How to invest smartly in diamonds and avoid pitfalls: BAUNAT Germany in interview with WirtschaftTV

BAUNAT never compromises on quality and transparency - especially because diamonds are not only a gift of immeasurable emotional value, but also a great way to intelligently diversify the investor's portfolio. In a conversation with renowned stock market correspondent Mick Knauff, the experts at BAUNAT Germany dive deep into the topic of diamond investing and explain all the important aspects that make diamonds a truly "brilliant" asset. With the aim of guiding the audience on how to maximise and secure this type of investment, our experts share their market insights, give advice on how to smartly structure a diamond portfolio and reveal their insider tricks to avoid the common scams that threaten the success and security of a diamond investment.

Mick Knauff:

Fragile, unstable times: At the moment, the whole world is talking about inflation, in America as well as in Great Britain and the Eurozone. It is clear that investors naturally try to protect themselves from inflation before the price raises on the other side. After all, at times it is not only a matter of preserving assets, but also of building them up smartly. To this end, we have two prominent guests here today on WirtschaftTV from the Frankfurt Stock Exchange: Fabienne Rauw and Benedetta Conestabile della Staffa. Beautiful names. The ladies are from BAUNAT Germany. Ms Rauw, what does BAUNAT do?

Fabienne Rauw :

BAUNAT is an online company specialising in diamond jewellery and investment diamonds. We were founded in 2008, in Antwerp, the diamond centre as it is well known, and have also been operating here in Germany for a few years now, where demand for us is rising strongly and the concept is very well received.

Mick Knauff:

That means that the customers are asking, so my question directly to you, Ms Conestabile: the political situation at the moment is unsettled, the war in Ukraine has taken the world by surprise, we don't know what China has planned for Taiwan....how do I deal with this situation at the moment? What should I do?

Benedetta Conestabile della Staffa:

Of course, today’s market is unstable, rising interest rates and inflation are a major challenge for investors and today there is still a climate of instability and volatility. Therefore, investors are increasingly looking for ways to minimise this uncertainty. Within these solutions, diamonds are a very interesting solution for investors. Diamonds can, of course, experience price declines, but it is the case that they have a sustainable and intrinsic ability to increase in value over the long term. And it is also the case that demand is increasing and supply is decreasing. Diamonds have also proven to be one of the most crisis-resistant assets when compared to the volatility of other assets. In recent financial crises, it was the case that other components of an investment portfolio, such as shares, bonds, futures contracts or real estate, collapsed. Polished diamonds, on the other hand, were hardly affected by the crisis. So for this reason, the interest of investors in this form of investment has increased and the demand has also risen strongly.

Mick Knauff:

This means that BAUNAT does not seem to lack clients. Ms Rauw, how does it work, because investors don't just want to get value, they usually also want to get a bit of return at the back, something on top. Can diamonds deliver that as well?

Fabienne Rauw:

Diamonds can definitely do that. Generally speaking, diamonds are a pretty safe investment that also have some advantages. As Benedetta said, diamonds have a long-term profitability, which is a result of the fact that the demand for diamonds is on the rise, which is mainly driven by the demand from the BRIC countries, whereas the supply is on the decline. This is a result of the limited natural resources of diamonds and yet the limiting mining capacities. Due to this relationship between demand and supply, this long-term increase in value is already a given. This is a development that one should definitely keep an eye on and, in addition, diamonds are also quite crisis-resistant. Of course, diamonds are not completely protected from price decline, but they have proven to be quite resistant in times of crisis, such as the financial crisis of 2008, in contrast to other components in an investment portfolio. Then there is also the fact that diamonds have an intrinsic value that offers clients more protection against market collapse, inflation, insolvency. And of course they are also a commodity that is very easy to transport. The diamond is also something that is seen as an alternative currency in the international framework and also retains the same value worldwide. Besides these financial advantages, the diamond has another advantage, a very special one in my opinion, namely the emotional value. A diamond is something that is often bought in the form of a piece of jewellery and then passed on through different generations. It is actually a priceless value, something that is completely irreplaceable, and you can say that with a diamond you are not only investing in an asset, but also in extraordinary natural beauty. This is actually a combination that no other investment product can offer.

Mick Knauff:

Ms Conestabile, in the market they always say: "broadly diversified, never regretted". So they say you shouldn't just concentrate on one asset class, but perhaps on a few as well. What would be the perfect mix of a so-called small portfolio for you?

Benedetta Conestabile della Staffa:

Just as you said, the golden rule is always to diversify the portfolio and not to invest only in one source of income, in order to be able to withstand the changes in the world market. When it comes to diamond investments, the investor should first decide on one of two categories. The first category is the category of so-called ‘exclusive diamonds’ and the second category is the category of so-called ‘commercial diamonds’. This is important because each market segment has differences in liquidity and also requires a different approach, depending on what the investor's objective is. The ‘exclusive diamond’ category tends to offer a higher return because such diamonds are of exceptional quality but, because these diamonds are also somewhat more difficult to sell or have a complex sales process, they are also more volatile and less secure. The ‘commercial diamond’ category, on the other hand, offers more security but also tends to offer lower returns compared to the exclusive category. So investors should first ask themselves two questions: The first question is, what risk am I willing to take when it comes to the return I am seeking? Then the second question is, what are the options within my budget? And to optimise the budget there are usually two different approaches: The first approach is to buy a diamond of exceptional quality i.e. of the highest possible size and quality. This solution maximises your return on investment, but is also a little more uncertain. Or, the client may opt for a diamond investment package consisting of several diamonds of high quality. In this solution, commercial diamonds are selected that are of slightly lower quality - but still high quality - compared to the exclusive diamonds, but the risk diversification is definitely optimised. And when the client has decided on one of these two solutions, then he can get a personal offer, for example from us, from BAUNAT, and then he can just decide on the best possible option within his budget.

Mick Knauff:

The topic of diamonds is of course big, but the German is of course a big friend of gold. For example, he goes there and buys his bars, his coins...he knows they are certified, they are clean...One is a bit afraid of diamonds: Is it real or is it a piece of glass or a shard...Ms Rauw: What should I keep my hands off and what do I have to watch out for on the other hand if I am interested in diamonds?

Fabienne Rauw:

So there are several points here that are very important. As with many other investment products, timing and getting the best possible price is key. You should always make sure that you buy the diamond as close to the source as possible. If one buys a diamond that has been acquired through various middlemen, the price will naturally rise. It is also the case that many companies increase the price by including the costs of intangible elements in the price, such as big marketing campaigns or the purchase of large stocks. These, of course, all have an impact on the price, driving up the purchase price for customers, which, of course, negatively affects the increase in value. Something else that is very important: that one makes sure to buy a diamond that has been certified by an independent, international laboratory. Here you should make sure that you go to houses such as the GIA, HRD or IGI: these are the strictest, most renowned houses worldwide. In any case, you should keep your hands off certificates that are self-written, or that were created by less reputable houses, or even diamonds that are delivered completely without a certificate. Another problem is that diamond dealers often overvalue their diamonds, whereby a customer pays a higher price for a lower quality. Here it is important to avoid diamonds where there is no guarantee of quality, or where the quality is only given in ranges, for example if you say you have a clarity VS or a colour D to E: these are ranges and not precise indications. Another problem would also be if one confines oneself to diamonds that are still graded with obsolete grading systems. These are all outdated methods that do not actually give 100% information about quality, and if you can recognise these pitfalls and are well informed about the subject, then you hold the key to wise investment.

Mick Knauff:

Mrs Rauw said it very well, so beware, ladies and gentlemen, pay attention to what she just said - there were quite a few points that you can work through. Final question, Ms Conestabile: Gold, diamonds, shares, real estate...where is your current focus, what could you pass on?

Benedetta Conestabile della Staffa:

Of course, as we have said, it always depends on what an investor's goal is. Gold is also a very interesting investment opportunity, an interesting commodity. Of course, we can't really make a comparison with diamonds: gold, for example, is more susceptible to fluctuations, and I think diamonds have the great advantage that they can be set in a piece of jewellery; they are easy to transport, easy to wear, and as Mrs Rauw mentioned earlier, you simply enjoy the beauty of this object. In this sense, of course, every investment opportunity is interesting, depending on what you are looking for, but I personally think, also as a woman, that diamonds are an ideal solution if you want to combine two different aspects, namely on the one hand the use - because of course you want to have an investment opportunity that gives you the best possible return - on the other hand, as I said, with diamonds, you can wear jewellery wonderfully. In that sense, I think they are definitely an option to consider.

Mick Knauff:

Thank you ladies, it's nice that you were at the Frankfurt Stock Exchange today. Normally we talk more about equities here today, but everything that can be added as an asset class, everything that offers a bit of protection against inflation in times of high inflation, that's what we're interested in. So, you have heard it ladies and gentlemen: Diamonds are not necessarily, one has to say, only the girl's best friend, but also fit quite well in a portfolio at times. Ladies, Fabienne Rauw, thank you, Benedetta Conestabile della Staffa, from BAUNAT Germany. It was nice to see you at the Frankfurt Stock Exchange.