Equities, ETFs, bonds, commodities, and gold are investments that are frequently mentioned, discussed, and analyzed in financial publications and on finance channels. There are other lesser known and perhaps more exotic investments such as art and farmland (thanks for that one Jim Rogers) that also rate the occasional mention. However, there is one investment that seems to have flown almost completely undetected under the investment radar - diamonds.
This article will focus on a lesser known type of diamond than the regular colorless ones - natural fancy color diamonds. For every 10,000 carats of colorless diamonds mined, there is only 1 carat of fancy color diamonds. That makes them much rarer than their colorless counterparts and this lack of supply significantly changes the demand/supply equation. And whereas, due to their greater affordability and marketability, colorless diamonds are more in demand than fancy color diamonds, the demand side of the fancy color diamond equation has started to shift with greater public awareness and the potential investment returns in these stones.
Whereas fancy color diamonds have been coveted by royalty, nobility, and the very wealthy for centuries; it is only reasonably recently that they have become the must have accessory of celebrities. Just think of A-listers such as J-Lo, Beyoncé, Kate Hudson, Kim Kardashian, Heidi Klum, and Paris Hilton to name but a few. As is always the case, once celebs start to have something it enter pop culture and becomes a must have for the masses. Also, a growing middle and upper class in China and India are generating strong demand for these wonders of nature.
Investing in diamonds, especially fancy color diamonds has been a great place to be over the last few decades. Not all colors of diamond are created equal with red, purple, and violet diamonds being rarer than hen's teeth, pink, blue, and green diamonds being only slightly less rare. Other colors including chameleon and orange occupy the next rung down in the rareness ladder, followed by yellow, gray, white, and black.
Prices for top stones can exceed USD2 million per carat and prices for some of the rarer colors have increased over 1,000% over the past decade - not a bad return in anyone's language. Even during the GFC of 2007/2008, prices for fancy color diamonds barely flinched.
Other benefits of diamonds as an investment is that they are easy to transport, are not subject to reporting requirements, are durable, never lose their luster, and have a well established international market in the billions of dollars. All in all, a compelling investment opportunity.