What The Intrinsic Value Of Diamonds Means For Retailers

Remember Tickle Me Elmo or even Cabbage Patch Kids? Prices for those toys were sky-high when they were first introduced, but how much value do they have today? Hot toys, along with tech items like smartphones, are examples of items with high market value when they are sold new, but little lasting value. While some consumers may certainly be happy buying the latest, most expensive iPhone model, it is important they do so with the understanding that the phone’s market value at purchase is different from its intrinsic value.

“Intrinsic value” is a term used by investors to denote the fundamental value of an asset or investment, as determined through different analyses depending on the type of asset in question. This is to be distinguished from market value, which is how much a given asset or investment is selling for at the current time. While an array of different specific measures are used to calculate intrinsic value, with different ones being most appropriate for different types of investment, the bottom line is that intrinsic value represents a value that can be considered as fundamental, compared with market value, which is known for fluctuation and even capriciousness.

Items that can easily be created in unlimited quantities have little intrinsic value since supply is not limited; although demand may be high enough at a given time to drive their price up, they will not hold their value if there are no limits on supply. This is why, throughout history, though items like beautiful clothes, machines, spices and, yes, Tickle Me Elmo, have all seen high market values, it is precious metals and gems that have been chosen as stable repositories of long-term value.

How Do Lab-Created Diamonds Differ From Mined Diamonds?

Lab-created diamonds have some value in the sense that they include the qualities of real diamonds: They are very hard, so they can be used in applications that require this quality. They are also very pretty, with all the qualities of a true diamond, like fire and brilliance. However, because an unlimited supply can be made, they don’t have the same intrinsic value and stability; their market value goes down as the technology used to make them gets more efficient. Unlike commodities that are scarce and have intrinsic, long-term value, or even Bitcoin, which has controlled production and supply, laboratory-grown diamond suppliers have no rules in place on how many new diamonds can be grown in a given amount of time and put on the wholesale market.

Mined Diamonds Provide Stable Value

Mined diamonds are supremely stable. A mined diamond seems to have lasting value because the supply is limited. Like gold, mined diamonds are viewed as storehouses of value over the long term. The one thing that could undermine mined diamonds’ value is a drop in demand but, as with gold, there is simply too much tradition behind diamonds as objects of value: After thousands of years of history, people will not stop thinking of diamonds as valuable. (The exception is the legitimate concern about conflict diamonds, a reason for consumers to always buy from reputable companies that take the sources of their diamonds seriously.)

What Does This Mean For Retailers?

For a retailer, it’s important to educate the consumer. Laboratory-grown diamonds seem to be an important retail trend as they appeal to consumers on a number of levels. Many consumers believe lab-grown diamonds are more ethical, however, the blood diamond conflict of Sierra Leone is over. And while consumers believe the stones have a lower carbon footprint, lab-grown diamonds require three times as much energy to produce. As with all technology products and even toys that have price bubbles, like Tickle Me Elmo, lab-grown diamonds drop in value. So, you’ll also want to make sure your customers understand ahead of time that their lab-grown diamond will be worth a fraction of what they paid for it within a year of purchase.

By educating yourself and passing this information along to customers, you can ensure that you both make an informed decision.

Courtesy: FORBES