Very often perspective clients will call me to look at a manifest they have received. They are always excited because the price per carat for the diamonds on the manifest looks to be an incredible value. They know it’s a great value because they have compared the Adtec Wholesale Rough Diamond Price List to the diamonds on the manifest, and it appears that the diamonds are substantially discounted. Let the Magic Show begin!
How is it that people who are highly educated, business savvy, astute and control large sums of money seem to have no clue? Investment groups, hedge funds and speculators will spend a great deal of time, money and effort for due diligence for other investments. Yet, in diamonds, they will accept information from unknown suppliers and assume the information is accurate. I don’t get it. I really don’t understand.
For some companies who have no intention of ever exiting their diamond investment, or who do not care if they are buying well, then an inaccurate manifest is of little or no concern. Perhaps they are putting the diamond asset into trade and are making so much money on the asset that manifest accuracy is irrelevant. Or, as sometimes happens, the people representing the buyer do not care what happens after the sale is made. They have made their commissions and could not care less what happens to the buyer when he tries to exit his investment. For all of these people, an accurate manifest is of no consequence. Of course, for diamond cutting manufacturers, manifests are irrelevant. They do not care what you say you have. They only rely upon themselves to determine quality and value.
That being said, if you are representing the buyer with integrity, or you are the actual buyer and you would like to ‘flip the goods’, or, after holding them for a period of time, resell them, then an accurate manifest is absolutely essential. And here is a surprise for you. The seller will do his job. He will create a manifest to maximize his profits and he will do this with magic, illusion and deception.
The magic is his creation of value, where no value exists. His illusion is what appears to be but isn’t. His deception is, he has conjured up a manifest that is unreal. Do I hear yelling and screaming from those who prepare manifests? Do I cut you to the quick? I wish I were wrong.
Are all sellers’ crooks, thieves and charlatans? Actually, no they are not. The truth is, all sellers know that no matter what quality they say a diamond is, the buyer will disagree in order to gain whatever possible advantage available. They have no choice but to ‘fudge’ the grading. A gemologist working for the supplier will look at the stones and when something is obviously a particular color, clarity and shape, he will call it as such. To do otherwise would alert the buyer’s gemologist that the seller is full of bull and is counter-productive in maximizing the sale price.
Let me explain how a manifest comes into being as magic, illusion and deception. Let us suppose we have a manifest for 10,000 cts. of white rough diamonds. The manifest will most often read as follows: 4 ct. to 15 ct., D-H color, VVS-VS clarity, sawable and makable. The manifest will usually divide the weights into the various carat sizes and will either give a price per carat for each size or will give a price per carat for the total goods.
Most of you will look at what I have just written and ask, what is wrong with this? It describes the parcel and I have all the information I need to determine if the price seems reasonable. Really? If a parcel has just one D color stone in the size stated, the supplier can say the parcel starts from D color. It does not matter if the rest of the parcel is all H-J, he can still legitimately present his parcel as D color and below. If the parcel is suppose to have stones to H color he will throw in all “I” colors as H and all fluorescent J color stones also as H. If you understand how fluorescence affects the color of diamonds you will know why a fluorescent J color can be put in as an H. If you do not know why, you can read my article on Google or on my website on the affects of fluorescence on diamond color.
Just like color, clarity grading can also create an illusion. If a parcel has one VVS stone in a stated size, the supplier will write that the parcel is VVS-VS. It does not matter that there is only one VVS. In addition, better quality SI1 stones will also be thrown in as VS quality. The gemologist can do so, because he will contend that the inclusions that make the stones SI1 will be cut out during polishing. This is often true, even with I1 or pique quality stones. However, the gemologist will throw them in regardless as to whether or not the inclusion will polish out.
In regards to shape, the vast majority of buyers who are not going to polish the diamonds they purchase will accept only Sawable 1, Sawable 2, Makable 1, and Makable 2. The gemologist for the supplier cannot really do much, if anything with the first three shapes, they are what they are. However, I cannot tell you how many times I have seen macles and flats passed off as Makable 2. The difference in the yield, and thus the value is very substantial.
Suppliers believe they have little choice. They must take whatever steps necessary to protect their profits. They are compelled to take every stone remotely close to being a better color, clarity and sometimes shape and upgrade the stone’s quality and shape on the manifest.
Some people think they will just use a median grade or quality as their basis for the price of the goods and that will protect them. Unfortunately, this is a recipe for financial loss. As an example, let us look at the difference in value for a selection of diamonds that are grouped together as average size 6.5 ct. (6-7ct. size) G-J color, VVS-VS2. Makable 1, If a K-VS2 is $840 per/ct., a J-VS2 will be $910 per/ct., I-VS2 will be $1100 per/ct., an H-VS2 will be $1300 per/ct and a G-VS2 will be $1550 per/ct. If the stones are VVS then add 16% for the K color and an additional 17% for J color, additional 23% for I color, additional 25% for H color and an additional 23% for G color. (% increases based on additional costs per carat for 2.00 ct. polished diamonds based upon the Rappaport report. Makable 1 diamonds of 6.50 ct. will generally yield 2.00 ct. polished, depending on inclusion location, depth and diameter of the stone. For our purpose of illustration we assume the diamond cuts out to 2.00 ct or more.)
As you can see, the difference in value of one color or one clarity is substantial. If the gemologist for the seller upgrades both one color and one clarity for a stone, the difference is magnified again. When the seller upgrades even 10% of the colors and or clarities you have a very, very substantial over valuation for the parcel. Imagine 1000 carats overvalued by 10-20%!
If you have not figured out yet how I feel about manifests, let me be clear. They are nearly useless and mostly worthless. When goods are offered to you, assume this from the beginning. When you know your supplier, you already have a good idea what percentage you need to factor into your buying equation. When you don’t know the supplier, no one knows how to factor the buying equation.
I am not saying that you should not look at the manifest offered. From the manifest, I can tell how much work was put into the grading and by the details of the manifest I can gain some idea of the sophistication and knowledge of the seller’s gemologist. This can be helpful. However, I completely ignore their grading and evaluation.
Maybe this article was not written for you. But for those of us who are burdened with the responsibility and are culpable, liable, and answerable to our clients or our wives, then please take my advice and ignore manifests and gemological reports unless your gemologist created the manifest. If you want to see real magic, spend time with your children.
Louis Pearl G.G.
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