Diamonds have long been synonymous with luxury and elegance, but their track record as an investment asset reveals a less glamorous reality. While the famous De Beers slogan, “A diamond is forever,” revolutionized the industry in 1947 by equating diamonds with romance and permanence, the past 22 years have seen their value stagnate, offering investors little to no returns. Experts in the field now share lessons learned from this prolonged stagnation and draw parallels with emerging assets like cryptocurrencies.
The Downfall of Diamonds as Investments
Radhika Gupta, Managing Director and CEO of Edelweiss Asset Management, highlighted the structural limitations of certain asset classes, including commodities like diamonds. “The key thing is some asset classes can structurally be in decline and not deliver any returns for over 20 years. Commodities are a clear example of this as prices depend on supply and demand, and there’s no inherent reason for them to grow over time,” she explained.
Gupta pointed out how the emergence of lab-grown diamonds has disrupted the natural diamond market, significantly reducing demand and eroding value. Unlike equities, which generate growth through innovation and productivity, commodities lack a natural growth trajectory. She emphasized the importance of focusing on equities for consistent, long-term wealth creation, noting, “To achieve long-term goals, it’s important to focus on asset classes like equities that have the potential to grow consistently.”
Challenges in Selling Diamonds
Deepak Shenoy, CEO of Capitalmind Financial Services, addressed the persistent challenge of diamond liquidity. “The price of diamonds has always been suspicious because you could never sell them meaningfully,” Shenoy noted, citing cases where sellers struggled to find buyers for high-value diamonds. Even in India, where jewellers offer buyback options, these often come with restrictions, such as store credit instead of cash.
Shenoy also pointed to the rising popularity of synthetic diamonds, which are nearly indistinguishable from natural diamonds but cost a fraction of the price. “Now, synthetic diamonds look almost the same, including imperfections, at 1/10th the price. So, they’re becoming very popular,” he added.
The Broader Investment Landscape
Abhishek Kumar, Chief Investment Advisor at SahajMoney, noted that diamonds have never been seen as a robust investment. “Even in the old days, people preferred gold over diamonds. Gold, even if it melts, remains gold,” Kumar said, contrasting the enduring value of gold with the declining appeal of diamonds in the face of technological advancements like lab-grown alternatives.
The lessons from diamonds’ stagnation, experts argue, can serve as a cautionary tale for investors considering newer, unproven assets like cryptocurrencies. Ashish Singhal, co-founder of CoinSwitch, acknowledged the potential long-term risks posed by advancements like quantum computing but stressed that cryptocurrencies, particularly Bitcoin, remain secure for now. “The development of quantum-resistant cryptography and ongoing research is essential to prepare for future challenges,” Singhal stated.
Final Takeaway: Invest Wisely
Experts unanimously agree on the need for investors to critically evaluate any asset touted as an investment. As Radhika Gupta aptly put it, “You must buy these things because you look good in them, not because they will be worth more someday.” Whether it’s diamonds, gold, or cryptocurrencies, the focus should always be on building a balanced portfolio aligned with long-term financial goals.
