Why a Diamond Ain’t a Gem …

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an investment gem, that is.

1.  They have unbelievably high front end load fees.  Consider yourself lucky to find a diamond at 100% markup.  Compared to metals (nearer to 10%) or stocks they are in a different ballpark.

2.  They are not liquid.  In order to find a commercial buyer you will have to be lower priced than their WHOLESALE cost.  Meeting their wholesale cost won’t cut it, since their inventory is on consignment and it will take something extra to entice them to part with cash.  Good luck finding a sucker buyer in the private market.

3.  They are not fungible.  SInce each one is unique, exchanging them is closer to bartering or horse trading than a financial transaction.  You can exchange dollars for euros for stocks for bonds to your hearts content.  You want to exchange that diamond?  Better get a collection of opinions about the 4 C’s (carats, clarity, cut, and color), I’ll get my own expert’s opinion.  Then we can start to haggle about a trade.

4.  The supply is manipulated.  Diamonds aren’t rare.   But the supply has to go through the De Beers cartel that artificially places a bottleneck on availability.

For a great summary of diamonds (including the advertising brainwashing that introduced and popularized the idea of the diamond engagement ring) see: http://blog.priceonomics.com/post/45768546804/diamonds-are-bullshit

For the purposes of the Independent Penguin, a diamond clearly is categorized in the visible portion of his iceberg.


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