Rule #2 – You are unlikely be able to hang on and recover from making a bad buy on a gemstone

As a rule, gems increase in value at the rate of inflation.  This means you should assume that a bad deal today will be a bad deal in 3 weeks or 3 years when you eventually sell.  When I make a bad buy on a stone or make a mistake, I tend to take my licks quickly and sell. My preference is to accept the loss, when I realize We’ve made a mistake, and move on to try and find the next deal.

Sometimes things turn out really well if you hang on, but in my experience, that is the exception not the rule.  Sometimes, things also get worse.  One good example is blue topaz. They used to be rare and demanded a fine price. When the method of transforming common white topaz into blues became available, they suffered a considerable drop in value.

Another example is tanzanite. After the primary source closed, it skyrocketed in value.  For some reason, Tanzanite has dropped dramatically in price. These all represent exceptions to the rule, for better or for worse.

Regardless, Rule #1 applies… lacking the means to predict the future value of a gem, your best strategy is to buy as low as possible.

 

Rule #3 – You need sources that can sell your gems at retail prices.

Jewelry stores are a likely source, as are auction houses and online auctions. Note that, unless you own a business, you are not likely to get a retail price. Also note that none of these are as simple as calling your broker. You must be prepared to find your own buyers.

If you have weak sales skills, you should not invest in gems.

Most gem dealers purchase quantities of great material, they have good relationships with retailers (like jewelers) who call them when they need something, they send some stones from their inventory to the jeweler (a process known as “memo”), and jeweler selects one or none to purchase and sends the rest back.

The jeweler will pay full wholesale in this instance because they already have a willing buyer, and the gem dealer will get full wholesale because they took the risk and held onto the gem and they had the sales channels to sell the gem when the opportunity arose.

This does not negate rule #2, though… because rule #2 has to do with having too high a basis to begin with.  If you have an appropriately low cost-basis per rule #1, hanging on to inventory can be a very good way to maximize profits.