When It Looks Too Good To Be True

Internet Diamonds Are A Risky Business

By Tom Duma

In this increasingly mobile age, today’s information technology places the Internet and all of the vast opportunities it represents at our fingertips on a daily basis. Getting connected is easier than it’s ever been. As we’ve become more and more comfortable with the technology, we’ve seen it creeping into every aspect of our lives. Remarkably, every segment of the population—from the “Baby Boomers” to the so-called “Always On” generation (named because they are literally always connected)—has embraced the ‘Net and relies upon it assiduously.

One of the most rapidly emerging aspects of this digital reliance is in the area of online shopping. These days, it really is possible to touch a few buttons, input a credit card number and buy virtually anything we want from virtually anywhere in the world. With Internet shopping, we visit a few sites, decide what we like, transfer it to a shopping cart and make the buy. Then, a day or two later, we get to tear open our package like Christmas morning.

Now I’ll be the first to admit I do love the convenience of online shopping for certain product categories. But, when it comes to buying diamonds—well, that’s a different situation altogether. A diamond purchase is simply not one you should make sight unseen. Even professionals in the industry, when doing business with trusted associates and colleagues do not purchase anything they haven’t held in their hands and seen with their own eyes.

You’d think it’d be different. After all, there are a very limited number of diamond cutting centers in the world. With travel expenses being what they are, one would think the jewelry industry would have readily embraced the opportunity to save the time, money and expense associated with traveling to these centers and use the technology instead to buy and sell diamonds around the globe.

Not so.

At the wholesale level, diamonds are still purchased by professional diamond buyers looking at each stone with their eyes and touching them with their fingers.

There’s a reason for this. It’s the only way to truly know what you’re getting.

Meanwhile, every day, on the retail side of this equation, you’ll find wide-eyed and hopeful diamond shoppers eagerly spending their hard earned money—before they’ve even seen, let alone, touched the beauty (or, heaven forbid, the non-beauty) that came from the earth.

Imagine if you would for a moment your response to the following line of conversation if it happened to you. Let’s say you walk into a jewelry store and say to the person behind the counter; “Hi, I‘d like very much to see a 1.00 carat round diamond”. The person behind the counter smiles warmly and says, ”Oh, of course, that’s absolutely no problem. Please give me your credit card, I’ll just charge $6000 against your account and when you come back in three to five days I’ll show you your diamond.”

Sounds crazy right?

Well, that’s exactly what happens every day on the Internet.

The common wisdom most online diamond merchants would have their customers subscribe to is that diamonds are nothing more than a commodity. They’ll assert diamonds are, at their essence, nothing more than a common element that can be easily graded and evaluated using the “4C’s” method of carat weight, cut, color and clarity. Thus, all an online shopper has to do is look at the merchant’s Website, select the best-specifications they can find on a diamond at the price point they want to pay and click buy it now. Then, three to five days later, they get to see what they bought.

Here’s the rub though—it doesn’t work like that—no two diamonds are the same.

Two descriptions on paper can be absolutely identical. Yet the stones they describe can look as different to the eye as night and day. This is why you can do a Web search on a 1.00 carat round brilliant cut diamond with H color and SI1 clarity, with an excellent cut and you’ll find a plethora of stones with prices ranging from $4900 to $6900.

Okay, you say, that one’s easy. You just buy the most expensive one—it will be the best.

No, it doesn’t work that way either.

Each and every diamond you’ll ever see is as unique as two snowflakes. When you buy online like that, what you’re really buying is a piece of paper certifying your diamond purchase falls within a certain set of parameters. But that certification has very little bearing on how the diamond will actually look on your loved ones’ finger.

It is our job at Thom Duma Fine Jewelers to educate you while we help you find the perfect diamond. We take the time to completely explain the 4 C’s and why each one of these categories affects the price per carat. With this personal approach, we find out what is important to you so we can then help you select your ideal stone from among 10 one-carat diamonds, rather than just one that looks right on the screen. You’ll hold it, feel it and personally examine it with all of the proper aids professionals use to supplement your natural eyes.

Further, it’s entirely risk free. The prices here in our store (for something you’ve actually held in your hand) are very competitive to those you’ll find for the largely unquantified stones you’ll find on the Internet.

Before you get roped into the questionable idea of shopping for a diamond online, visit Thom Duma Fine Jewelers. We guarantee you both an education and a highly pleasurable shopping experience you will never forget. Apples to apples, diamond for diamond, no one will sell you a comparable diamond for less.

Longevity and Education

By Lyndon Conrad Bell

With college tuitions steadily rising, an economy rebounding from the great recession, and the life expectancy of the average American steadily increasing, a question on the minds of many people—simply put—is it worth it?

Conventional wisdom says absolutely, unequivocally, without a doubt, yes it is. After all, hundreds, if not thousands of studies have found the lifetime earnings potential of a college graduate is almost always significantly greater than that of an individual with no secondary education. Add to that, the fact that today’s college preps will potentially be in the workforce twenty more years than today’s retirees which only increases the value of a college education.

In 2009, the U.S. Census Bureau’s American Community Survey started asking people with a bachelor’s degree to list their undergraduate major course of study. This enabled, for the first time, the ability to place a specific value on a particular major. For workers whose highest degree was a bachelor’s, incomes ranged from $29,000 for counseling-psychology majors to $120,000 for petroleum-engineering majors. However, the study also showed the median income for people with just a high-school diploma was about $32,000 vs. $55,000 for those whose highest degree was a bachelor’s.

In other words, an individual with no college at all could potentially make more money over the course of their lifetime than an individual with a college degree—in some fields.

There is another set of aspects of this discussion to consider though; the social attributes demonstrated by academically-oriented people, the value of the lifelong learning traits instilled in college graduates, and the broader perspectives afforded those with a college degree.

A 2007 study by the College Board, New York, found college graduates, regardless of major, are involved in the community and engage in charitable giving at more than twice the rate of high-school only graduates. Further, they live healthier lives and are more likely to experience increased longevity.

When this is considered along with the fact people are living longer in general, with all this added longevity will come significant earning potential. Further, as we move forward as a society, the best jobs will either be more technologically dependent or technologically oriented.

Maura Kastberg, executive director of Student Services at RSC: Your College Prep Expert in Schenectady, New York, says; “In the high-tech world we live in, which is steadily becoming increasingly so, technology has replaced many jobs that are repetitive in nature. Plus, businesses are always looking for ways to do things more efficiently, more cheaply, and more safely. Companies are also looking to make their products and services easier for their customers to use. More and more, technology is the answer to those concerns.”

With this in mind, choosing a major should be about finding something you love to do. One should try to find something they love that will either (a) still be in demand many years from now, or (b) give them a foundation from which they can continue to evolve their skills and expertise as times change.

Which brings us to another hidden asset of a college education—the flexibility it gives people to evolve with the progression of their careers.  Says Kastberg; “Most people today will have three to five different jobs over the course of their working lives. College lets people change their career focus more easily and is a foundation to build upon as technology advances. Taking additional courses to keep up with changes is much easier than having to start from scratch in a quickly changing world.”

Pronunciation: \kən-ˈtrer-ē-ən, kän-\

Function: noun

Definition: a person who takes a contrary position or attitude; specifically: an investor who buys shares of stock when most others are selling and sells when others are buying.¹

Are you a trendsetter, always on the cutting edge of fashion, fads or cultural developments? Are you the type of person who abandons a style as soon as others begin adopting it en masse? Do you shudder when people begin copying your look, your purchases or your ideas?

If these descriptions sound familiar, you might be considered a contrarian.

Contrarians Think for Themselves

The term contrarian can apply to anyone who takes a point of view that is the opposite of popular opinion. When it comes to investing or dealing with your finances, contrarians are the types of folks who buy when others are selling and who sell when others are buying. They tend to believe that the masses have no idea what they are doing, or at least believe that when the public at large adopts a trend in full force, it is a signal to flee. Contrarians think for themselves and are not easily swayed when it comes to what others think.

Does this sound like you?

Being a contrarian can be the key to sudden and unparalleled success in some circumstances, especially when it comes to the markets. However, there is a great deal of risk in taking a viewpoint that is contrary to conventional wisdom. A good contrarian investor not only thinks for him or herself, but thinks through all of the potential consequences of the actions in mind. After all, there can be a lot at stake if your instincts are wrong.

Two Successful Contrarians

I had the opportunity to work for several amazing contrarians during my career on Wall Street. One man was the founder of a successful firm that bore his name. The legend surrounding this mogul was that he had made his fortune in 1929 by shorting RCA stock—betting that it would go down—right before the crash.

As the story goes, his colleagues thought he was crazy, but his analysis and his intuition lead him to the conclusion that a stock market correction was inevitable. He held to his hunch and made a bundle. What foresight! What courage! The most inspiring part of the story was that he continued to fearlessly buck the crowd for the rest of his brilliant seven-decade career. The mogul amassed vast wealth using this approach to investing and also built an impressive, and equally independent-minded, collection of contemporary art.

When There’s Blood in the Streets, It’s Time to Buy

The mogul knew when the markets were overpriced and how to find bargains using a value approach to investing. Another exceedingly successful and wise boss for whom I had the privilege to work did, too. Stephen was a tall and distinguished man with a charismatic smile. I remember him counseling me earnestly, “Suzanna, when there is blood in the street, it’s time to buy!”

Stephen and his partners had started their firm as young men in the early 1970s, just as that decade’s devastating recession took hold. Having nothing much to lose at that point in their careers, they used the downturn to find bargains in a variety of investments, from the stock market to venture capital to private equity. Stephen recalled that he and his partners often seized opportunities that no one else would touch. They bought real estate when conventional wisdom said real estate was dead. They invested in technology before technology was cool and opened an office in San Francisco to make bets on Silicon Valley companies when few had the stomach for risk in new and untested endeavors.

The key to success was that they paid next to nothing for these investments, mostly because no one else was interested in them. Stephen used to joke that when he heard people say, “I wouldn’t touch that investment with a ten foot pole!” it tempted him to go poking around to see if the deal was really a stinker or if it was just out of favor.

Buy Low, Not High

Despite Stephen and his partners’ experience with technology, he was extremely cautious when that sector was booming in the late 1990s. He had little interest in buying those high fliers for his investment clients, many of who begged him to buy the stocks du jour. Many of us at the firm thought he was too risk averse, not taking advantage of soaring markets and unprecedented opportunities.

“How could he pass on that brilliant dot com company?” we would ask each other in the hallways. But Stephen had been around the block and knew that the “irrational exuberance” that Alan Greenspan described was all too real. He stuck with more conservative stocks that had some tech exposure, and, for the most part, was exceedingly careful about placing IPOs or startups in client portfolios. Stephen refused to buy when the prices were too high, cautioning his clients against undue risk and ignoring the conventional wisdom of Wall Street, which was to buy, buy, buy.

I clearly recall a cab ride with Stephen in early 2000. We were on our way to visit a client in uptown Manhattan and Stephen chatted genially with the taxi driver about tech stocks.

As we left the cab and walked into the building, Stephen commented gravely, “When taxi drivers start touting stocks, I know the market is too high!”

While Stephen had nothing against cab drivers, his point was that in the tech hey-day, many individuals who had not previously participated in the stock market were now boldly day-trading with their retirement accounts. It was a sign of the times, and it was quite clear to a dedicated contrarian like Stephen that a bubble had formed and was about to burst. And burst it did.

Contrarian or Common Sense?

Were these bosses of mine true contrarians, or did they just have common sense about the reality of market cycles? As I reflect on their successes, I believe that the answer is a bit of both.

Both individuals had an uncanny ability to follow their intuition and to ignore the crowd, but each backed up their contrarian views with thorough analysis and research. When they bought low, they still purchased sound investments. When they sold high, they were aware that they might have left some potential gains on the table, but were content to take their profits and go home.

Being a contrarian can be difficult. If the mogul had been wrong about RCA, his friends and colleagues would have had the last laugh. If Stephen and his friends had been incorrect about technology in the 1970s, their firm may not ever have survived; the losses from a poor call can be devastating. A good contrarian must have the courage of his or her convictions, but that audacity must be backed up by scrupulous homework and a point of view that is all business.

As successful contrarians, these men had the uncanny ability to remain detached from the emotional aspect of investing. This is a rare skill, for most of us get caught up in what is popular and accepted when it comes to investments. Perhaps we can see peaks and valleys, but it can be difficult to keep our emotions at bay when evaluating investment opportunities that involve our own money. For example, in retrospect, many Americans claim to have seen the housing bubble taking shape, yet few individuals consciously sold off assets at the peak. We tend to hope the growth will continue and often hold on too long, selling real estate and stocks after the markets have crashed. Now, many Americans are hoarding cash, paralyzed by the prolonged crisis.

I have a hunch that if the mogul and Stephen were still around, they would have been happily taking advantage of the “blood in the streets.” They’d be buying up beaten down but valuable stocks and gleefully shopping for real estate. They were contrarians to the end.

1 (Source: Merriam Webster’s Dictionary Online)

Not long ago, a friend of mine named Janet revealed to me that her closet was a total mess.

“I just throw everything in a few drawers,” Janet confessed. “My closet is totally disorganized and I can’t find anything!”

Unfortunately, Janet was not talking about her clothes closet; it was her office closet that was in such disarray.

“I am so disorganized that I don’t even know what I own,” Janet confided, adding that her files and financial statements had been untouched for several years, “I bought some mutual funds and stocks several years ago but I don’t even know if they are any good anymore.”

In my career as a financial advisor, I’ve had numerous people admit to me that they ignore their investments, so Janet’s admission was not all that surprising. Regrettably, her concerns about the quality of her funds were correct. Her investments had lost value, partly because of the decline in the overall markets, but there were several funds that should have been cleaned out of her portfolio for other reasons.

In any economic environment it is important to have your investments organized, but in challenging economic times it is more essential than ever. Your investments need to be moni- tored and evaluated just as your clothes closet needs a regular spring-cleaning.

Your portfolio is like your closet.

Janet loves fashion. She has a fantastic wardrobe that she has painstakingly built over the years. She has a distinct style, which mixes timeless sophistication with a flair for unique but tasteful accessories. She can spend hours shopping for the perfect pair of shoes to match a particular outfit.

But Janet hates dealing with her finances. As I listened to her worry about her investments, I was struck by the similarities between a well- stocked closet and a well-diversified investment portfolio.

In many ways, your investment portfolio is much like your closet. You need to create a well-diversified wardrobe with a mix of clas- sic and trendy pieces and you must engage in regular spring cleanings in order to keep your closet in good order and up to date. When I mentioned this analogy to Janet, a light bulb went off in her head.

You need many pieces of clothing to create a diversified wardrobe.

Janet wouldn’t be caught dead with the wrong shoes for a particular outfit and has saved for months to buy classic purses and jewelry. Unfortunately, she hasn’t taken the same care in building and maintaining a portfolio that serves her well. After looking at her invest- ments, it was clear that she was taking enor- mous risk with her money without realizing it. She had several equity mutual funds which gave her the potential for growth in good times, but which exposed her to significant risk in market downturns. Most of her investments were in risky asset classes. While Janet still has more than twenty years until retirement, her investment portfolio could actually sabotage her financial goals for the future.

A well-diversified portfolio is like a first-class closet. In order to be able to build appropriate outfits for multiple occasions, you need an organized and well-stocked closet with a wide variety of clothing items. You need basics in a variety of categories: tops, bottoms, shoes, ac- cessories, underwear, and outerwear. You need all of these types of clothing for different oc- casions, including work clothing, casual wear, evening wear, various sports, or other events. Similarly, a good wardrobe should cover you for multiple seasons and should provide protec- tion for various types of inclement weather. If you have an expensive suit but no raincoat, you can end up ruining your investment.

Your portfolio needs diversification, too.

Similarly, most people need portfolios with various asset classes, including cash, stocks and bonds. Various subcategories of these asset classes may also be necessary, such as large, medium or small cap stocks; U.S., international or domestic stocks; growth and value styles of investing; as well as various types and maturi- ties of bonds. Your own particular portfolio makeup depends on a variety of factors: your age, years to retirement, your tax situation, your income needs in the future, and your tolerance for risk, among other things. Your portfolio is unique to your needs, your style, and your circumstances.

Selecting the right wardrobe pieces to create stylish outfits to fit all these circumstances and which reflect your personal style can take some time. Many of us spend more time shopping, trying on outfits, and agonizing over a specific pair of pants or shoes than we do researching and shopping for investments which will have an impact on our lives for a much longer period of time.

Spring-cleaning for your closet.

Janet likes having new clothes each season. Her closets are fairly full, so in order to buy some new things, she also has to get rid of some old clothing from time to time. She does a regular spring-cleaning, in which she takes a hard look at her wardrobe in an effort to purge some items.

As Janet looks through her closet, evaluating various pieces, she asks herself several ques- tions: Does this piece of clothing still fit? Will it ever realistically fit again? Is it out of style? Will it come back into style? Is it causing me too much discomfort? Does it work with the other pieces in my wardrobe? Did I feel like an idiot the last time I wore this? Am I hanging on to these shoes out of nostalgia for the 1980s?

It can be tough to throw out clothing items that you once loved and enjoyed, but some- times it is necessary. It they don’t fit, they’re just taking up room in your closet and not really doing you any good.

Evaluating your portfolio.

I told Janet that portfolio evaluation is much the same as spring-cleaning in her closet. Every investor should know what they are trying to accomplish with their portfolio, much as you know that you need to cover your wardrobe bases for many occasions and seasons with the items in your closet. What kind of goals do you have for your investments and what type of risk are you willing to take to achieve those goals? Once you’ve clearly identified what you want your portfolio to do, you can better evaluate whether it is, in fact, performing well in relation to your expectations and in relation to the markets.

In good times and in challenging times, it is critical to monitor your portfolio on a regular basis. Look at the portfolio as a whole and then evaluate each hold- ing. Just as you would do when cleaning out your closet, look at your individual securities, mutual funds or other investments, and ask yourself some critical questions.

Some of the questions you may want to ask include: How has this investment performed over 1, 3, 5, or more years? Is it beating its peer group or benchmark? Has it been more volatile than projected? Is the style in favor or out of favor relative to the markets? Have there been material changes to the fund or to the individual security? Does this investment still fit into my overall portfolio? Am I hanging on to this investment because it performed well in the past and I am emotionally attached to it? Or is it time to simply sell and move on? Of course, before you decide to sell a holding, you must also consider the tax consequences.

Investment ignorance is not bliss.

After looking through her investments, Janet became conscious that ignoring her portfolio was actually jeopardizing her financial future. She had not built a suitable portfolio and she had not taken the time to clean it out and keep it orga- nized. She now realizes that she needs a variety of different kinds of investments and that those holdings will likely change over time. Monitoring and adjusting her portfolio is as important as finding good investments in the first place.

Do you need a spring-cleaning in your portfolio?

Suzanna de Baca is president of Private Capital Solutions Group. Securities offered through Broker Dealer Finan- cial Services Corp. Member FINRA & SIPC. Investment Advisor Representative of Investment Advisors Corp., A Registered Investment Advisor. Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.

You’re stylish. You’re affluent. You’ve got a fabulous house, fashionable clothes, and lots of fun toys. Life is luxurious.

You’re in an enviable position. While many people struggle to make ends meet, you’ve succeeded in monetary terms. Sure, you still complain about the price of gas and the dismal stock market—who doesn’t? But in reality, your biggest financial challenges are how to grow, protect, and enjoy your assets. Enjoying your assets may seem like a simple task, but is your use of wealth accurately reflecting who you really are?

Over the years, I’ve had the privilege of work- ing with individuals who ranged from well off to high-net-worth to just plain old filthy rich. As much fun as money can be, it is a complex subject. For most people, somewhere along the way it makes sense to think about what all this money means.

What is your Wealth Style?

If you’re living a life of luxury, you’re at a point where you can begin to define your true Wealth Style. Your Wealth Style doesn’t neces- sarily reflect what you buy or wear; it describes what money really means to you and how you want to use it in order to best express yourself and your values to the world.

As in fashion, you may have one Wealth Style at one point in your life, but may reevaluate your relationship to money as your life and your inner financial voice evolves. Taking a look at your distinct Wealth Style can reveal if your use of money is consistent with the way you want the world to see you, your future security and even the philanthropic legacy you want to leave.

The Risk Taker

No holds barred! Is your Wealth Style over the top? Do you always have the latest fash- ions, the newest technology, and cutting edge brands? Are you willing to try anything to make a bold statement? If this describes you, you’re daring, edgy and original—living for the now! For you, money is a means to express your fearless personal style, but it is also a way to get attention.

What does it mean if you’re a wealth Risk Taker? As we say in the investment world, those who take big risks can make a killing— or they can get killed. Is your spending ap- propriate in terms of your income, or are you also pushing the envelope with your shopping sprees? You might want to examine whether you’re managing your money in a risk oriented way as well. Are you gambling with your future security in order to make a statement today? Ask yourself if you’re taking the steps you need to remain financially healthy for years to come. If you know deep down that you’re going a little too far, or feeling fatigued keeping up with the latest thing, you can always take it down a notch. Your style can still be chic and new while you take care of your financial present and future. Go buy the insurance you need and hire a great money manager if the mundane financial details bore you. If you want to do good in the world, you might choose to convey your dynamic spirit by championing innovative philanthropic causes.

The Traditionalist

Do you stick strictly with the classics in terms of clothes and home furnishings? Do you go back to the same tried-and-true vacation spots year after year, have one “signature” drink and love the established styles? Are you a Blue Chip stock, investment-grade bonds type of person? Most Traditionalists are understated, eschew risk, embrace old school brands, and are slightly embarrassed by drawing attention to themselves. If you identify with this Wealth Style, you probably give money to established national or international charities and avoid flashiness.

What does it say about you if you’re a Tradi- tionalist in your Wealth Style? While timeless can always be elegant, the risk you take is being left behind. Investors talk about the concept of “lost opportunity cost,” which means that excess conservativeness may actually cost you money. If you sock your cash under the mat- tress where it can’t earn interest, for example, you won’t beat the historical inflation rate. Ask yourself if you’re too focused on stability. While Traditionalist money habits are admirable, including sufficient insurance and a conser- vative investment strategy, I’ve seen wealthy individuals with this profile forget how much fun money can be. Sometimes you need to break out, take an example from the Risk Tak- ers, and try something new. Surprise everyone by taking an adventure vacation, buying some leopard print, and volunteering for a totally unpredictable charity that touches your heart.

The Gold Standard

Somewhere in between The Risk Taker and the Traditionalist is a nice blend that includes both moderation and boldness. The Gold Stan- dard doesn’t mean average or boring—it means being responsible and fun, each at the appro- priate time. If your Wealth Style is The Gold Standard, you have a clearly defined approach to fashion—you like certain classic designer— but are willing to break out with a crazy acces- sory or a statement piece from time to time. Your home is chic but comfortable, practical but cozy. You like quality, function and conven- tion, but you understand that a well-placed pink flamingo or outrageous picture frame can bring lightness and laughter in the midst of convention.

If your Wealth Style is The Gold Standard, you probably have a well-diversified long-term portfolio. You save regularly and have sufficient insurance. Philanthropy is an important and established part of your life, and you’ve focused your giving so that your dollars can really make a difference. You like order and discipline but you don’t cling too tightly to either.

Your Wealth, Your Style. Now that you have achieved affluence, take some time to think about what money means in your life. You have the opportunity to use your prosperity to express yourself and also to make a difference in the world. As you progress on your journey of material comfort and luxury, take time to consider whether you’re making the best of your good fortune.

Credits

by Suzanna de Baca