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All Value Investors Must Read This! Have You Ever Tried to Sell a Diamond?

January 02, 2011
Fascinating and scary….now you guys know why I don’t believe in buying love, I mean diamonds. Wink.

Introduction (Via Jay Epstein @ Atlantic)

The diamond invention—the creation of the idea that diamonds are rare and valuable, and are essential signs of esteem—is a relatively recent development in the history of the diamond trade. Until the late nineteenth century, diamonds were found only in a few riverbeds in India and in the jungles of Brazil, and the entire world production of gem diamonds amounted to a few pounds a year. In 1870, however, huge diamond mines were discovered near the Orange River, in South Africa, where diamonds were soon being scooped out by the ton. Suddenly, the market was deluged with diamonds. The British financiers who had organized the South African mines quickly realized that their investment was endangered; diamonds had little intrinsic value—and their price depended almost entirely on their scarcity. The financiers feared that when new mines were developed in South Africa, diamonds would become at best only semiprecious gems.

The major investors in the diamond mines realized that they had no alternative but to merge their interests into a single entity that would be powerful enough to control production and perpetuate the illusion of scarcity of diamonds. The instrument they created, in 1888, was called De Beers Consolidated Mines, Ltd., incorporated in South Africa. As De Beers took control of all aspects of the world diamond trade, it assumed many forms. In London, it operated under the innocuous name of the Diamond Trading Company. In Israel, it was known as “The Syndicate.” In Europe, it was called the “C.S.O.” — initials referring to the Central Selling Organization, which was an arm of the Diamond Trading Company. And in black Africa, it disguised its South African origins under subsidiaries with names like Diamond Development Corporation and Mining Services, Inc. At its height — for most of this century — it not only either directly owned or controlled all the diamond mines in southern Africa but also owned diamond trading companies in England, Portugal, Israel, Belgium, Holland, and Switzerland.

Click Here To Read: Have You Ever Tried to Sell a Diamond?




Miguel Barbosa

http://www.simoleonsense.com/

About the author:

Miguel Barbosa
Miguel Barbosa is founder of the multidiscplinary blog SimoleonSense.com. SimoleonSense examines value investing through a lens of behavioral finance, complex systems, psychology, philosophy, and neuroeconomics. Miguel's heros are his parents, Charlie Munger, Charlie Rose, Warren Buffett. Miguel Barbosa holds a Masters of Science in Management and a Masters of Arts in International Business. Miguel received his Bachelors of Liberal Arts and Sciences (with a concentration in Cognitive Psychology) from the University of Florida. Currently, he is working on obtaining his CFA designation (passed the first level in 2009)

Visit Miguel Barbosa's Website


Rating: 3.9/5 (13 votes)

Comments

Gangstarr
Gangstarr - 3 years ago
1. Buying diamonds is a speculation like buying art, wine, stamps,etc. Diamonds do not produce a cash flow.

2. If diamonds sell off completely or to a large extent, I'll be able to purchase my wife much larger and nicer diamonds!

3. Life is short and you aren't going to take the money with you, so in my opinion it's much better to buy a lady a diamond.

softdude2000
Softdude2000 - 3 years ago
Thanks for educating us. Looks like buying diamond is dumber than buying gold.
fk
Fk - 3 years ago
Very educational article, thanks for sharing that. I notice it's from a 1982 article. What's happened with the diamond industry in the 20 years since? The article gave the impression the bubble was just ready to burst in 1982. How has the Debeer organization prevented that from happening already?

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