Icecap's Value Index
What is it and how does it help you invest in diamonds?
Short Version
A diamond’s value index is a percentage that tells you how “good of a deal” a diamond is at a given price. The lower the value index, the more appealing it will be to buyers. As an example, a diamond that Icecap values at $10,000 would have:
- -5% value index, if priced at $9,500 (Great deal)
- 0% value index, if priced at $10,000 (Good deal)
- +5% value index, if priced at $10,500 (OK deal)
Icecap’s Value Index system creates an easy way for buyers to determine which diamond is “the best deal” and for sellers to know at what price to list their diamond, even if they aren’t familiar with the diamond industry. In general, the diamond that has the lowest/best value index will be the next one purchased on the marketplace.
If you’d like to understand it in more depth, please read on…
Long Version
What is the value index?
Icecap’s Value Index, which is based on patent-pending technology, is a mechanism for determining which diamond—in a list that is offered for sale—is the “best deal.” In the case of Icecap’s investor-oriented marketplace, “best deal” means the price that is the closest to the diamond industry’s wholesale price level. The idea is that—while jewelry consumers focus on the type of diamond they want—buyers for hard-asset diversification are more interested in ensuring their ability to sell that diamond on favorable terms at some time in the future.
Assuming a diamond already meets Icecap’s standards for “investment grade,” it presumably doesn’t matter to an investor whether it is, say, a VVS1 clarity grade or a VVS2. That difference is already incorporated into the price itself. What matters is obtaining the best price for that specific grade. Icecap’s Value marketplace arrays the diamonds currently offered for sale by value-index percentage. The one at the top is—theoretically—the best price and is likely the one most attractive to an investment buyer. However, the cost of the stone itself can also play a role: a diamond may be well-priced at $100,000, but a buyer may only have $3,000 to spend, so they would reasonably prefer a cheaper diamond, even if it had a less favorable value index. Also be aware that—other factors equal—lower price point diamonds will tend to have a less favorable value index, as the cost of Icecap’s secondary grading and other quality control steps will represent a higher percentage of the diamond’s cost.
How is it computed?
Icecap uses industry-standard wholesale price lists, applies its own formulas to bring those prices into alignment with Icecap’s investment-grade diamonds, includes Icecap’s own margin for delivering new diamonds to the marketplace, and thus derives a baseline price for each combination of quality and size. We call that derived price “par”. For example, a one carat, G, VS1 diamond has a par price at a given moment in time ($8,725 as of this writing). A two carat, E, VVS2 diamond has another par price (ex. $47,221), etc. Price lists are generally updated once a week, and so these par values may change once per week.
Every diamond offered for sale on the marketplace thus has its offer price compared as a ratio to par. This gives that diamond a “Value Index”. Value index is a percentage calculated by dividing a price by par and subtracting 1. For example, if “par” for a given combination of quality and size is $5,000, and a diamond is priced at $5,100, then its Value Index would be +2%. If priced at $4,900, that is a Value Index Ratio of -2%. Other factors equal, the lower the number, theoretically the better the price. Because value index is a (price divided by par)-1, par always has a value index of 0%.
Note: Icecap itself continually seeks to improve its methodology, and because of this, the par numbers themselves may change beyond merely the change in the market itself. At any given time, there is no “par ratio” that is good or bad. It is only the ranking of the available diamonds, using this methodology, that is important.
Disclosure: Icecap uses the most accurate methodology it believes available to compute these ratios. While the system is not perfect, it is probably the best tool available in the industry for this purpose.
How does it facilitate an efficient 2-way market?
Most marketplaces in non-fungible items are not efficient, meaning the buyers who come there have their own preferences for what they want to buy, and the sellers have only what they have to sell. In other words, a given buyer is not likely to be interested in most of what is available. And a seller will find only a few (if any) buyers interested in what they are selling. This is the nature of non-fungible marketplaces.
To further explain, consider the market for homes. Every home is different. A buyer will approach the market with a set of needs, for example: three bedroom, two baths, an attached garage, and in xyz part of town. While there may be hundreds of homes offered for sale, these “filters” mean only a few of those hundreds will qualify for this buyer’s needs.
In the same way, a specific house is only going to appeal to a small subset of the potential buyers.
The diamond industry works the same way. Transactions begin (either at wholesale or retail) with someone needing a specific type of diamond, defined by quality, carat weight, and price. The buyer must go into the market and find that exact stone, or somehow modify their request if they can’t find it. Meanwhile a seller can’t sell his diamond until he can find someone who needs that exact diamond.
All this creates vast inefficiency, and—in the diamond industry—explains why retail markups must be so high.
Icecap’s Value Index system bypasses this inefficiency. By bringing together buyers and sellers who care primarily about “best price,” and perhaps nothing else, every diamond is of interest to every buyer, and ever buyer is interested in every diamond. And the diamond which is currently ranked at the top of the value index (in other words, the best price for a given size/quality combination) is likely the one that will be sold next.
Put another way, this means someone wishing to sell a diamond need merely price it at the top of that value index ranking, and it will be most likely to sell quickly.
In such a marketplace, a buyer can easily find the diamond they want, by going to the top of the value index rankings and choosing that diamond. Or—if they want more than one diamond—the top diamonds that in aggregate meet their budget.
For the seller, it’s slightly more complicated because they need to understand how they need to price, to be at the top of the value index, or to at least to be close. For this purpose, Icecap provides a convenient “Value Index Calculator” tool.
Please contact us if you have any questions about the value index system, and how Icecap uses it to power the marketplace.