The 4Cs of investing in diamonds

Thousands and thousands of websites give similar explanation of what the 4Cs of diamonds are. Some are quite unique, giving a personal touch to it, while others are just generic. Well, what about the 4Cs from an investment perspective? The broader investment community is looking into acquiring a piece of the 4Cs for the investment portfolio, but most don’t how to choose the right one. What to look for? How unique the 4Cs must be, or a.k.a. “Rare”? Color, Clarity, Cut, and Carat Weight. Sure, the 4Cs will tell you all about the diamond, but what about the 5th C? “THE” C that most people don’t describe? Still asking yourself what this 5th C is? Let’s tackle it a bit later. For now, let’s review the 4Cs in terms of investment grade diamond, for both Colorless and Fancy Color Diamonds.

Color

Like any other system in the world, there must be a balance between the opposites. For Colorless diamonds, the most desired color is absolutely NO color. We all know the standard GIA Color chart going from D-Z, D being the clearest (clean as a snow flake), to Z which would have a yellow or brown tone to it. but what would be considered an investment grade color?

http://www.4cs.gia.edu/en-us/diamond-color.htm

On the other hand, for fancy color diamonds, we want to keep the most color inside the stone so just the opposite from colorless. Even in fancy color diamonds there are many color intensities (Faint, Very Light, Light, Fancy Light, Fancy, Fancy Intense, Fancy Vivid, Fancy Deep and Fancy Dark). These are referred to as Hue, Tone, Saturation. The same question applies here! What color intensity would be considered an investment grade color?

http://www.gia.edu/analysis-grading-sample-report-colored-diamond

http://www.leibish.com/assessing-diamond-color-article-389

Clarity

There are 11 different grades for clarity, divided into 6 categories; the cleanest being Flawless, while the lowest, or I for included. All under the condition of being viewed in a 10x magnification. I will not into further details, you can read more about it…(let them view the clarity section in website) What clarities would be considered Investment Grade?

http://www.4cs.gia.edu/en-us/diamond-clarity.htm

For fancy color diamonds, the same categories and grades apply. Due to the overall rarity of Fancy Color Diamonds (being only 1% of the overall supply), it is accepted that inclusions within the diamonds are “normal”

http://www.gia.edu/analysis-grading-sample-report-colored-diamond

Cut

Without going into the technical side of the Cut (you can read about Brightness, Fire and Scintillation here), there are 5 scales for a diamond cut grade; Excellent, Very Good, Good, Fair and Poor. How many grade levels can be considered investment Cut Quality?

http://www.4cs.gia.edu/en-us/diamond-cut.htm

in Fancy Color Diamonds, since the objective is to keep as much color as possible inside the stone, it is accepted that the Cut of diamond, may be different, and not always the best. To keep the color inside, we rely on physics, and therefore lower cut grades are accepted.

http://www.leibish.com/fancy-color-diamond-cut-article-498

Carat Weight

In colorless diamonds make up over 99% of supply, and therefore are less rare than Fancy Color Diamonds. In Colorless diamonds, size does matter! As diamond size increase so is its rarity in that size category. Rapaport’s RAPI Diamond Index follows 4 sizes of diamonds, being 0.30 carat, 0.50 carat, 1.00 carat and 3.00 carats, all round shape and IDEX mostly follows the 1.00 carat weight, also round. In colorless, the most desired shape is the round, since this shape allows the most light to escape.

http://www.4cs.gia.edu/en-us/diamond-carat-weight.htm

For Fancy Color Diamonds, due to rarity, in some colors, smaller diamonds may have a relative higher value than its counterpart colorless. Rounds are also the rarest due to that same fact mentioned above.

Investment Grade diamonds

Now that we covered the 4Cs and their impact on investment, we still need to address what should be considered an investment grade diamond…

For colorless, that spectrum will be quite narrow and different from Fancy Color Diamonds. Due to the relative large supply of colorless diamonds, investment grade diamonds need to be the best of the best. Having said that, the below is what we would consider being an investment grade diamond:

Colorless Diamonds:

Color: D,E,F

Clarity:F, IF, VVS1, VVS2

Cut: Excellent, Excellent, Excellent; A.K.A. Ex Ex Ex.

Carat Weight: the minimum weight should be 3 carats

The shape is not as important at this point, since any diamond in the 3 carat + category is rare. Round would be the most common.

Fancy Color Diamonds:

Due to rarity of Fancy Color Diamonds, investment grade diamonds will mean different things based on color. Some color are not so rare, therefore the investment criteria will be different than a rarer color.

According to our research that spans over 20 years of data, we have found, that a fancy color diamond to be considered an investment grade, must have a balance between rarity and liquidity. Although investing in diamonds should be considered a long term investment, we still have to take into account that one day, the investor would want to either realize the gain on his diamond investment, or would like to re-balance his portfolio.

The following are rare fancy colors that are investment grade including their hue and intensity:

Blue:

Fancy Blue, Fancy Intense Blue, Fancy Vivid Blue.

Put here images of the 3 types of blue.

Pink:

Fancy Pink, Fancy Intense Pink, Fancy Vivid Pink

Put here images of the 3 types of pink.

Red:

Fancy Red, Fancy Purplish Red

Put here images of the 3 types of red.

Yellow:

Fancy Intense Yellow, Fancy Vivid Yellow

Put here images of the 2 types of yellow.

One group of diamonds that I consider to be of investment grade would be diamonds mined from the Argyle mine. This is the exceptional group of diamonds, where a secondary color (also known as modifying color) would be acceptable due to the rarity of such diamonds. Read more about Argyle Diamonds.

Collectors:

Some Fancy Color Diamonds are as rare as just mentioned above, but due to the lack of liquidity, I would rather place them in the collector’s type of diamonds. Their value is as important I not more, but there is no balance between rarity and liquidity. A collector is less likely to want to dispose of an item, and so for him, liquidity is not an issue.

Green:

Fancy Green, Fancy Intense Green, Fancy Vivid Green

Put here images of the 3 types of green.

Orange:

Fancy Intense Orange, Fancy Vivid Orange

Put here images of the 3 types of orange.

Purple:

Fancy Purple, Fancy Intense Purple, Fancy Vivid Purple

Put here images of the 3 types of purple.

Violet:

Fancy Violet, Fancy Intense Violet, Fancy Vivid Violet

Put here images of the 3 types of violet.

You can grab an image of each of these: http://www.leibish.com/world-of-colors

Where did that 5th C hide?

I mentioned earlier that for the purpose of understanding Investment grade diamond we needed a 5th C….i’d like to introduce to you Concentration of wealth as the 5th C.

How does the 5th C fit into our discussion? Just like anything of value, we need to measure how much value we can accumulate into a well determined volume, otherwise known as concentration of wealth. See below a chart describing visually what concentration of wealth is all about:
These Charts demonstrate how Diamonds (both colorless and fancy color) are in the top 1 and 3 spot in our concentration of wealth index. Both measured in different times.

We have also created a chart showing the concentration of wealth using the current list of record breaking diamonds sold at auction:

Need to create this chart….

On my next article, I will review the performance of fancy color diamonds against other investment vehicles, such as global indices, other commodities, and major corporations.