The Secret Business Behind Diamonds | Miss Understood with Rachel Uchitel #360

0:30First, thank you so much for joining me today. I'm misunderstood. Thank you for having me. It's a pleasure. So, I had a guy on the Watch King NYC a couple months ago. And, you know, everyone kind of went bananas over everything that he was talking about. So, I figured I had to have someone like you come on who has a completely different background and insight maybe to these things because I wanted to hear your perspective. But before we get into that, I really want to hear about you because you're a fascinating dude. So, can we talk about like your childhood and where you came from and how you even got into this? No, absolutely. Born and raised in New York City, grew up in Manhattan. I went to school in Manhattan. Where'd you go to school? When school is San Francisco's Avia on 16th Street. Okay. Yeah, 16th Street and 6th Avenue. So, I kind of grew up running around the village and all of that. Right. So, real New Yorker. Amazing. I went to Nightingale. Oh, okay. There you go. Yeah. There you go. We had a cousin. I've never, usually, the diamond in jewelry industry as most people know.

1:31They're usually family-owned businesses. And again, went to a Jesuit military high school. A lot of my friends went to Ivy Leagues or Annapolis or West Point, etc. And because we had a cousin in the jewelry industry who had a jewelry store, I used to as a little kid. Sometimes going with my dad and seeing them kind of buying and selling diamonds in the back and opening up these little envelopes with diamonds inside. The industry as people on the inside know have, has its own lexicon, its own vernacular that sounded all really mysterious and James Bond like to me. And so, I've always, someone that's very aesthetic-minded. I love beauty, architecture, art. So, diamonds and jewelry kind of art that you can touch and feel that's tactile appeal to me from a really young age. So, I decided to study to become a gemologist. And so, I remember when everybody was putting down colleges at Xavier, which is this really good New York high school, like, what? Gemological Institute of American. It was like, completely, you know, befuddled.

2:33So, I did. I studied to become a gemologist when I was 17 years old. Wow. Is that a four-year program? No, it's actually, it's a two-year program that's condensed and intense into a six-month kind of Monday through Friday, nine to five, really intense program. That if it was in a regular kind of college format would be much longer. So, it's intense and it teaches you not only diamonds, but gemstones of all sorts, tons of stones that you never hear of, that nothing to do with jewelry, really. And then after that, I apprenticed as, I begged my way into an apprenticeship as a diamond cutter. Wow. And that's how I started on kind of New York's legendary diamond district in 47th Street, which especially back then, this is 1987-88, it was a microcosm, you know, in and of itself a whole different culture of that industry. You know, deals were done in the middle of the street on a handshake. Just this whole culture that was very much appealing to me. Right. So, as a cutter, what did you learn? Like, what were they teaching you? I was a terrible cutter, so I didn't learn much.

3:35It's funny because the company who, by the way, they're still in business, I eventually became a partner in that company. As a cutter, you start with what they call Bort, which is like industrial diamonds, so you can't really make a mistake, or if you do make a mistake, it doesn't mean anything. And so they teach you how to start to put angles on the stone. Diamond cutting is done on a large wheel that spins, and then you have an arm, and there's diamond dust with oil on the wheel, and the friction only diamond can cut diamond, as everybody knows. So the diamond dust starts to wear down that rough diamond, and based on how you want to make the stone, round diamond, marquees diamond, et cetera, you start to work on that wheel. So, as a gemologist, as you're studying in school, are they teaching you about cutting, or how do you, like, what are you starting to learn that these stone, where they come from, what they look like, because what we see in a box, or on our finger, is obviously not what you're starting with. Correct. Giamology doesn't teach you about cutting and teaches you about the type of stone, the properties of every stone, if a diamond,

4:38or a colored stone, in particular, is treated or heated, to look at an emerald, and look at the inclusions, and know that it's from Colombia, or it's from Africa, to look at a ruby, and know if it's from Burma, or if it's treated or heated or synthetic. And that's really the kind of roll up your sleeves and the nitty gritty of gemology. And then, of course, diamond grating, color, clarity, cut, all of the stuff that people know. Okay, so then after that, because I know you've done a couple of the things, so after you're doing the cutting, and you realize you're not very good, what happens? What do you do? So, the owners of the company saw something in me. I think I had a better head even back then for business than I did for cutting, and I eventually became a partner in that company. The company, since then, is morphed into a really powerful player, and what we call the fancy diamond colored industry. So pink diamonds, blue diamonds, yellow diamonds, that's what they specialize in. But I became a partner, I was there for a couple of years, and then in the late 90s, I had an idea to create a brand myself and my co-founders

5:42at the time on the buy side of the jewelry industry. So what that meant is that everybody knows the big brands when they want to buy something, be it the fancy brands like Cartier Tiffany, et cetera. But when people want to sell diamonds or jewelry, it's an asset class. And there was never before the company, I formed a place to go where people who were selling because they had an item and maybe didn't want it any longer. Maybe they were trading up to something bigger, maybe there was divorce or death or inheritance. Where do I go where I'm going to be treated really fairly, get a great price, et cetera. And that didn't exist. You had pawn shops on one end, you had the auction houses on the other, which could be intimidating, expensive, et cetera, also very selective in what they wanted. So I founded a company in 2001 with my co-founders called Circa, CIRCA. And over a 10 plus year period, we became the largest buyers of diamonds and jewelry from the public in the world. We had offices all over the United States, open throughout Europe and Hong Kong.

6:44And then in early 2011, I believe I sold to private equity. And so that was, so from being a gemologist and a diamond cutter as a teenager, when I left the diamond-cutting business, everybody said you're completely insane. That came from a humble circumstances. And said you've gotten into the industry, but I see an opportunity in the industry. People aren't being treated correctly when they sell the piece of jewelry or a diamond. They didn't have a place to go that were really invested in making sure they were taken care of and given the right price. And so that was really the revolution of Circa back then. And also it was highly stigmatized back then. People selling jewelry is like, oh, you're selling, what's the need you need the money? And that I knew from being inside the industry is not the case. People had things just like if you have art or anything else that you want to sell because you're not using, it's not that you need the money. So you want to be treated. So I want to talk about that secondary market for a second, because when you think about, or me, as someone who's not in the business, you think about art and reselling it, it doesn't seem like that's a secondary thing.

7:45It seems like you're, that's an asset that you have and you're making money and somebody else can have that asset. In luxury, in diamonds or watches or whatever we're talking about in luxury, it almost seems like the value and cars or whatever, right? It seems like you drive off the lot and that car goes way down. Even if you bought a car for $800,000, a super luxurious type of car. So in diamonds, how does that secondary market work where you still see the value in it and it doesn't go all the way down? Because I know for the layperson when they're trying to sell their engagement ring when it doesn't work out or whatever it is, they're getting like nothing for it. And then there's a whole conversation about lab ground in that as well. But talk about that secondary market. Sure, so when Circo is at its height and we were buying a huge amount of diamonds in jewelry every single month, you know, you would get people that would come in and we always used to say kind of the formula of an expectation when someone was selling something was, I have an appraisal for $100,000, I'd like to get about 30% of it. That was kind of like the private person's expectation on average.

8:47Okay. The answer to your question really is, it depends when they bought it and where they bought it, right? So, and also what the item is, right? Because there are items like a large GIA certified diamond that has almost a quasi commodity type value to it. And there are items like colored stones where the profit margin for the retail jewelry is much larger because you can't comparison shop like you can with a diamond, right? So the more something is like a commodity, like a diamond, the narrower is the profit margin. So if somebody bought a four-carat round diamond in 1970 and was coming to us in 2005, very often they got more than they paid for it. And sometimes they would even say, oh, I paid $20,000, I'm getting $25,000 today. I thought it would have gone up so much more. They said it has, but here's what you're not realizing. And you bought it for $20,000 in 1970. If you went to go sell it the next day, you would have gotten maybe four or five thousand. So it's gone up from the four or five thousand that you would have gotten

9:48the day you bought it to the 25,000. But now the good news is, what other luxury item holds value? Really, except like a needle in the haystack car, like you said, a classic car. Most luxury items that people buy don't hold value, but they're okay with it. Diamonds and jewelry for some reason people seem to have a higher expectation in terms of, why am I not getting all my money back? The fact is, if you're buying a great item, either a certified diamond or a signed piece of jewelry, and typically I mean jewelry from Cartier, or Tiffany, or Van Cleef, and Arpelles, or Bulgarian, and you're holding it over a period of time, it is a store of value. Is it an investment? You shouldn't be buying it as an investment, but it's a store of value. And so it depends what you bought, and it depends when you bought it. So, but what about, let's say, the love bracelet that everybody has from Cartier, right? So it would seem like, by the way, when we went to buy another one the other day, they're all gone, which I thought was weird, and you can't get them. But, and they've made a new one that's a class now.

10:49So, but my question is, if there's a surplus than everyone has them, how are they holding their value? Well, it's not really a surplus. Well, first of all, things like the love bracelet, the Alhambra, even everybody knows today, especially guys who like watches, try to buy a Rolex Daytona in a store. First of all, we're not even selling it to you. You wait two or three years, so there's this supply, demand, and balance that the luxury brands are all using. I'm not saying it's a marketing strategy, because there is tremendous demand for some of these items, like the love angle. So, they hold value in the secondary market. If you had to buy a certain stainless steel Rolex today, you're going to pay more in the secondary market, then retail, because you can't get it at retail. Right. Same thing with many other watches, same thing with lots of jewelry. Right. Okay. Well, let's talk about the emotional component to it. Like, people don't want to think that they've had gotten something used, right? They want to say, it's brand new, I bought it, or my husband bought it, or whatever. Like, do you feel like a motion has a lot to do with buying? I think jewelry is a very personal purchase.

11:51The fact of the matter, if you were to ask me, what holds its value more than anything else? It's going to be vintage, signed jewelry. In terms of jewelry, in terms of diamonds for a minute, so... When you say it's signed, what do you mean by that? Anything made by one of the great houses, Van Cleef and Arpelles, Cartier, Tiffany, Harry Winston, Graff. When you look at Sotheby's and Christie's, the magnificent jewelry sales, and items from anywhere from the 1920's up to the 1980's, 90's, and if you look at prices, they just continue to rise year over year. So, if you're buying, first of all, when you're buying vintage, in many cases, you're buying craftsmanship that just isn't replicated today, you're buying very often the best of the best, because what kind of filters through and gets the auction are the pieces that are iconic. So Cartier Panther jewelry, Van Cleef and Arpelles' mystery set, these are kind of the best of what every house did that really survived, and that really brings a huge price, and that the auction houses want. So, it's like saying of every card that was ever sold,

12:52I'm buying only the certain year Ferrari that I know today is a classic, right? So, those things continue to go up in price. So, if anybody were looking just that value, you should buy what you love in jewelry, first of all, most important. But if you're looking just that value, if you're buying vintage, because again, you take away the sticker shack of retail, you're not paying the labor when you buy vintage and all that stuff that was paid for already, and sign jewelry, because the supplied demand and balance collectors and luxury buyers want things from the major brands. How do people, when they're trying to buy vintage, how do they know that they're really getting something, because there's so many knockoffs? Yeah. And, you know, how do you know who to trust? It's like anything else, do your research. The auction houses are a great place to start, right? But there are great jewelers out there, great, you know, great dealers that will work with the public. But it's like anything else. If I'm looking for a vintage car myself, you ask your friends and people that you trust and know and you go buy reputation. And you guy, well, you're not a jeweler, but do jewelers know what to spot on certain things?

13:53So, they know that it's real? Not all, because they're, you know, most modern jewelers today, they're not, you know, they're not well-versed in vintage. Some are, some have, you know, from my last company at Circle, we used to work with retailers all over the country as well. And some modern jewelers have had vintage departments in their store for many years and they've become really well-versed. But some jewelers that are just selling engagement rings all day are watches. They have maybe a very limited knowledge of vintage. What's your opinion on 47th Street right now? Because I know that I can walk in there and they'll say, don't go to Cartier and buy the love bracelet. I can make you the exact same one. Or don't go buy this vintage piece of Panther, whatever. We can do the same thing. How do you feel about that? My feeling is, again, it's really personal. So you're going to pay more when you buy something from a major brand, but at the end of the day, long term, you're going to get much more value out of that if and when you ever want to sell it. Right, so it's about the resale. So it's like Irma's bag. Irma's Birken bag or Irma's Kelly bag.

14:55I mean, you can buy fabulous bags that look great, that don't cost $15,000, $20,000, that you don't have to go through all the headache of trying to get on an Irma's list or even buy it in the resale market. That's become such a big thing. But you want the real thing. Irma's wouldn't be successful. People didn't want the real thing. That can go into the lab-grown conversation or anything else. It's not about that this doesn't look okay or look comparable, even look very close to identical. It's about when you're buying luxury, most people want the real thing. Most people are willing to pay for the real thing. Right, well, the people in that market know that how they feel when they're carrying it. And going back to what we were just talking about before, why is a diamond that is the same quality, whatever, on the papers at graph, different than the same diamond you're getting on 47th Street? No, so that's not, so it's a great question because I would argue that, and again, general decision of someone's buying signed jewelry, have something made up better by signed jewelry.

15:55I would make the opposite argument if you have a great jeweler on 47th Street or anywhere else that. If they're selling you a round diamond, five carat, GVS soon, it's kind of an identical GIA certificate. I may get a lot of blowbackness, but you don't have to pay the additional premium from a brand. If you trust your jeweler, absolutely go with that jeweler and you're gonna get a better value on average because they don't have the same overhead structure, et cetera, of those big brands. Right. However, many clients want to say, I have the Tiffany Blue box, I bought it from Tiffany, I bought it from Cartier, and they're not wrong. Like, either is not wrong. It keeps a jewelry, again, I've said it a bunch of times, really personal. So if you don't mind that your engagement ring isn't branded, personally, I wouldn't, not for a diamond ring, because it's really the value is in the diamond, then maybe there's not the need for the brand. If you're buying a great piece of jewelry that you're saying, A, you have to love it, love the brand, and what they do design-wise, and say, okay, I'm gonna get some added value of that brand if and when, one day I want to sell it.

16:56What do you think is most misunderstood, though, about diamonds in general? Because again, there's so much argument about what you have to have, big, small, nicer stone, but smaller, what do you think is most misunderstood? To me, the most important thing is that people don't realize it's the cut of the diamond, right? So at the end of the day, and again, as an ex-cutter, even though a bad one, as an ex-cutter, diamond ultimately reflects light. It's this mirror that reflects light. And so if the symmetry isn't right, if the dimensions aren't right, the way what they call the pavilion, the underside of the stone, it leaks light, and the diamond looks dead. You know, you have people that look at some diamonds, it always feels like I have to clean it. Like, the stone's not cut right, or it has a lot of fluorescence, one of the two. So you can buy a de-flawless diamond, it doesn't mean the diamond's gonna have optimal sparkle in dispersion, et cetera, because it's not cut right. So it may say on the paper that it's the most beautiful. Well, it may say that it's de-flawless, but if you look at the specifics in cut, it should say excellent polish, excellent symmetry, et cetera.

17:57Right, so cut is really important, and that's something that often gets lost in the conversation. And so you could have a diamond that may not be a de-color, but it's a G or an H or an I color perfectly fine, by the way. It may not be flawless, but maybe it's an SI1, also perfectly fine, but it's cut beautiful, and it's still a beautiful diamond, and a worthwhile diamond. It's not only about the coloring clarity. Okay, you brought up these letters, and you see this a lot, the G, the D, the VV123, whatever. Can you break those down, and then tell us what they all mean, but tell us what is the sweet spot, really, for diamonds? Sure, so de-f is technically completely colorless and transparent, and as you go down the color G, H, I, J, you start to get a little bit of a tinge of color, color could be yellow, could be slightly brown, and so that's, you go all the way down, and then until you get to the point of XYZ, and then fancy color, meaning a fancy yellow, and then you start to go into the category of fancy color diamonds, V, yellow, pink, or anything else.

18:59Flawless is clarity, the best, and then next is VVS, which is very, very slightly included, and that's broken down into two categories, VVS1, VS2, then VS, one and two, which is very slightly included, then it goes SI, slightly included, and I1 imperfect. Again, what I would tell you is there are people, over the years, the clients that have come in, said, I want a large diamond, and I want a five-carat stone, and after that, the next thing that's important to me is color, because I don't want it to look very yellow, and the least thing that's important to me is clarity, because no one's taking a loop and looking at my diamond. So that's one perspective. Other clients over the years, friends of mine, say, I want to deflawless, and this is what I have to spend, and so what's the biggest deflawless I can get for this budget? Are any of those people wrong? Not really, if you were to say, well, what's the most commercially viable, then a white, clean-ish stone could be D to H, D, VS, and better, are on average the most commercially viable.

19:59And then there are different markets, so the market in the Far East wants usually wider, cleaner. What they call US stones can go down lower in color, even to SI clarity, and that's more the US consumer, especially not at the really high end, is more tolerant of a little more of an included stone, and a little more color. So markets change around the world. I'm curious about your opinion on the different, is it called cuts, the radiant, the cushion, whatever, whatever they all are. Can you explain what they all are, and if there's one that really we should be looking at as opposed to others? Sure. So the classic cuts are around the emerald cut, the marquees, the pear shape, the oval cuts that have been around a long time, but not as long are kind of the radiant and the princess cuts, the scene is newer cuts, of course, there's also the hard shape. Historically, round diamonds are what's sold most often, and so they trade at a little bit of a premium. Right now, as we speak, actually fancy shapes are actually a little bit more in demand, especially larger size pear shapes, ovals,

21:01ovals incredibly popular right now. Yeah. So there's a little bit of a trend to it. Years ago, especially when we were buying a tremendous amount of jewelry from the public, it seemed like every engagement ring from the 1950s or 1960s was a marquee's, like the football shape or a pear shape. And then as time has gone on, you think everything from the 80s, like most engagement rings around diamonds or some are square cuts, but it's either usually around or square cuts. So marquees or pairs, especially in, let's say average sizes, are looked at as a little bit of a throwback. As you get larger, you see more of them, so. There is a world of opportunity out there, beyond the typical nine to five, where purpose and grit and the American spirit come together in the Peace Corps. It's been called the toughest job you'll ever love. Tough because it asks so much of you and the love part is knowing your hard work can transform lives and build bridges across cultures. After 65 years, the Peace Corps is still the toughest job you'll ever love.

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26:10Rachel. Can you take, maybe this is a dumb question, can you take someone's former Marquica, whatever, and change it into a different cut, or it changes the stone completely? And it's not like that. No, on occasion you can. It does change the stone. It's actually going to lose a lot of weight. Some stones that aren't cut really well, so you may have a poorly cut large Marquise cut. You can kind of shape off the top of the stone and make much more beautiful pear shape if you don't mind losing the weight. And if you bought it at a price where it still justifies making that change in the stone and losing the weight. So yeah, it's done sometimes. OK, so now let's get into this whole conversation about lab versus real. First of all, in your opinion, are they both real, or is one fake in one room? One synthetic. One's a tech product. So as you know, we manage a fund that we're the largest non-banked lender to the diamond and jewelry industry. So I finance everyone from publicly traded mining companies

27:12to some of the largest wholesalers in the world, meaning the companies who supply Cartier, Tiffany, et cetera, to important retail jewelers, et cetera. And the reason I'm able to finance is because there's a liquid global secondary market for diamonds. Diamonds like gold are a store of value. There's a reason there are store of value. There's genuine scarcity. Right. There's genuine scarcity. There's genuine demand. There's genuine demand because for tens of thousands of years, human nature is such that we fall in love. I want to celebrate with something real. If someone's made a lot of money and wanted to celebrate their success or show, my wife can walk in with this big necklace, that's real. The same reason why someone will spend $20,000 on a leather bag, because it signifies to all that lady's friends. This is who I am. This is where I belong, right? Does anyone need a $20,000 habit? No. So unless human nature changes, and people say,

28:13I don't care about, you know, if it's the real thing or not the real thing, because you can buy identical armenes bags, you can buy, you know, all that stuff. Unless human nature changes, the demands for diamonds aren't going to change. When we finance a lot of these large wholesalers, who when lab grown started to become really popular, asked us both to invest in their lab grown businesses, and also what I finance lab grown. And my answer was no, because lab grown is a tech product by definition. What's the kind of one of the immediate things you know about a tech product? Is it that over time it becomes cheaper to produce? Think about what a flat screen TV costs when they first came out and what you can get them for today. So I knew over time lab grown would get cheaper and cheaper to produce. We knew over time as the lab grown market grew, you would have players going from online direct to consumer. All of these things that would create downward pressure on an item that can be made in unlimited supply. So what's happened when lab grown first started

29:15to get marketed, it was marketed as an alternative, same thing, ESG friendly, complete nonsense, by the way, not ESG friendly. What does that mean? ESG? Meaning that it's not necessarily any more environmentally safe than natural, completely untruth. The natural diamond industry is one of the most stigmatized, maligned industries in the world. And in the past, there was some good reasons for it, but the diamond industry is so highly regulated today. What most of the major minds do and where they mind in terms of giving back to the local community schools, hospitals, it's really incredible to see what they do. OK, that's what I was going to ask. You mean because people were saying it hurt the Earth, it hurt the other. Correct. And that lab grown all of a sudden was free from all of that. And it's not true for a whole host of technical reasons that it's just not the case. Having said that, you've seen lab grown prices go from what originally was, say, a 30% discount at retail. To today, I just was somebody asking for a price on a six-carat lab grown $125 per carat. Maybe a year and a half ago to two years ago

30:17that was thousands of dollars per carat, even in the wholesale market. So the point is, is lab grown OK? Sure. Just like costume jewelry is OK. Yeah, right. It has its own market. And it's a big market. I always joke, as my wife loses things. I would only get her lab grown studs, because I know where a natural diamond studs going to, one of them is going to disappear. Would I buy a lab grown ring for her? No, absolutely not. And I know plenty of women and plenty of guys say I would never give my, you know, you're good enough for the next best thing. I kind of know. That doesn't really fly for a lot of people. However, is there a market for it? Absolutely. Just, you know, it's fine. So, but do you think that lab grown is like, is it Z gallery or something? Z jewelers? What's the fake stuff that? This is Surawski's going to do fabulous with lab grown. That OK. Because they have a brand, they're going to charge a premium for it. Their cost basis is going to be little. And people are going to say it's a diamond. It wouldn't surprise me if Gucci sneakers do a collaboration where lab grown are on your sneakers. And LVMH has a brand called Fred, which

31:20is a brand that has been really a non-performer for them for a long time. And I had said to a number of people years ago that this would be great for lab grown. They just made a lab-grown brand because it really didn't compete in luxury. So, it's not like there's not a market for it or it's bad or anything like that. It's not a diamond in terms of the property that it's natural. A lab-grown diamond was made yesterday. Natural diamond is hundreds of millions of years underground. You have to move one ton of earth to get a one-carat natural diamond. There's real scarcity to it. Most people don't realize that. OK, let's get into that. Because I want to understand, we get it in the box, but let's circle back to where it actually came from. So diamonds are found where? Africa, Canada, Russia, Brazil, Australia. Wow. OK. Not in Kentucky, somewhere. Actually, in Arkansas, there's a National Park in Arkansas that one's finally find little diamonds in, but it's not. And how are they even knowing that it's down underground?

32:20Geology. Geologists know there's something called a Kimberlite, which is a type of soil material that is highly indicative that there's what we call a diamond pipe. They're a Kimberlite pipe, which produces. But is it like what we see in landman where you have to dig first? You've got to spot. Geologists, yeah. And at this point, all of that study, all those studies have been done that most people know where the diamond bearing. Got it. Regions are in the world. OK, but it's similar to oil that you have to pick a spot, you have to dig, and then you have to search for it underneath. There are areas that are what you call artisanal mines, where they're light machinery, where literally they can dig almost, not with their hands, but with almost manual equipment. There's what you call alluvial mining. Alluvial mining is mining. Off riverbeds where, because there was a diamond pipe upstream, and the diamonds get washed downstream, so there are alluvial deposits. And then there's kind of serious open pit mining with hundreds of millions of dollars in equipment

33:22where they're going really deep down into the earth as well. And when they're finding it, does it look like a rock? Is it a ton of stuff? Is it little? Yeah, it looks like I'll show you some pictures on my phone. Yeah, it looks like almost like broken glass. I mean, rough diamonds can look very different. Diamonds from Zimbabwe often come with this. They look like little pieces of coal, black skin on it. Then there are sometimes, most of it is octahedron, like two pyramids joined at the base, and kind of slightly frosted, so they're a lot of different. And is the goal to find a bunch of little pieces and cut them up into rings? Do they find a huge stone and cut it up? I mean, how does it work? Most mines have kind of their own properties. So some mines have a propensity to deliver larger sizes. Some mines have propensity to do higher colors. Some mines are really a mix. At the end of the day, size matters with diamonds, right? So where the mines get their value, huge value is when they find something that's rare, either because of size and quality, or sometimes because of its fancy color, if they find a pink or a blue diamond,

34:23that can be a large percentage of that mine's value in dollars. So is it more rare to find something big, or it's more rare that people are cutting it big because no one can afford that? You have to find big to be able to cut big, right? So to wind up, would say, even a 20-carat emerald cut, that's coming from a stone that's minimum 50, 60-carat in the rough, unless that rough is perfect, because you're cutting away a lot of that diamond. You usually, with a large stone, there's other satellite stones that have been cut with it. So it could be a hundred-carat piece of rough, and maybe you've cut a center stone of 25-carat, and then you've cut a five-carat, a three-carat, a couple of two-caratists, et cetera. So the goal always is to find that large, high-quality diamond. But explain, though, that when defining it, it doesn't look, I mean, it kind of looks dirty, and it doesn't look like what we see. Yeah, it doesn't look like what we see. Typically, they made them an asset afterward to get off all the dirt, and get to see the real color of the diamond. Some of them have coatings, so it's hard to see

35:24what's really in that diamond, or what we call skin. Skin to a stone, and so when cutters start to look at how they're going to cut the diamond, they polish what you call windows into the stone. So you can see where the imperfections are, and then the best way to take the diamond to create the large, you want the combination of the largest cleanest diamond possible, because that's what brings you back the highest value. Right, okay. Let's talk about the fancy stones, or the other colors. These are real diamonds. Pink, there's a pink diamond. What are the other yellow diamonds? Yellow, red, green, blue. And that's different than a sapphire, or amethyst, and just explain that. This is, so sapphire and ruby are the same, they're called corundum. So the difference between sapphire and ruby just start color, and the difference between a blue sapphire and a pink sapphire, again, it's just that color. Emerald is a stone called barrel, B-E-R-Y-L. Diamond is diamond, it's carbon, so if you have a blue diamond,

36:25you have a blue diamond, because you have traces of boron in the stone. That is just the properties of the diamond. It's still that diamond, it's still carbon, it just has a trace element of something else in that stone that gives it this color that makes them unbelievably rare. So the fancy colored diamonds, yellows, are the most common, although rare, especially the intense yellows and the vivid yellows. Pink and blue is incredibly rare, reds even more so in greens, incredibly rare as well. Orange also. Oh wow, I've never seen an orange. Exactly. And I've seen a push more that people are getting these as engagement rings. Yeah, absolutely. Jaylo have a pink or something back in the day. Oh, wow. Yeah, I can't keep up. Right, exactly. Let's go back to what you were talking about before about what you do now. Why are banks or why did banks decide not to back these companies? Sure, so after the financial crisis, the banks really re-looked at how they treat credit. There was actually even some legislation called the Basel Accords.

37:26The most people are familiar with the finance industry, kind of one of the fastest growing industries over the last 15 plus years is what we call private credit, meaning credit provided by funds and alternative lenders in industries that banks used to participate in. So the diamond industry, through no fault of its own, it's not something that's indicative just to this industry. It's just post 2008, 2009 financial crisis banks were treated from so many different industries. And I recognized early on that the diamond industry was one industry that was going to be really affected. And so I had the idea of creating a fund with my unique knowledge of understanding the underlying asset class and the value of that asset class that we would be able to lend in a way that was safe because we actually take physical possession of pieces of inventory, collateral, that keep us safe as a lender. Most of these companies are using the money to buy new inventory. And so we're basically holding midst of collateral at 60, 70 cents on the liquidation value.

38:27But we're able to give them capital that they need. And it works for these guys because most big diamond wholesalers have huge inventories, $200, $300 million inventories. And so we're able to play to their strengths and understanding the values of that inventory and be able to unlock capital for them. So you're not worried that in the future, the inventory isn't going to be able to move because people are whizing up to the fact, well, I can get something that's cheaper and then put money into something else, like real estate or whatever. I mean, are you worried about that in the future? At the end of the day, the luxury market is growing. The diamond industry, believe it or not, as old the business as it is, is still growing. You've got markets like India that are driving growth. The US, I think, is still growing like 1% or 2% a year. 2025, it just came out that the average sale price for diamonds has gone up for the first time in a long time. So you've had a lot of talk about lab grown, et cetera. But people miss out that luxury has been strong. And there's more people with a lot of money than any time else in the history of the world.

39:29And all those people want brands. They want natural diamonds. And so we don't have a worry, first of all, when we finance, we finance short term. So we're in a contract for six months. We're not holding one asset for two years or three years. Diamonds as an asset class for the last 50 years have enjoyed something like US dollar level volatility. So really stable asset class, very liquid. Most people don't realize that. And instead, when they think about diamonds, they think of blood diamonds and lab grown. And yet, when you really kind of roll your sleeves up and ask the questions, it's a unique asset class for a lender. OK, so I'm sure you've seen it. If you've looked on Instagram, I mean, you have kids. I'm not assuming that you're scrolling Instagram. Even people like Bethany Frankl, who has the money to buy is saying, oh, I'm getting rid of everything nice that I have. It doesn't matter to me anymore. I would rather have the Walmart Birken, whatever they call it now.

40:30And the lab grown, because that's just what I want now. And then people follow that. They think, well, why am I going to work so hard to pay for that? So I think that's, but now as you're talking and realizing, that's just a different audience, though. Because I think the people that are buying luxury do not care about that. So one of the big misconceptions is that the young people aren't buying luxury. And if you look at LVMH's data, 55% of their sales are coming from Gen Z. So for every Bethany Frankl, let's say for every woman in a certain stage of their life, there are 20 young women that have never had. It's nice to say I'm getting rid of everything. And I'm not talking about Bethany's any gender, right? It's nice to say I'm getting rid of everything when I've had the last 20, 30 years enjoying all the best of luxury. And if every one of those types of people there's a horde of young ladies that would love to have a big diamond, would love to have an Hermes bag and want to live that life for a long time. And they'd love to get to the place with a sick inside of luxury. Exactly.

41:30That is very true. It's interesting to see, like, you hear people going to St. Bart's, let's say, for New Year's or Christmas. And it is the young kids. I don't want to leave the house anymore. I don't want to go to the kitchen. Right. I know. But it's like they're the ones, and I don't know if they're taking their parents' credit card or Gen Z is just making a lot more money than what we used to make way back when. But there is, you know, there's a lot of talk about how people are holding onto their money. But when you actually look at it, there's a lot of people spending a lot of money. And when I used to, for many years, I worked in Vegas and I dealt with bottle service. I was the director of VIP operations and I dealt with the high rollers and then I dealt with cultivating a customer. And when I first started, people were, you know, maybe we were getting $2,500 for bottle service at a table. When I left, my biggest customer was spending $500,000 in one sitting just to show off. Just for an experience that's gone. Gone. And it doesn't happen anymore. But it was a time when that's when that was what you did.

42:34So it seems really interesting. Well, nightlife was going to a whole other subject. Nightlife has changed, right? For when I was going out, I talked about this all the time, like the young people aren't drinking when we used to drink that aren't going out. They're much more health conscious. A lot of the new apps of meeting people are around health. And fit in. That's right. Which is a great thing. I'm happy I grew up and did it when I did it. Right. But that's all well and good. At the end of the day, when you look at social media, so much of it is about this brand and that brand and showing off and showing a car or showing, I mean, social media has driven aspiration on steroids because how else can you reach? Like, you know, I was like, hey, look at the bag. I got and reached thousands of people. The social media has driven a tremendous amount of it. So if anything, I mean, luxury is more at the forefront of, let's say, the person who can't afford luxury today than ever before. Got it. So, I mean, you're a guy who's been around. You obviously are very chic. You have a chic wife. What are you guys into? Like, what do you see as luxury?

43:34Well, for me personally, luxury is peace and time with my family, my wife and kids and my friends. My loved ones, that's the ultimate luxury, right? Because the one thing we all can be guaranteed is we all don't have an infinite amount of time. And we all take it for granted, especially living in America and it's an amazing country that we have so much more than so many others who take things for granted. But at the end of the day, the ultimate luxury is peace and that's what luxury, in a sense, should buy. I work hard my whole life seven days a week from very young age in order to kind of have freedom to be with my family and have someone say, hey, you can't not spend that day with your kids or your wife. So to me, it's peace of mind is the ultimate luxury. Of course, we love travel, we're foodies, we love great food. My kids try to bring them up appreciating things that from things that don't cost anything to a beautiful place. Right, okay, I love that answer actually. Do you think, let's see what other questions are asked you?

44:38Well, what still excites you? What are you looking for in this industry? Beauty always excites me. Rarity and beauty, and beauty in anything excites me. I've always been that way. And so when I come across a special diamond, 20 karat blue or a piece of jewelry, a fabulous old 1940s van cleave item, especially when it has certain provenance that you get to hold that. So, you know, you always made fun of me. I might, my staff always did, because usually always on my desk and my hand, I always had a large diamond always. It would switch with a 20 karat stone in my pocket because I'd just have an affinity to something like that. So, I still to this day, as much as I've done and the different things I've done in my career, I'm most excited when I was joke playing with pebbles. When I'm looking at a big diamond be it rough or polished or a fabulous cashmere sapphire or Burma ruby, and that's still to this day, really, really excites me. What's the most beautiful stone you've ever seen? Oh, my goodness. I can tell you a story because it's a special stone.

45:40I got a call to go to Geneva, a really important family, aristocratic family that was selling an important diamond. And I spent two days with these people, and we ultimately, in Geneva, below ground in the bank, and then four seasons and, you know, kind of negotiating price and all of that. And I got really friendly with the family. And we agreed upon a price, and we were going to meet the next morning, kind of help conclude the deal. And the next day when I came down, I saw something was wrong right away. I said, everything okay. I said, no, we called our family back where they were from, and they said, you know, we moved too quick, and we needed to get one more offer, and they had somebody coming, and they said, the gentleman's here, and he's just going to make an offer, and he was generally from the Middle East in the whole, you know. And I said, listen, I understand that it's fine, but we're going to do one thing. We're going to put a number on a piece of paper, and we're going to end it, whoever has, you know, the higher number.

46:41And so we went to the bar in this gentleman, and like out of the movie, and I put a number, I put a number, and I won the stone. Okay. So it was over a 50-karat cushion cut, and I remember finally when the stone came back to the States, my daughter, Alessandra, was, I don't know, four or five at the time. And I remember putting the stone in her hand, and saying, don't ever get married, unless somebody gives it to me. And of course, my wife yelled at me, you're going to, you're spoiling now, you're going to ruin them for anyone else. So I would say that's my favorite stone, but because of my daughter. Oh, I love that story. Wait a minute, so what did the other guy offer? I didn't know the price. Oh, yeah, but my price obviously was a little bit higher. Wow, okay, I love that. And what happened to the stone? Sold it. You did. Interesting. For a good profit? For a profit. Okay, I love that. All right, and what do you see in the future in terms of the luxury market and the diamond market? Are you, like, predict five, 10, 15 years from now, what we're going to be seeing? So I think the diamond market, in general, really hurt itself by rushing for profit and lab grown,

47:44by promoting it. And I mean, the retailers and the wholesalers. And I've been outspoken about this in the industry. I was, as have some other really prominent people in the industry saying, you sold this item just like diamonds when it's not just like diamonds. It's going to be made in unlimited supply, which means there's no resale value. You can guarantee people buying a lab grown two or three years ago for five, six, eight thousand dollars. And I know this from my former company where all we did is buy back from the public when they go to sell that, they're going to have zero value as opposed to some value. So I think the public was, in a sense, slightly misled. Not everybody really understood. Now, maybe some sold it properly and said, hey, there's probably not going to have the same value as if you buy a natural. And some consumers are fine with that. So I think the industry has to get back on track and really market natural diamonds for what it is. And not have this confusion and say, natural is special, natural is rare, natural is a store of value. Lab-grown is a legitimate alternative for a different use, a different consumer, or sometimes the same consumer, just like me. If I say, hey, I don't want to spend

48:45on natural pair of studs just for this reason. And that's fine. One is people have a tendency to want to say, this is good, this is bad. It's not really the case, they're just different. Natural will always be there. It's not going anywhere. I think it's leaning into luxury. You're seeing a luxury market expand. So I see, you know, from places like the Middle East, from places like India, Russia, unfortunately, before the war in Ukraine was a huge market for luxury. And I ostensibly will come back at some point. China is still soft right now. People thought the Chinese market would come right back after COVID, it really hasn't fully. But at some point, it likely will. So I think you look at someone like Bernard Arno and LVMH, you know, he's incredibly brilliant. So much respect for him, I mean, I don't think. Not many people are betting against him and how he's grown luxury and what the next generation of consumers are for it, so. You use the word scarcity a couple of times. I'm curious, is there, first of all, how long does it take to make a diamond? Well, it's hundreds of millions of years on the ground.

49:47OK, so is there a chance at some point we will not find any? Absolutely, so I may not have these numbers right, but I don't think they'll be far off. So I think, if we don't find any new diamond mines, as they exist now, I think by 2050, we will not have an active diamond mine operating in the world. Now, will we find, we probably think so, you know, it'll happen. But there will become a point where there'll be no more natural diamonds and you're only going to have what's being recycled, unless we find others, right? Right, right. So there's a possibility in the year 3,000 that there's no operating diamond mines. Right, so then it's just what's in consumption, whatever, what everybody has. And maybe that would have been the time that lab grown, but it really made their mark. Maybe, but at that point, it's not like, why are diamonds so special? I mean, they're very special just because of the properties that they have, the hardest substance, the way they conduct the lecture. I mean, there's a million things that are really special about diamond as a substance

50:48that make them valuable for the space industry, and industrial uses, et cetera. But at the end of the day, why, you know, from thousands of years ago, I mean, I had, Plenty of the Elder was one of the ancients and he has a quote about the value of diamonds. They're met from ancient times, people recognize diamonds as this rare item that has incredible value that's attractive to humans. That's not going to change. Right. One thing, and it struck me when you were talking before about lab grown, and I just want to bring it up. You were talking about how it's $125 a carrot or whatever you said. Yeah, wholesale, that wholesale. Right, okay. So when I had Mosheh here, he was talking about how somebody had come in and said that they had bought a 10-carat ring or something, and they were, their fiancee had paid $50,000. Can you speak on that, though, about that if someone is for a lab grown? For a lab grown. So if somebody is be quoted, because it seems like that is happening a lot. So if they're being quoted a number like that,

51:49they're just getting plain ripped off, correct? To be fair, prices have collapsed, especially over the past year wholesale with lab grown. Right, so two years ago or a year and a half ago, the prices were a lot higher, but it was obvious that it was going to happen with the product, like I said, that's a tech product that could be made in unlimited supply, and there's more and more of it on the market, and more sellers going direct to consumer. So yeah, a lot of people bought lab grown for thousands and thousands of dollars, and you have no value. Now, maybe that 10 carrots don't for 50,000, if you bought the comparable and natural, it would have been 250 or 350, but you could sell it for good money at some point as well. Right, right. And again, it's personal. I would never spend $50,000 on something that is worth zero on the lab grown diamond. Right, and then just to go back with resale on a natural real diamond, you're getting resale, and sometimes you can even do well. Yeah, again, depending on how long you're holding it, but you're buying, let's say,

52:50a two and a half carrot, GBS diamond, and it also depends on where you buy it. You're buying it really well at a family jeweler or a guy on 47 sheet that's treating you well. There's real value there, if say, God forbid, it didn't work out in three years or five years, you're gonna get 25, 35, depending on maybe 45% of your money back, you know, there's nothing wrong with that. But for people that are listening, like they shouldn't go on blue Nile or something, you know, those websites and just sell their jewelry, right? I don't know if blue Nile buys, but if you want to buy on blue Nile, I wouldn't disparage blue Nile. You wouldn't, okay. No, it's a real model. It's, you know, it's a real business model for people that want to go on and buy and not interact necessarily. I prefer, I want service, I want to look at, to read diamond, every diamond is different. Every diamond has a face. I've seen women, especially, really connect with the diamonds. This is my diamond, and I think that's lost with something like blue Nile, but it's fine. But I just think, if, you know, especially,

53:50it's an experience, it's an intimate, you know, nice experience to shop for a diamond and find something that you love. Yeah. You started out on 47th Street. What do you think of what it's become these days? Is it have the same value, all these guys down there selling you a lot when you walk down that street? Yeah, I know, it's changed a lot. I mean, I started on that street in 1987, and there was a lot of the real great old time where I was easing Europeans, a lot of families that fled World War II, and the character and the trust it felt much more like a community. So that's actually what I would say, the biggest change is it felt much more like a real community. And deals were done, and they're still done on a handshake, but back then, you'd see transactions on the street, deals are not on the handshake, and most people knew each other for generations, and today it's a little bit of a newer generation. I'd say because of the success of the Swiss watch market, there's a lot more watch dealers there, but the real industry, the diamond industry,

54:51is not on 47th Street, it's in the buildings upstairs, between 45th Street and Rockefeller Center, that's the infrastructure of the US diamond industry, it upstairs on those few blocks. Got it. All right, so what's next for you? Like what's your big plan? Well, I love what I do, I'm lucky. We're fortunate in that the diamond industry continues to need funding, so we're growing, so we continue to work, to grow our fund, to continue to finance some of the best companies in the world in diamonds and jewelry. Yeah, I've seen in your past, so you've done a bunch of things, I'm just curious. I have. You have something in the future that you're like, oh, I really want to do that. I, my, the curse. Or do you really want to retire? No, I can never retire. My, my curse is I'm stressed when I'm not doing something. I'm meeting. And that's not good, Ryan, that's, that's bad. You always have to have a project. Yeah, so I always have so many ideas and things to do, and I do a lot of mentoring today within the industry, and in a lot of mentoring and branding,

55:52is what I did at Cirque, was really create a brand. Done it for a lot of other people as well, so I like that and do more of that and helping people, but I spend all of my time kind of managing and building the businesses that I have today. Got it. You don't have some interest outside of this narrow focus of gems and I do. There are, there are things that intrigue me, but nothing that I'm kind of publicly, yeah. Got it. Okay. And then can I ask you because you brought it up earlier, you talked about being in the polo business. Yeah, yeah, yeah. And how, how? No, I played polo for years and years. I was one of the original members of Palm Beach, the International Polo Club in Wellington. Like, as a hobby, you started this? Yeah, I started as a hobby and it became a huge part of my life. I had the polo team that played in Argentina and Palm Beach and the Hamptons and played for many years, but it's a dangerous sport. I've broken every bone and et cetera. So after a period of time, I call it quits, yeah. Do you go and watch it when you're here?

56:52I can't, I'm not a good spectator. I can only participate. Got it. Because you get upset about what they're doing more on or what. Yeah, I just, yeah, I need to be doing it. I can't watch it because I get upset for the horses. I always get nervous that they're going to get hit with the stick. So that, a lot of people think that, but actually the best polo ponies are the horses that love it. They wouldn't do it. Horses of, they wouldn't do it if they didn't love it. Like, yeah, you think the horses have fun. They see it as a game. They do. If you're not, if you're on a great polo pony and if you're not a good rider and the ball moves the direction really quickly and you're not in your saddle, that horse is going to move before you even do anything and it goes this way and you're going to fly that way. Got it. So the horse is nose. The horse is, yeah. OK, I love that. All right, any other things you want to talk about that I haven't covered on the subject at all? No, I think we covered a lot of ground Rachel. Thank you. Well, I really appreciate you being here. I feel like you explained everything very well and it's a conversation that people, I feel like, are not educated in. And they make rash decisions or emotional ones or sometimes they just pick what's easiest for their budget.

57:53And this is helpful because I think that sometimes, even though you have a budget, you should stop and think about what you're purchasing for a longer term play. That's right. And the one thing, and you just brought it up, is really smart is there's a lot of misinformation out there. And what people don't realize is that diamonds are a stratified asset class. So what does that mean? It's when gold moves, the whole category moves. When you've heard of these articles recently saying diamond prices have gone down, there's no such thing as diamonds moving in a category. If you're one character or two character or three character diamond, what you call a rap report diamond price list is with published twice a month. That dictates global diamond prices. But every price category, every color and quality, every size category, every color and quality, and every shape, either rounds or fancies, move differently. So diamonds don't move as a group. So what you've seen over the last three years when you're hearing all these crazy stories about diamond prices dropping has really been a price drop in the lower size, cheaper quality,

58:54because that's where a lab grown has cannibalized. In the large high value stones, it's actually a scarcity. And prices actually are just reading today or trading at a higher percentage versus rap report than they have over the last couple of years. So it's not true that diamond prices have fallen. No, the category that have been most vulnerable to lab grown have fallen over the last 36 months, but now they've stabilized. The high end has not fallen at all. And arguably have actually gone up and firms in price. So that's a big misconception that people have. The diamonds moving one category, that's not true. That makes a great information. All right, if our listeners are interested in following you, being mentored by you, anything, where could they find you? I guess on Instagram, Chris D. Gatto. So D-G-A-T-T-O, on Instagram. Amazing, and a website or anything? No, Instagram is fine. I mean, the website for the company is the delgadofinancegroup.com. Perfect. Thank you so much. Thank you. Thank you so much for listening to Misunderstood.

1:00:02I'm your host, Rachel Yucatel. Please be sure to subscribe to the show and give us a five-star rating and review. You can support the show by joining our Patreon at patreon.com slash Misunderstood with Rachel Yucatel. Do you have ideas for the show or want to reach out? Email us at info misunderstood podcast at gmail.com. That's spelled M-I-S-S understood. Thank you so much, and I'll see you next time.