How to invest in diamonds
Ehud Laniado, global diamond expert and seller of two of the four most expensive diamonds sold in the history of Sotheby’s, explains why diamonds are a viable long-term investment
- By Ehud Laniado -
One of the most satisfying moments in my career to date was the night I was privileged enough to sell a 12.03-carat blue diamond: it was the Blue Moon [pictured opposite], at Sotheby’s in Geneva for $48.5m in November 2015. The diamond still holds the world record for the highest price paid per carat for any diamond ever sold at auction – $4.1m. Within minutes of the diamond selling, it was announced that the new buyer would re-name this dazzling, ocean-blue diamond the Blue Moon of Josephine, in honour of his then seven-year-old daughter. Now if that’s not an investment for the future, I don’t know what is.
In the last couple of years, I have noticed a growing set of wealthy individuals who believe diamonds are worthy investment assets. But many people who are potential diamond investors do not yet understand how rare diamonds are and how they are priced, and this can put them off. I believe this is one of the biggest challenges facing the diamond industry.
I began my career in diamonds more than 40 years ago in the Central African Republic I bought rough diamonds from individual miners extracting diamonds from the ground while I lived with my young family in the heart of the jungle. From the start, I was fascinated with predicting the price that a rough diamond would command once it reached its optimum polished form. After my company Cora International acquired the Blue Moon from South Africa’s Cullinan mine in 2014, I applied my specialist knowledge.
My craftspeople and I spent five months assessing the Blue Moon and developing 30 possible models, cutting and polishing each one differently to optimise the size and purity of the diamond until the perfect solution was achieved. To create a vivid blue 12-carat internally flawless diamond really is as rare as a blue moon. We displayed the stone in the Los Angeles County Museum of Natural History before putting it on the block at Sotheby’s.
I owe my business success to the diamond industry and I believe diamonds are not just a miracle of nature of the highest order, they are also a viable long-term alternative asset. I would go so far as to say that when the time comes that the public fully understands the true value of diamonds, their true rarity and the way they are priced and sold, then the owner of the Blue Moon of Josephine, or shall I say her father, will understand how little he paid for it. After all, it was bought for the price of a cheap Picasso.
The difference between the diamond world and the art world – in which we’ve seen people pay $300m for a Gauguin and more than $250m for a Cézanne – is that art collectors know when they want to re-sell they’ll find a buyer. I believe that when people appreciate the benefits of investing in diamonds, the Blue Moon will re-sell for $200m.
Diamonds are a treasure of nature, but more than this, they are rare, which makes them increasingly attractive to investors. According to the Fancy Color Research Foundation, prices for rare yellow, pink and blue diamonds rose 387% between 2005 and 2017.
But even a one-carat D flawless diamond is a real rarity. Nature takes millions of years to create one. The depths of the planet are like an impenetrable safe that stores rough diamonds. The minute probability of nature slowly producing a diamond over millions of years, which may or may not rise to the Earth’s surface, may or may not be discovered, may or may not have a perfect colour, may or may not be free of inclusions, is so tiny that these combined factors should propel the value of such rare stones skyward.
Out of 127 million carats of rough diamonds mined in 2015, only 1.8 million carats of diamonds – that’s 1.42% – were fit as a wealth preservation asset, defined as H or above in colour and VS or above in clarity.
Demand for diamonds is predicted to outpace supply in the coming years as many diamond mines reach the end of their lifespans and global mining companies have invested billions of pounds to discover new diamond sources with relatively little success.
It is an unfortunate and widely known truth that anyone buying a diamond at a jewellery store stands to lose a high proportion of the stone’s re-sale value the second they type in the fourth digit of their pin number. I believe the way consumers buy diamonds needs to change.
The pricing of diamonds is veiled in some mystery. Most people understand the four Cs of diamond pricing – the colour, cut, clarity and carat weight of diamonds, which all determine a diamond’s price. But the fact remains, two diamonds categorised as like for like according to the four Cs can exhibit a 20% price differential caused by thousands of small nuances that are known to industry insiders as irregularities. An example is the position of an imperfection in a diamond and its visibility when the stone is set into a ring.
For this reason, I advise savvy consumers to buy diamonds direct from reputable manufacturers which they can research online. In addition, I have harnessed my 40 years of expertise documenting diamond prices and my diamond pricing consultancy Mercury Diamond has begun publishing a comprehensive monthly diamond price list online, encompassing thousands of different categories of diamond alongside discounts and premiums based on 500 different irregularities, enabling anyone to buy and sell diamonds at the most accurate market price with confidence. The Mercury Diamond Price List is regularly evaluated by a Big Four accounting firm and it is available for free download via my Instagram bio @ehudaryelaniado.
Knowledge is crucial and would-be investors should always consult a diamond expert, but I believe the day will come when diamonds are as widely viewed as art is today – both for their breathtaking beauty and their wealth preservation potential.
For more info, see ehudlaniado.com