Podcast Summary
Managing risk in uncertain markets: Maximizing risk-adjusted returns is a more effective approach to investing than focusing solely on expected returns, as demonstrated by the diamond industry's recent experiences with market disruption and oversupply.
Maximizing expected return or expected wealth is not the only goal in investing. Instead, it's essential to consider risk-adjusted returns. This concept is particularly important in markets prone to uncertainty, such as the diamond industry. Diamonds have faced disruption in recent years, with the rise of lab-grown diamonds causing turmoil in the natural diamond market. Prices for natural diamonds have been stagnant since 2011, despite a post-pandemic boom in demand. This oversupply has led to a significant decrease in prices for natural diamonds. The diamond industry's challenges serve as a reminder that managing risk in the face of uncertainty is crucial for investors. It's important to consider the potential risks and rewards of different investments and make informed decisions based on a solid understanding of the market. In summary, maximizing risk-adjusted returns is a more effective approach to investing than focusing solely on expected returns. The diamond industry's recent experiences demonstrate the importance of this strategy, especially in markets prone to disruption.
Diamond Industry vs Lab-Grown Diamonds: Lab-grown diamonds, produced with less energy and no mining, are growing in popularity and market share, challenging the diamond industry and potentially impacting natural diamond pricing and demand.
The diamond industry is facing significant competition from lab-grown diamonds, which have become an increasingly popular and sustainable alternative. While natural diamonds have long been marketed as romantic and organic, the production process involves dangerous mining practices and environmental concerns. Lab-grown diamonds, on the other hand, are grown in a controlled lab environment using less energy and without the need for mining. This shift in the market has led to a significant increase in the market share of lab-grown diamonds, which was barely present in 2015 but had grown to 10-12% by last year. The diamond industry has tried to maintain the allure of natural diamonds through marketing campaigns, but the growing popularity and affordability of lab-grown diamonds have made them a viable option for consumers. This trend is likely to continue, posing a challenge to the diamond industry and potentially impacting the pricing and demand for natural diamonds.
Lab-grown diamonds disrupt diamond industry with lower cost and shorter production time: Lab-grown diamonds offer consumers high-quality diamonds at a lower cost and shorter production time, but the oversupply and decreasing price gap present challenges for the industry
Lab-grown diamonds have significantly disrupted the diamond industry due to their lower cost and shorter production time compared to natural diamonds. For instance, a one-carat lab-grown diamond of excellent F color and top clarity might cost around £1800, while a natural diamond of similar quality could cost up to £8,000, making lab-grown diamonds an attractive alternative for consumers. This price difference is a result of the production process, which can be simplified as either starting with a piece of coal and applying intense heat and pressure or beginning with a seed crystal of lab-grown diamond. The rapid advancements in lab-grown diamond technology have led to a substantial decrease in the price gap between lab-grown and natural diamonds, which used to be around 10-20% but is now closer to 80-85%. This price disparity has made lab-grown diamonds a disruptive force in the market, but their success has also created challenges, as the oversupply of lab-grown diamonds can lead to a saturated market and decreased demand. In summary, lab-grown diamonds represent a significant shift in the diamond industry, offering consumers high-quality diamonds at a fraction of the cost and production time of natural diamonds. However, this disruptive technology also presents challenges for the market as the price gap continues to widen and the industry adapts to the changing landscape.
Create custom lab-grown diamonds: Lab-grown diamonds offer affordable, customizable alternatives to natural diamonds, but their resale value may be lower due to lack of scarcity. The diamond industry is being disrupted by technological advancements.
Lab-grown diamonds offer consumers the ability to customize their diamonds based on size, color, and cut at a lower cost than natural diamonds. The creation process involves injecting carbon-rich gas into a high-pressure environment, resulting in the growth of a diamond. While the cost is lower, the resale value of lab-grown diamonds may not be as high as natural diamonds due to their lack of scarcity. The diamond industry is experiencing disruption, with two major companies controlling about two-thirds of the market. This disruption shows that even traditional industries like mining can be impacted by technological advancements.
Geopolitical tensions and the rise of lab-grown diamonds challenge the diamond industry: Geopolitical issues and the increasing availability of lab-grown diamonds, indistinguishable from natural ones, pose challenges to the diamond industry's future, with uncertain demand for natural diamonds
The diamond industry is facing challenges from both geopolitical issues and the increasing availability and difficulty to distinguish between natural and lab-grown diamonds. Companies like De Beers and Alrosa, part of larger mining groups, are affected by geopolitical tensions and supply issues. The Russian state, for instance, has had to buy extra diamonds from Alrosa due to the ongoing war in Ukraine. As for the distinction between natural and lab-grown diamonds, while experts can identify minute flaws, the naked eye cannot tell the difference. The diamond industry has long argued that natural diamonds are rare, valuable, and worth buying, while lab-grown diamonds are abundant and falling in price. However, the industry's predictions of a decline in demand for natural diamonds have persisted for years, and it remains to be seen whether this will indeed be the case. Despite the challenges, the future of the diamond industry remains uncertain, but it's likely that diamonds, whether natural or lab-grown, will continue to hold value and desirability for many people.
Alan's current investment stance: Alan is bullish on colored sapphires as an alternative to diamonds and bearish on a musical adaptation of 'Our Mutual Friend' titled 'London Tide'. He's also frustrated with the lingering winter weather and is long on down coats while short on warmth and heat.
During this episode of the podcast, Alan shared his current investment stance through the "long-short" segment. He expressed being bullish on certain colored sapphires, particularly pink and yellow ones, as an alternative to diamonds. Conversely, he expressed being bearish on a musical adaptation of Charles Dickens' "Our Mutual Friend," titled "London Tide," which he attended and found disappointing. Additionally, Alan expressed his frustration with the lingering winter weather and being short on warmth and heat, while being long on down coats to keep himself comfortable. This segment highlights Alan's investment strategies and personal experiences, providing listeners with insights into his investment philosophy.
Feet's Unhedged Newsletter: Free Insights for Premium Subscribers: Feet's unhedged newsletter offers free market insights to premium subscribers, contributed by Cheryl Brumley, Topher Forez, Laura Clark, Alastair Mackey, Greta Cohn, and Natalie Sadler. A 30-day free trial is available for non-subscribers at feet.com/unhedgedoffer.
Feet, a global media company, offers an unhedged newsletter for premium subscribers for free. This newsletter provides unhedged market insights. Cheryl Brumley, the global head of audio at Feet, along with Topher Forez and a team including Laura Clark, Alastair Mackey, Greta Cohn, and Natalie Sadler, contribute to the creation and delivery of this valuable content. For those who are not yet premium subscribers, a 30-day free trial is available. To access this offer, simply visit feet.com/unhedgedoffer. Katie Martin, the speaker, expresses her gratitude for the opportunity to share this information with the audience.
