Investing in gems
for fun and profit
In the 1980s, the heirs to a ranching business
in Texas discovered they owed the IRS a million dollars. To pay the
bill, they could sell the family business or sell off the gem collection
their dad had stashed away for years. He had hundreds of gems. The
family was fine with that option. They had always thought Warren Hancock
was a little nuts anyway for spending all that money on colored diamonds.
They shipped off the lot to Sotheby's in New York,
hoping that selling them might make a dent in the tax bill. Sotheby's
picked out three and sent back the rest. On April 28, 1987, an agent
allegedly representing the Sultan of Brunei bought the largest of
the trio, a .95-carat red diamond, for $880,000, plus a 10 percent
That set a world record of $926,000 per carat. With
the sale of other two stones, Sotheby's was able to send the Hancocks
a check that covered the taxes, along with some serious change left
over. The Hancock Red remains a standard in the world of colored
diamonds -- as revered as the Hope Diamond among gem collectors.
Hancock had bought all three diamonds from his local
jeweler and paid retail prices for them, an investment of less than
Those are the kinds of stories that fuel the desire
to invest in gems. But the people who live and work in this circle
make it very clear: Buying gemstones should be something you do
because you like them. It should never be a major part of an investment
"If you want a nice sapphire for your wife, you
want to buy the best sapphire on earth," says Richard W. Wise,
a graduate gemologist and author of Secrets
of the Gem Trade: The Connoisseur's Guide to Precious Gemstones.
"That's very nice and I'm sure your grandchildren will appreciate
it. But if you buy it at Tiffany's and think you'll turn it over
for a profit in 10 years, you're deluding yourself."
Financial adviser Fred Siegel of New Orleans tells
people who call his radio show to inquire about investing in gemstones
that they should stay away from them unless they already have enough
money saved for retirement in a well-rounded portfolio.
"If you're taking care of that, fine, then it
can be a nice investment," he says. "Gems have nice stories
with them, and they're beautiful. Get a good gemstone and you have
something of beauty. But it's not like a stock and some other things
that you can tell the value quickly."
In fact, gemstones are about as far from stocks as
you can get. Stocks, bonds and CDs are perfect markets, with known
values at any given time and set prices; investors can buy and sell
whenever the market is open for trading, Siegel says. Gems are an
imperfect market, with a sale possible only when there is a willing
buyer and all prices open to negotiation. Other imperfect markets
include real estate, art and antiques.
"Does it mean you shouldn't invest in imperfect
markets?" Siegel says. "Not at all. You either have to
gain the expertise or get help from someone who is an expert that
you really trust."
The expertise includes an understanding of how stones
are bought and sold.
"The average jeweler will sell a stone for two
or three times what he paid for it wholesale," Siegel says.
"He'll buy a stone from an individual for half of wholesale.
It makes it hard to make money unless you really know what you're
As an investment class, gemstones and diamonds are
considered hard assets, as are gold and silver. Hard assets as a
group have a place in any investment portfolio, but generally not
more than 1 to 3 percent, says Tom Cloud, president of Georgia-based
Turamali Inc., who has been investing in gems and jewelry since
the late 1970s.
It's definitely not an investment you make with an
eye toward turning a quick profit, he says. Like many other experts
in gemstones, he says investors should expect to hold the stones
for 10 years or more to see a return on their investment.