Diamonds: A Kick in the Stones

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Capitalist Exploits
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Lyn Alden shared an article that caught our attention. One might say the diamond market got a kick in the stones.

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From the article:

Lab grown diamonds — physically identical stones that can be made in matter of weeks in a microwave chamber — have long been seen as an existential threat to the natural mining industry, with proponents saying they can offer a cheaper alternative without many of the environmental or social downsides sometimes attached to mined diamonds.

For much of the last decade the risk remained unrealized, with synthetics eating away at cheaper gift-giving segments but making limited headway otherwise. That is now changing, with lab-grown products starting to take a much bigger bite of the crucial US bridal market.

And the result:

In June 2022, De Beers was charging about $1,400 a carat for the select makeable diamonds. By July this year, that had dropped to about $850 a carat. And there may be more room to fall: the diamonds are still 10% more expensive than in the “secondary” market, where traders and manufacturers sell among themselves.

All this reminds us of an old post Chris wrote about diamonds almost a decade ago. You can read the entire post here, but here’s an excerpt:

For anyone who does a little research you’ll find that diamonds are clearly not rare. Certain diamonds, such as graded diamonds are somewhat rare, but diamonds themselves are certainly not rare. Even if we pretended for a minute that yes, diamonds are rare, we’re faced with the problem that artificial diamonds can be created by the boatload for next to nothing.

Diamonds are not liquid either. Try selling a diamond back to a jeweler and you’ll find that typically jewelers will pay between 75% and 80% of the purchase price if the diamond wasn’t bought from the store and is verifiable. In fact many jewelers won’t buy a diamond back unless you’ve previously purchased that same diamond from them and have the documentation to prove it. Even then they’ll typically only do a trade in, whereby you buy another higher priced diamond and trade your old diamond in.

In my book then diamonds are a terrible investment. Not rare, not liquid and not valuable.

As the saying goes, a diamond is just a chunk of coal that did well under pressure, and if you’re a long-time reader, you’ll be familiar with our affinity for coal (rather than diamonds).

Ironically, the dynamics in coal are the exact opposite of what’s happening in the diamond market right now.

ESG zealots are hellbent on crushing the available supply of coal. At the same time, demand shows no signs of slowing down anytime soon.

🏳️‍🌈 Is Your Portfolio LGBTQ+ Compliant?

While on the topic of “stones” and genitalia…

We couldn’t help but explore the “Impact Lens” function on the Interactive Brokers app. You really can’t make this stuff up…

Just like the punk craze from the early 1980s, this bizarre fad, too, shall pass.

🤷 All Things Transitory

Feels like a lifetime ago, when — back in February 2020 — we started warning that lockdowns will bring about inflation and shortages. Fast forward to today, and this pesky stuff is now part of our daily lives. We recently set up a dedicated inflation channel in our Insider private forum, where members can share their own experiences with all things “transitory”.

We touched on the insanity in the car market in the last issue. Insider member Damjan also wrote in with his story:

My wife bought a VW Polo new in 2019 for 14100€. Last year she decided to sell it, because she no longer needs a car. We sold it in 3 days for 14000€! Prices this year for 2019 model? 14000€ could be doable. Price of a new car same spec? 20.000€ easily….insane world

Meanwhile, the media is now coming to the conclusion that car prices might be a bit too steep for most folks. You don’t say!

💰 The Power of Reinvesting “Divvies”

We touched on coal earlier…

Our belief is that over the next 10-15 years, coal stocks will rival the performance of another group of stocks that was once considered “uninvestable” — tobacco stocks.

In the late 1990s/early 2000s, no one wanted to touch tobacco stocks with a 40-foot barge pole. And why should they? Tobacco was considered a dying industry as smoking rates were declining.

Now, smoking rates might’ve been going down, but not the share prices.

Here’s an example we shared with Insider Newsletter readers the other day: British American Tobacco.

Starting in 1998, British American Tobacco launched on a 500% run (white line in the chart below). Not too shabby, and about the same as what the S&P 500 delivered over the same period.

But when you add back in dividends, the 500% turns into 2,100%. Much better, right? Just doing a “simple” thing like owning a tobacco stock and reinvesting dividends.

As the saying goes, history never repeats itself, but it often rhymes.

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Capitalist Exploits is a team of globe-trotting professionals dedicated to seeking out and investing into unique, undiscovered, and profitable opportunities worldwide. This could be an asymmetric trading opportunity in the global currency markets, seeding a tech startup in Israel, or co-investing into a bespoke private equity deal in Ghana! Our team lives and spends time in several different countries, on several different continents. Although we all come from different cultural backgrounds and parts of this great ball of dirt hurtling through space, in today’s world this matters little, as our values and mission are all aligned.