, and figuratively, as a result of its magnificent performance over time.

It appears to be a stable argument that one who chooses to invest in colored diamonds is making a wise investment towards their future. Who would have known that perhaps the time has come to color up your portfolio as well?

These articles are provided for informational purposes only and were obtained from publicity available sources on the Internet. These articles do not constitute financial advise or trading recommendations by Global Asset Management ("Global"). Global neither warrants the accuracy or completeness of the information contained in these articles, undertakes to update them, nor is it responsible for any omission or error contained in these articles. Viewers are encouraged to conduct, and should only rely on, their own independent research.
The purchase or sale of precious metals involves substantial risk and volatility. If you are contemplating purchasing and/or selling precious metals, you should consult with an independent financial advisor to learn about the inherent risks. Global does not render, and nothing in this website should be construed as, financial advise, a trading recommendations or a solicitation for the purchase or sale of precious metals.
 
 

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