On December 11, Bain & Co. published its annual diamond industry report for the seventh time, and I was very disappointed. Of course, that is my own personal opinion. The report has 34 pages of global analysis of the industry, including a geographical analysis and the breakdown of each stage of the value chain.
The impression that I got is that the report focuses mainly on rough diamonds. This shows how mining companies make the majority of the margins, while polishers and traders make the least amount of profits. Most of the financing to the industry happens at the rough diamond level, which is a riskier business, and there is much less in the polished diamond sales stage and jewelry making stage. The report justifies financing rough diamond purchasing by showing how it is more profitable, thus reducing the potential risk in that area which of course is appealing because banks want less risk. The report shows how margins in the polished diamond sector are between 1%-4%, which makes it very unattractive for investors to enter. Investors can have similar returns if they put their money into other financial offerings such as bond and equity, and those have better liquidity.
The report is using information from more than $100 million of sales by polishers and rough diamond buyers, which I translate means that it was taken from the Indian market. Let’s not forget that the Indian market is the market that shows the most mingling of undisclosed lab grown diamonds alongside natural diamonds, according to the GIA. Guess who are the leaders in lab grown diamonds?
What about the diamond investment sector? What analysis is given? This information is the most relevant to us.
The report enumerated a single line of information to this subject on page iii of the report, as well as a single graph on page 26, see below:
“Efforts to build an investment market for diamonds continue, with the Indian Commodity Exchange launching diamond futures trading.”
Graph on page 26 Image credit: Bain & Co.
The information in the report is neither significant nor new, even as a whole to the market, other than maintaining confidence in the rough market. This is my overall feeling and impression. Perhaps over a longer period of time, data is important, but as an investment adviser, this report does not inspire me to enter this market.
If I rely on my own research, investors can make money in this industry in very unique and particular ways and strategy that are not mentioned at all in this report. No investor should come into this industry and become a rough diamond dealer or polished diamonds dealer, as it is not easy, but if there are those that want to, there is great potential to create value in very specific ways.
I think that Bain & co. did not do such a great job considering their reputation. Their analysis and information is too generic and general. Just by looking at the graph above by itself, it is clear they put information out there without much analysis or research. Just look at the “diamond bullion and loose diamonds” section: diamond bullion description goes into a $150 investment analysis and mentions provident metals as example… the 0.01 to 0.15 carat area is surely not an investment so it is ridiculous that it is even mentioned.
Provident Metals diamond bullion Image credit: Provident Metals
This is the range where there is the most mixing of undetected lab grown diamonds that can be possible. Are there investment packages offered by Provident Metals that are certified by any lab? Their video does not claim that they are certified…so what is it that makes their packages an investment? I am in no way claiming that Provident Metals are defrauding anybody directly or even indirectly, all I am saying is that they should also review their policy as to what they claim to be an investment. They claim their diamonds are “reclaimed and therefore conflict free”. What does that mean? That statement is extremely vague and there is no further explanation available. And what is the idea behind the 50% discount on the package? Can you call up your stock broker and buy a Google share at a 50% discount?
The offer of 50% for Black Friday Image credit: Provident Metals
I think it is time to offer investors a comprehensive annual report on diamonds as an investment, with more accurate and realistic information than any that is currently available, so that they can make proper decisions on “if and how” they can invest in diamonds in the best way possible for their situation.
I will let each one of you come to your own conclusion, but the only thing I have to say is that there are definitely ways to be involved in the diamond industry, invest in it, and create value there. Work with those that can help you do that – this is the key element. Got any questions about the Bain & Co. report, or their lack of effort in it this year? Ask us in the comments!
- Bain & Co. 2019 Diamond Industry Report: Strong Origins a.k.a. Provenance, Stricter Financing and a 50 year review (Strong Origins: Current Perspectives On The Diamond Industry, Plus A 50-Year Review)
- Bain & Co. 2018 Diamond Industry Report: Seeing The Light At The End Of The Tunnel (A Resilient Industry Shines Through)
- Red Diamonds: Understanding Their Rarity
- Christie’s New York Magnificent Jewels Auction Sells Majority Of Items
- Christie’s Successful Geneva Magnificent Jewels Sells Unique Fancy Color Diamonds