An “Investment” Even More Ludicrous Than Government Bonds

“What about investing in hard assets like diamonds?”

I get asked this sometimes so figured I’d cover it here.

I wrote the below piece some years ago and it answers the question about whether diamonds should be treated as a store of value in an investor’s portfolio.

The word monopoly has its roots in the Greek words monos (single) and polein (to sell). It first appeared in Aristotle’s Politics where Aristotle describes how in Greece in the 6th century BC the philosopher Thales of Miletus cornered the local olive press market:

“Thales, so the story goes, because of his poverty was taunted with the uselessness of philosophy; but from his knowledge of astronomy he had observed while it was still winter that there was going to be a large crop of olives, so he raised a small sum of money and paid round deposits for the whole of the olive-presses in Miletus and Chios, which he hired at a low rent as nobody was running him up; and when the season arrived, there was a sudden demand for a number of presses at the same time, and by letting them out on what terms he liked he realized a large sum of money, so proving that it is easy for philosophers to be rich if they choose.”

Historically one of the most interesting and controversial monopolies is arguably that of the diamond market in recent times.

Throughout history the supply of diamonds has been very scarce. So much so that it was very difficult even for the creme de la creme of society to get hold of these little stones.

Things, however, started to change in the late 19th century when diamonds were found in South Africa and a lot of supply suddenly flooded the market. The price of what had been valuable only due to its scarcity was bound to tumble. To prevent this taking place, in 1888, a cartel with all the movers and shakers of the diamond mining world was formed under the name De Beers. And oh, what a cartel it has proved to be.