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The diamond bubble: an email conversation (Part 6)

Isaac Mostovicz writes...

This is the final post in our mini-series documenting an email exchange between Randy Pearson, of Allied Diamonds and Isaac Mostovicz of Janus Thinking.


From: Isaac Mostovicz
Sent: 09 October 2006 20:39
To: Randy Pearson

Dear Randy,

Here are my comments:

You raise a classical point as companies under a pressure to produce short-term successful results, act against their long-term goals. There is no doubt that the act of the DTC was brilliant in the short-term and the SoC is only four years old. They managed to get rid of their stockpile and turn it into money. However, what happened in the last years shows that they did not take into consideration long-term consequences and as a result, they are unable to sell their entire intake and, effectively they build a second stockpile, they have a problem with their profitability and in spite of an increase of volume and price, their profits raised only marginally (I think that the figures for 2005 were 3%).

In regarding the Millennium experience, I have several observations to make. While we advocated high prices (we sold at +30% or more), other participants did not even thought that these prices are possible. Together with this, we advocated top make and had to fight with the other participants (mainly Americans) who wanted a much more lenient standard. To add insult to injury, the level of rejection by us was 3-4% and I knew beforehand most of which will be rejected. On the other hand, the rate of rejection by others was 30-40%! Last, but not least, to become a Millennium distributor we had to submit a marketing plan. When all participants met in April 2000, the DTC introduced them to the 4Ps which was considered by many as a brilliant novelty. My question is how exactly looked the marketing plan of the other participants? Taking into consideration that the DTC was not involved in the marketing of the product, it is not a surprise that the program crashed. Give a F1 to someone who does not know how to drive and he’ll crash it in no time.

Your last question is excellent. I must say that my imagination is limited and not every diamond is appealing to me or can be considered a luxury. Thus, I do not exclude Indian junk as long as it is presented properly. Rolex is a junk of a watch, unless you use it as a calendar but it is the finest example of what luxury is. The legendary Jaguar E Type is of the same league. However, when you treat cheap diamonds as junk, that’s what happens.

Isaac


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