It’s hard to believe that we are already a third of the way through 2021, with the weeks and months just flying by. The threat from COVID-19, and the limitations it continues to place on freedom of movement sadly remain ever-present, even if we in Australia have largely (and thankfully) been spared the worst of the disease itself.
In financial markets, we see signs of euphoria everywhere, from stocks to crypto to real estate and SPACs.
In this week’s update, we continue our Investment Series, and highlight a range of special diamonds we are now offering clients at Australian Diamond Portfolio.
We will start though with a detailed look at the various metrics by which investors may wish to compare pink diamonds vs. the share market as investments. This is something that we believe is highly topical for clients of Australian Diamond Portfolio, as you will see below.
Pink Diamonds vs. The Share Market
The share market on aggregate is more liquid than pink diamonds are as investments, which is one advantage that it does have, though there are of course certain stocks (particularly the more speculative kind), that often barely trade on any given day, or have massive differences between their bid and ask prices.
By contrast, pink diamonds typically take a few months to sell, which is why Australian Diamond Portfolio encourages clients to see pink diamonds as long-term strategic investments, and to make sure they keep enough of their portfolio in more liquid investments.
Both pink diamonds and the share market have risen over the last fifteen years, with pink diamonds comfortably outperforming. This can be seen in the table below, which plots annualised returns since 2005, as well as the value of a $25k investment.
Volatility and drawdowns
The share market can be incredibly volatile, as the chart below highlights. Going back roughly 15 years, it shows the level of the ASX 200 index, the most widely followed index in Australia.
Two major crashes, one at the start of the chart, which coincides with the Global Financial Crisis (GFC), and one last year, when COVID-19 hit, are evident, with the market dropping between 30-50%.
The GFC crash was particularly long and harsh, with the market not recovering for more than a decade.
Pink diamonds by contrast, as we have long-explained, exhibit almost no price volatility, with years of stable returns interspersed with years of higher returns.
During the GFC and the COVID-19 scare for example, pink diamond prices were stable, unlike equities which were crashing.
These are clear examples of pink diamonds helping protect investor portfolios.
Security and counterparty risk
Pink diamonds are obviously able to be stored discretely at home, or in a high security vault. This minimises if not outright eliminates counterparty risk.
Shares trade on regulated exchanges, which minimises counterparty risk, though it does not totally eliminate it, with investors reliant not only on the exchange, but a combination of brokers, fund managers and the like.
Given this, whilst it’s rare, there have been a handful of high-profile brokers and fund managers who have either gone bust, or disappeared with client money, leaving investors out of pocket.
Pink diamonds offer the potential for specialisation, with cut, clarity, hue and shape all impacting the value of these unique stones. Securing the best stones available on the market, for a given investment budget, lies at the heart of what we do for our clients at Australian Diamond Portfolio.
This gives them the opportunity to outperform based on the specialisation the pink diamond market offers.
Shares also offer the potential for specialisation, as whilst we often refer to the share-market, it’s important to remember it’s made up of thousands of stocks, with no one company representing “the market”.
Whilst investors can “specialise” with the stock market, history suggests most underperform the market as a whole, with studies from DALBAR in the United States suggesting investors on average underperform the stock market by a few percentage points each year.
Unlike shares, pink diamonds are genuinely scarce, especially now that the Argyle Diamond Mine, which produced approximately 90% of the world’s pink diamonds, has closed.
By contrast, there is no limit on the number of stocks that can exist on the market, all of whom are competing with each other.
Moving forward, the genuine scarcity of pink diamonds is likely to be a major catalyst for higher prices.
Stage of investment cycle
Whilst this is something we cover regularly in market updates, investors need to be aware of where any asset class exists in its investment cycle, with most going through periods where performance stagnates or indeed outright declines, and other periods where they boom.
The last decade for US stocks has been amongst the best ever, with valuations, portfolio allocations and investor sentiment readings at or near all-time highs. Indeed, in the past 5 months, market data tells us more money has poured into global equities than in the prior 12 years combined. That’s a clear bubble warning sign and suggests the next decade will not be so kind to share market investors.
By contrast, whilst pink diamonds have outperformed over the last 15 years as a whole, they are still largely off the radar of most investors, with far more capital likely to make its way toward this asset class in the years ahead.
For all of the above reasons, whilst we are by no means anti-shares, it is clear that pink diamonds have a number of potential advantages relative to the stock market.
It is these advantages that are encouraging astute investors, including clients of Australian Diamond Portfolio, to add pink diamonds to their investment portfolio today.
From Christie’s to Australian Diamond Portfolio
In late March 2021, it was announced that Christie’s, one of the world’s most prestigious auction houses, would be auctioning off a range of Magnificent Jewels, led by three fancy coloured diamonds known as “The Perfect Palette”.
The diamonds within “The Perfect Palette” were mounted onto individual rings and were being offered in an April 13 sale at Christie’s Rockefeller Plaza headquarters in New York City.
The diamonds themselves included a 2.13-carat fancy vivid blue diamond, a 2.34-carat fancy vivid orange diamond and a 2.17-carat fancy vivid purplish pink diamond, with each coloured diamonds worth more than USD $1 million.
Inspired by this collection, and in response to huge interest from our clients, Australian Diamond Portfolio have created a limited number of affordable coloured diamonds sets, which are now available for sale.
These sets of coloured diamonds are ultra-rare and exquisitely beautiful, having been curated by our gemmologists and international contacts in the coloured diamond industry.
Accessible to a wide range of investors, these coloured diamond sets have also been selected to suit the investment budget of our clients and are available in a price range between $25,000 to $250,000.
If coloured diamonds sound perfect for your investment palette, then don’t hesitate to get in contact with the team at Australian Diamond Portfolio now.
As always, we hope you’ve enjoyed this week’s edition of “In the Loupe” and look forward to any questions or comments you may have.