Diamonds and the Average Consumer: A Conversation with Ira Weissman

Those familiar with the diamond industry may already have heard of Ira Weissman. He’s the founder of The Diamond Pro, a website aimed at educating diamond buyers, and is perhaps best known for his 2012 article 7 Reasons Why Diamonds Are a Waste of Your Money.

To find out what a diamond skeptic is doing offering buying advice to consumers, Diamond Investing News (DIN) sat down with Weissman for a chat. He touched on the type of advice he gives to prospective diamond buyers, also explaining why he’s a better source of information than diamond sellers themselves. He also gives his opinion on who — if anyone — should be investing in diamonds.

DIN: Let’s start off with an easy question. Can you explain the premise of Truth About Diamonds and why you set it up?

IW: I worked for Leo Schacter, one of the largest sightholders for diamonds in the world, for seven years, until the end of 2008, when I decided to do my own thing. I wanted to be an entrepreneur, and until about the middle of 2009, I was thinking of doing things that were not related to the diamond business at all. But then a friend of mine mentioned that Blue Nile (NASDAQ:NILE) had what’s called an affiliate program. I was shocked because I was very familiar with Blue Nile from the supply side, and I knew their margins were very, very low. I didn’t believe that they could pay 5 percent on the sale of a diamond because that would be like giving away almost half of their profit. But I checked it out and it was true.

I have a bit of a tech background, and I came up with the idea of making a website and teaching consumers how to buy diamonds like a diamond dealer would, focusing on what looks nice and trying to find the cheapest diamond that still looks really good. And that’s what I did; it took off and has become my primary business.

So basically my website has a lot of informational articles for the diamond consumer about what to look for when buying a diamond. But we also encourage our readers to email us with their questions, their budget, what they’re looking to get. We’ll actually go to different shops online to find a diamond that we believe is great for them.

DIN: Who is it that’s visiting the site?

IW: Mostly it’s guys looking to propose who are buying for the first time. Sometimes we get married couples that want to upgrade a ring. Rarely, but it does happen, boyfriends that want to get a gift for their girlfriend.

DIN: What are their most common questions? Are there similar topics that crop up?

IW: There’s a lot of confusion about certificates. That’s probably the most popular game that retailers play. They try to make it seem like they’re offering more value; they try to offer a looser certificate to make it seem like their ISI1 is cheaper than their competitor’s ISI1, when in fact it’s really a KI1 with an upgraded certificate. So we get a lot of questions about that.

Other than that, it’s usually very basic things, like what’s the ideal clarity or what’s the ideal color grade, things like that.

DIN: Why is it better for these new buyers to trust you than to trust the company/person they’re buying from?

IW: The obvious answer is that I’m objective. I do make something from the people that visit my site, but I have an article there that explains exactly how it works. I work with five or six different vendors, so I can choose among them. I recommend what I feel is best for each customer, and there are different specialties that the stores have, so I can turn people to the vendor I feel is best for them.

Getting a diamond education from the person who’s selling you a diamond is a horrible idea, especially in a retail store. Online it’s a lot more subtle, and there isn’t really a lot of wiggle room to deceive the consumer because there’s so much information out there, everything’s out in the open. But in a retail setting where the margins are so high, unfortunately, it’s almost as if deceiving people is all [sellers] have left; there is so little added value they can offer the consumer in the store over online to justify their higher prices.

DIN: I’ve noticed that you often stress that diamond buyers shouldn’t pay more for features that the average person can’t appreciate. What are examples of such features?

IW: The most obvious one is super-high clarity. I actually did a video on this where I borrowed from James Allen, I think it was a 1-carat HSI2 and a 1-carat VVS2. The more expensive one was a $13,000 ring and the cheaper one was about $5,000. I went to Times Square with both rings on my finger, and I challenged people to guess which was more expensive. No one figured it out. Everyone was shocked when I told them the difference in price.

Another example would be color. The problem is that people go to a store, or they go to a site, and the options range from D to J. They don’t realize that’s not the whole scale — the whole scale goes from D to Z. So people think that if they get a J it’ll look really yellow; they think they have to stay near the top of the scale.

The truth is that if you have an ideal cut, round, J that’s set in a solitaire and not being compared to any other higher-colored diamonds, it’s going to look white. The example I like to give is teeth. If you look at someone’s smile, you’ll think they have white teeth until you see someone who’s just had their teeth bleached and they’re really, really white.

DIN: One problem I can see with that approach is that if the buyer ever wanted/needed to resell their cheap, but fairly nice diamond, they almost definitely would not profit. Is that something buyers need to resign themselves to?

IW: I’m glad you asked that question. The average consumer is going to take a beating selling a diamond no matter what they do. Even if a consumer buys a D flawless diamond they’re not going to make money when they sell that diamond, unless you’re talking about someone who has a lot of connections in the diamond business, someone who’s held that diamond for a lot of years when diamonds happened to go through a period of growth and significant increases in price.

Again, we’re not talking about people in the industry, we’re talking about consumers. A consumer should not be buying a diamond as an investment. Any other investment you can think of — stocks, bonds, anything like that — you’re not paying anyone a profit margin to acquire that asset. You might pay a fee, you might pay a very small percentage of the transaction, but no one’s profiting on that sale to you. Nowadays you can buy stocks online for about $9 a trade. So if you’re selling $10,000 worth of stock and you only pay a $9 transaction fee, it’s not that difficult to overcome that fee.

However, if you’re buying a diamond from a store, whether it’s online or retail or bricks and mortar, you’re paying someone a significant profit margin. In the best cases, you’re talking about 10 percent. Maybe if it’s a much more expensive diamond online, it will be a little less than that. But let’s say it averages 10 percent now online — that’s a significant amount to overcome. And the truth is, it’s more than 10 percent. Let’s say I buy a diamond now from James Allen and they profit by 10 percent. That means that 10 percent less the amount I paid is James Allen’s cost. But James Allen’s cost isn’t the true cost of that diamond because they don’t own that diamond. They have that diamond on consignment, they’re virtually listing it. In fact, the true owner of that diamond is giving James Allen a relatively high price. And if a person offered cash to the wholesaler that owns the diamond that’s listed at James Allen, they would be willing to sell it for less than the price they’re offering through James Allen. So the truth is it’s probably 15 percent or even more than the true cost of that diamond.

And then there’s the question of who they’re going to sell it to. If I were to buy a diamond now from James Allen and paid 15 percent more than the true wholesale cost of that diamond, there’s no way the original owner who sold it through James Allen would pay me that 15 percent less price because they also need to profit. In fact, they’d probably pay me another 5 percent less than that. So if on the same day I bought the diamond I tried to sell it back to the source for the vendor that sold it to me, I would probably lose 20 percent in a best-case scenario. To overcome 20 percent, it’s going to take a long, long time. No one should be banking on that when they’re buying a diamond.

DIN: So is there anyone you think should be investing in diamonds? I remember you said in your initial email to me that you don’t see diamonds as a sound investment for the average investor.

IW: The only people who know what diamonds cost are the people who trade them every day in large quantities — that’s the other big problem with diamond investments, there’s no transparency. It’s really an art to know diamond pricing, that’s one of the most difficult things to learn when you enter the business. Because it fluctuates every day, you have to have your hands in the market to really know what’s going on. For someone who’s not involved in that day-to-day transaction cycle, they’re not going to know the true value of that asset.

So someone in the business who knows what’s going on, knows the prices, for sure it makes sense for them to buy a diamond. They know the market better than anyone. They can buy a diamond and hold it and know it’s going to go up in value. But it takes a real enthusiast to know the market as well as someone who’s a seasoned veteran of the industry

DIN: I think a lot of people involved in the colored diamond industry would agree with you that colorless diamonds are not a good investment; instead they make the case for colored diamonds. Would you recommend colored diamonds to the average investor?

IW: I don’t think so. Definitely not yellows because they are not really any more rare than colorless diamonds. But even for the more rare colors, there’s still a profit margin, and it’s greater in almost all cases than people selling colorless diamonds because there’s less competition. So all of those hurdles that I mentioned before having to overcome, the initial setback of buying at such a significant profit margin over the original cost — they’re there, and are even greater with fancy colored diamonds.

However, that’s overset by the fact that fancy colors at least in the past have gone up at a much higher tick than colorless diamonds. So the two sides play off each other. You’re buying at more of a disadvantage, but there’s more potential for the price to go up over time.

DIN: My impression is that you’re best known for your article 7 Reasons Why Diamonds Are a Waste of Your Money, which is kind of an odd topic for someone who gives diamond-buying advice. Ultimately would you prefer that people not buy diamonds at all?

IW: I get that question a lot. Some former colleagues in the business were very angry with me because I wrote the article. And my response was, “listen. I’m sure I didn’t convince a single person who was on the fence about buying diamonds not to do it.” I wrote the article simply because I want people to open their eyes and realize that they’re buying a retail product, they’re buying it for features. I don’t want people to waste their money thinking that they’re buying a beautiful sentiment of love, and I don’t want them to think they’re making a great investment and need to get something that’s really high value. It’s just a waste of money to do that. People need to realize that these tokens of sentiment were created by someone who wanted to sell their product, there’s nothing real about it.

So I wrote the article simply because I wanted people who are buying diamonds to come to my website and not take their purchase so seriously. I wanted them to realize that while it’s something they may have to do because it’s expected, I can help them get through their purchase with as little damage as possible.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Editorial Disclosure: Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence. 

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Are Diamonds Really “Bullshit”?