Have you all seen Blood Diamond?
How much of that movie is true, and how much is exaggerated?
If you’re looking to balance your investment portfolio, and you’re shying away from real estate, the stock market, or both, many “expert” financial managers are telling their clients to invest in diamonds…
A friend of mine, who is equally as cynical as I am, once explained to me how he intends on proposing to his girlfriend down the road.
He’s got the romantic scene ready to go. Insert “waterfall,” “nature trail,” or “mountain top.”
He’s ready to get down on a single knee as well. Pretend to “tie shoe,” or “rest for drink of water.”
But he doesn’t plan to slip a ring on his wife-to-be’s finger.
As he explains, “I’m going to take a thick bank-roll of about $15,000 and produce a roll of duct-tape from my bag, and then slap those c-note’s on her hand and tape that sucker down hard! I mean, it’s all the same, right? A diamond ring is really just a monetary symbol of commitment, so why not just produce the $15,000 in its most liquid form?”
To each, their own.
I was in my car on Sunday afternoon waiting for a client in front of The Wrigley Lofts, and I was listening to AM640 and “The Real Money Show.”
They had a financial advisor from Guildhall Wealth Management on the show explaining how the smart people are putting all of their money in gold, silver, and of course, diamonds.
They explained that the real estate market is very cyclical, and the stock market is very volatile.
But diamonds, on the other hand, are forever.
However, they didn’t just say “diamonds,” because that is too plain.
In fact, they never once said “diamonds,” but rather every time the commodity was mentioned it was referred to instead as “natural fancy coloured diamonds.”
Doesn’t that sound better?
I’m a little bit of a cynic when it comes to diamonds.
When I get married, I will head down to Yonge/Dundas and enter that fortress of a building where all the jewelers hang their hats, and I will pony up whatever I have to in order to join the rest of society and their norms.
But what do I really think about the value of diamonds? I’m not sure.
In the movie Blood Diamond, we were led to believe that diamonds are only valuable because of the artificially low supply of the commodity as created by the world’s diamond consortium.
We are led to believe that diamonds are actually in abundance, but the world’s key diamond players (mines, manufacturers, traders, wholesalers) spend majority of their efforts keeping the supply low so the price remains high.
Here’s a question: if ALL of the world’s diamonds were available for purchase right now, how would this affect the price?
Fiction is fiction, and us laymen don’t actually know whether these conspiracies are true. I have a friend that is convinced (and if you give him your ear at a social function, he’ll spend an hour trying to convince you) that the World Trade Centre was actually imploded by explosives that the United States government had placed in the underground parking lot of the building before those planes ever hit.
To each, their own.
I don’t know what to think of diamonds and their true value, but I do know how to sniff out some exceptional BS from “wealth management experts” when I hear it.
On Sunday afternoon’s “Real Money Show,” these experts made some exceptionally exacerbated claims.
They suggested that a diamond purchased today for $25,000 would probably be worth $100,000 in a decade.
They call today’s market an “opportunity” to buy gold, silver, and diamonds before they reach all-time highs!
Wait…..didn’t they just reach all time highs? Didn’t they just fall of those all time highs?
They went on to quote the precious commodities bubble of the 1980’s as empirical evidence that gold, silver, and diamonds represent an exceptional investment today.
Take a look at this graph:
The “experts” on the radio were raving about the price of gold as it went from $35/ounce to $850/ounce in a period of ten years. They went on to say that we’ve only since surpassed these record highs, and we’ve yet to reach the top of the mountain.
They preyed on the emotional listeners, saying things like, “If you invest in diamonds, you can sleep at night.”
They suggested that a diamond is something that is purchased and kept forever; passed down from generation to generation. Isn’t it beautiful when your daughter get’s married with your grandmother’s diamond ring?
They cited the stock market “collapse” of 1,000 points earlier this month (side bar: who thinks this was a “collapse” and who thinks this was a data entry error?) and said that while stocks plummeted, the price of diamonds remained stable. Nobody rushed to sell diamonds when everybody rushed to sell stocks!
It should also be said that the price of real estate in Toronto did not plummet 15-20% on the day when the stock market, for a very brief period, dipped 1,000 points on what will likely be proved to be a trading error.
But at least you can SLEEP at night knowing that you poured all your money into natural fancy coloured diamonds!
I wonder if the guys on this radio show have a friend named Vince:
They did raise a few interesting points about the value of gold and diamonds today as affected by the following factors:
1) Price Of Oil
2) Declining U.S. Dollar
3) Geo-Political Instability
4) No New Diamond Mines
I really can’t comment on these factors as they affect the price of a diamond ring bought right out of the showcase at Spence Diamonds; likely from that annoying radio pitch-man Sean Jones…
I’m also not sure how a slew of statistics quoted by the hosts of the “Real Money Show” have anything to do with diamonds.
Did you know that the United States is facing a budget deficit of $1.56 Trillion in 2010?
I didn’t, but I do now.
So, how exactly does this affect the price of diamonds?
Am I to infer that if you compare investing in the US Dollar with investing in diamonds, er, natural fancy coloured diamonds, you’ll find that diamonds make a better investment vehicle? Perhaps I am.
We were told to “get diamonds into your portfolio to protect your wealth against inflation.”
But we were never told how the appreciation of diamonds has compared to inflation in the last year, two years, or ten years, or how inflation is forecasted in 2010 compared to the appreciation of diamonds as we move ahead.
Finally, we were told that diamonds are a great investment because “Women love diamonds! Women wear diamonds!”
You can’t wear a house, and you obviously can’t wear a share of stock!
But you also can’t rent out your diamond to a tenant, and your diamond won’t pay you a 4.6% dividend every year in perpetuity as it also has the potential to appreciate along with the rest of the stock market.
Well, I guess I just don’t know anything about diamonds!
Call me crazy, but I was under the impression that diamonds could fluctuate in value just like every other known commodity in the world!
I think I’m just going to invest in corn.
Who doesn’t love corn?
Meh
at 10:24 am
The thing about stuff like Diamonds and Gold is that they *are* forever, which means the supply only goes in one direction, up. They don’t get used up, we just keep digging up more and more (and in the case of Gold, it then just gets reburied in a vault).
A commodity that actually gets consumed like oil or copper makes far more sense as an investment.
Here’s a quote from Warren Buffett on gold that I think applies to diamonds also:
“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
LC
at 10:29 am
I’m a woman and I don’t love diamonds. I’d rather have a house, thank you very much.
Potato
at 2:58 pm
Another reason diamonds are not an investment for almost everyone out there: unless you’ve got a jewelery store, you’d be buying at retail and selling at wholesale.
Matt
at 11:10 pm
INSERT “Spence Diamonds” Commercial here:
Krupo
at 10:10 am
Props to WB except gold does have utility due to its properties in various applications – which is why it was originally “selected” as a store of value.
matt
at 10:53 am
Silver is used in almost everything electronic and there is less supply than gold. It’s also still very cheap. If you like precious metals and think the global economy is going to grow over the next few decades, buy silver.
Buddy
at 9:32 am
I think that nobody is thinking straight here. 1st of all you reference “The Real Money Show” and you mention diamonds gold and silver…….I read your comments and I went and listened. I have no idea about these investments but I do know this. They are not referring to “White” diamonds which do fluctuate and have far less value and do NOT represent an investment but rather as you mentioned a “gift” of sorts when you marry or you get the point. No those guys were talking about “Coloured Diamonds” Yellows, Pinks, Blues, Reds and if you think about it or do the slightest bit of research you would know that these represent among the worlds most expensive diamonds and rarest.
I took 10 minutes to dig up some data, which is easy if you are not lazy and it sounds like you are, and found out the following. There are in fact about only 1 carat of coloured diamonds for every 10,000 white diamonds pulled out of the ground. More than 4 or 5 sites have unbiased articles referring to the pricing on coloured diamonds and in fact it is true that since they have had a price recorded for them which seems like it started somewhere around the late 1960’s coloure diamonds on the whole have not dropped in value.
I went further to the real money show website and the company is called guildhall and they do in fact give some evidence of this.
Now I am not suggesting that this is simnple and easy to understand but take it a step further on something that is very easy to understand.
I went to KITCO and looked at Gold and Silver charts and compared them to the time that these guys have been talking on the air, at least in TO and in fact Silver has risen in that period of time, which is about 8 years, over 300%..This is not debateable. Gold has also risen over 300% another fact which is not debateleable. I own real estate in Richmond Hill, a very hot area, and it has not risen over 300% in that time.
I find real estate cumbersome. Arduous and in fact very difficult to manage with the bylaws legalities and changing infrastructure but yet here I am an owner of no less than 2 rental propoerties, both of which do in fat pay a dividend. However if you take what anybody says at face value I think you are right you will be a sucker so I listened a little more……..
What they said about inflation is simple. A dollar today does not buy a dollar from yesterday. Not hard to understand.
They say furthermore to this that in fact there is so much money being printed that it is naturally going to take the “shit” out of the paper money that already exists. I mean how could it not.
Now I am sceptical about anything other than real estate and the odd penny stock…….Okay I admit it…..But to be certain about somethign without so much as listening is just plain stupid………Take a listen. these so called “Vinces” are not promising the moon. Thgey are not saying that Silver and Gold are immediately proceeding to go through the roof and they are not suggesting you invest all of your money or sell anything or put it all on “red”………
What they are saying is that a portion of your portfolio would be smart if it contained Gold Silver and yes “Fancy Coloured Diamonds”…..I will probably never invest in Gold and Silver although I should but the idea of owning a coloured diamond is incredible………It is something that thanks to this blog is on my radar……
I will think this out long and hard and I will debate it……In talking to a few friends they seem to have the same thought………..
One last point……I listened to nthe show and a couple of others and if somebody was trying to pull the wool over your eyes do you honestly think they would offer a gurantee such as the one they offer on diamonds? They guarantee they will never give you a penny less for your coloured diamond than you paid for it, no matter what happens to the economy…..When is the last time a real estate agent told you that?
Buddy
Kev1
at 10:20 am
I dont know much about Diamonds and I think they represent a relatively normal amount of risk as far as commodities are concerned but I can tell you that you have no concept of the relative value of Gold over the long term……Let me teach you something……
Average Home Value in Toronto 1973 was $44,105
Gold value at this time approximately $35 Oz
Took 1260 Oz of Gold to buy that house in 1973
Average home value in Toronto 2010 approx $427,000
Gold price now approx $1220 Oz
Takes 350 Oz of Gold to buy that house now
In 37 years the following is true:
Average home has increased by approx 868%
Price of Gold has increased by approx 3385%
Means return on home investment in $$$$$$
about $382,000 Gross
Less:
Maintainance/Repairs
Upgrades
Taxes
Mortgage fees
interest penalties
real estate commissions
lawyers
misc costs
Maybe your dividend pays off slightly……
Means return on 1260 Oz of Gold from 1973 $$$$$
about $1,493,100 Gross
Less:
Storage if you held it in a bank
This may be an oversimplification but real estate pays off only for those that are able to make it more than a hobby otherwise real estate pays off for the crooks selling it………..
Buddy
at 10:36 am
I think that nobody is thinking straight here. 1st of all you reference “The Real Money Show” and you mention diamonds gold and silver. ….. .
I read your comments and I went and listened. I have no idea about these investments but I do know this. They are not referring to “White” diamonds which do fluctuate and have far less value and do NOT represent an investment but rather as you mentioned a “gift” of sorts when you marry or you get the point.
No those guys were talking about “Coloured Diamonds” Yellows, Pinks, Blues, Reds and if you think about it or do the slightest bit of research you would know that these represent among the worlds most expensive diamonds and rarest.
I took 1 0 minutes to dig up some data, which is easy if you are not lazy and it sounds like you are, and found out the following. There are in fact about only 1 carat of coloured diamonds for every 10,000 white diamonds pulled out of the ground. More than 4 or 5 sites have unbiased articles referring to the pricing on coloured diamonds and in fact it is true that since they have had a price recorded for them which seems like it started somewhere around the late 1960’s coloure diamonds on the whole have not dropped in value.
I went further to the real money show website and the company is called guildhall and they do in fact give some evidence of this.
Now I am not suggesting that this is simnple and easy to understand but take it a step further on something that is very easy to understand.
I went to KITCO and looked at Gold and Silver charts and compared them to the time that these guys have been talking on the air, at least in TO and in fact Silver has risen in that period of time, which is about 8 years, over 300% .. This is not debateable. Gold has also risen over 300% another fact which is not debateleable. I own real estate in Richmond Hill, a very hot area, and it has not risen over 300% in that time.
I find real estate cumbersome. Arduous and in fact very difficult to manage with the bylaws legalities and changing infrastructure but yet here I am an owner of no less than 2 rental propoerties, both of which do in fat pay a dividend. However if you take what anybody says at face value I think you are right you will be a sucker so I listened a little more .
What they said about inflation is simple. A dollar today does not buy a dollar from yesterday. Not hard to understand.
They say furthermore to this that in fact there is so much money being printed that it is naturally going to take the “shit” out of the paper money that already exists. I mean how could it not.
Now I am sceptical about anything other than real estate and the odd penny stock….Okay I admit it…..But to be certain about somethign without so much as listening is just plain stupid
Take a listen. these so called “Vinces” are not promising the moon. They are not saying that Silver and Gold are immediately proceeding to go through the roof and they are not suggesting you invest all of your money or sell anything or put it all on “red” .
What they are saying is that a portion of your portfolio would be smart if it contained Gold Silver and yes “Fancy Coloured Diamonds” …. .1 will probably never invest in Gold and Silver although I should but the idea of owning a coloured diamond is incredible It is
something that thanks to this blog is on my radar. …..
If you delete this response you are simply not unbiased in your approach….It means, contrary to your website that you are thihnking of yourself and that you are doing things the “Old Boy” way which people are sick and tired of when it comes to those in Real Estate…..
David Fleming
at 4:09 pm
@ Buddy & Kev1
Thanks for your excellent insight and research.
I can tell by your tones that perhaps you work in the gold/diamond industry or with investments, and/or you’re a first-time reader to my blog.
First of all, let me say that when you post a comment it doesn’t immediately show up on the blog. I have to moderate them individually so VIAGRA doesn’t appear over and over. I can say with 110% certainty that I have NEVER deleted a comment. Just take a look at “Foundry Lofts” from last week and you’ll see that I could care less if people rip into me personally, professionally, or both.
Second of all, this blog would be useless if I sat on the fence and didn’t offer my highly-biased opinions on everything from diamonds to breakfast. You cite the “Old Boy” way of real estate, which is exactly what I’m trying to avoid. I purposely write controversial and much-debated blogs to encourage dialogue with my readers, many of whom are incredibly knowledgable such as yourselves.
The amount of value-add you two have generated with your two comments is immeasurable.
I’ll never take your comments personally, and I encourage your passionate responses.
Thanks for your continued readership.
charles fraser
at 7:01 am
Please note that Coloured Diamonds are a viable investement that has historically shown returns of 15-25% per year, please note that some of the larger coloured stones are increasing significantly more due to rareity. Prices are only going to increase at a faster rate due to the strong demand from Asian Markets and the fact that no significant mines have been discovered since the early 90’s for more information please visit my company website.
charles fraser
at 7:02 am
http://www.midascommodities.com
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at 5:54 am
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