ALERT - Southbank Investment Research...Well-aged cigars have a refined and mellow taste, which...

ZERO HOUR ALERT

Two “old money” secrets to protect your money

from chaos

— A ZERO HOUR ALERT REPORT —

– 2 – ...continued on next page...

Important Risk Warnings:

Before investing you should consider carefully the risks involved, including those described below. If you have any doubt as to suitability or taxation implications, seek independent financial advice.

General - Your capital is at risk when you invest, never risk more than you can afford to lose. Past performance and forecasts are not reliable indicators of future results. There is no guarantee dividends will be paid. Bid/offer spreads, commissions, fees and other charges can reduce returns from investments.

Overseas shares - Some recommendations may be denominated in a currency other than sterling. The return from these may increase or decrease as a result of currency fluctuations. Any dividends will be taxed at source in the country of issue.

Funds – Fund performance relies on the performance of the underlying investments, and there is counterparty default risk which could result in a loss not represented by the underlying investment. Exchange Traded Funds (ETFs) with derivative exposure (leveraged or inverted ETFs) are highly speculative and are not suitable for risk-averse investors.

Bonds – Investing in bonds carries interest rate risk. A bondholder has committed to receiving a fixed rate of return for a fixed period. If the market interest rate rises from the date of the bond’s purchase, the bond’s price will fall. There is also the risk that the bond issuer could default on their obligations to pay interest as scheduled, or to repay capital at the maturity of the bond.

The Financial Conduct Authority does not regulate certain activities, including the buying and selling of commodities such as gold, and investments in cryptocurrencies. This means that you will not have the protection of the Financial Ombudsman Service or the Financial Services Compensation Scheme.

Taxation – Profits from investments, and any profits from converting cryptocurrency back into fiat currency is subject to capital gains tax. Tax treatment depends on individual circumstances and may be subject to change.

Investment Director: Boaz Shoshan. Chief Strategist: Nick Hubble. Editors or contributors may have an interest in shares recommended. Information and opinions expressed do not necessarily reflect the views of other editors/contributors of Southbank Investment Research Limited. Full details of our complaints procedure and terms and conditions can be found on our website www.southbankresearch.com.

Zero Hour Alert is issued by Southbank Investment Research Limited. Registered in England and Wales No 9539630. VAT No GB629 7287 94. Registered Office: 2nd Floor, Crowne House, 56-58 Southwark Street, London, SE1 1UN.

Southbank Investment Research is authorised and regulated by the Financial Conduct Authority. FCA No 706697. https://register.fca.org.uk/.

© 2019 Southbank Investment Research Ltd.

http://www.southbankresearch.com

https://register.fca.org.uk/

https://register.fca.org.uk/

...continued on next page...


– 3 –

Boaz Shoshan Managing

Editor

Dear reader,

As a subscriber to Zero Hour Alert, you know there are risks out there for your investments. In the past, we’ve outlined the threats posed by Italy, the pension system and demographics.

But while our job is to warn you about these risks, it is also to introduce you to opportunities. And while Nick and I share a very pessimistic outlook for some investments... there are others we are very optimistic about.

Today, I am very happy to introduce you to two new “unplugged” wealth recommendations. These investments meet a very strict criteria. They must be scarce, portable, valued by humanity for a considerable period of time and impossible to default upon.

So far, our only recommendations that fit all of these criteria are gold sovereigns and Krugerrands. That changes today.

I can almost guarantee you won’t be familiar with at least one of the recommendations. These are well outside of the mainstream financial industry – we’re not talking about individual stocks, bonds or investment funds here.

But while they’re out of the ordinary, they’ve actually been around for a very long time. In fact, the youngest of these assets dates back to the Mayan civilisation in the 10th century! The other has been around for an awful lot longer.

These are tangible assets outside the financial system, which can be loaded into the boot of a car, transferred anywhere without anybody knowing... that still have great investment prospects.

During their lifetimes, while banks have defaulted, monetary systems changed, wars been fought and currencies died... they have endured.

Welcome to Zero Hour Alert.



– 4 –

Churchill’s GoldThe endangered asset class nearing extinction

Boaz Shoshan

30 November 1895.

Winston Churchill is celebrating his 21st birthday – and he’s under heavy fire from Cuban independence fighters.

The future prime minister has travelled to Cuba with the permission of the Spanish government, to fight against the Cubans in his first taste of battle.

Two of Cuba’s independence leaders, Antonio Maceo and Maximo Gomez, are among those attacking him in a war that will go to claim over 300,000 lives.

But just before the fighting begins, young Churchill stumbles upon something near the docks of Havana that will stay with him for the rest of his life.

An asset class that, short of a total societal breakdown, we believe will only increase in value as time goes on.

Cuban cigars.

While rarely found in investment portfolios, certain Cuban cigars have a terrific investment track record, as you’ll discover in this report (see the interview at the end for some astounding examples).

There’s a reason for their stellar returns. Thanks to a certain historical event, the supply of a certain type of cigar is forever in the favour of the buy-and-hold investor.

To find out why this is, we must travel forward in history...

Past World War II, when businessmen and well-wishers sent thousands of Cuban cigars to Churchill as gifts...

After the 1950s, when Romeo Y Julieta launched the Churchill cigar range in honour of the British wartime leader...

To land squarely on Monday 17 April 1961, when the forces of history were about to send the price of Cuban cigars through the roof.

Winston Churchill in 1895, a few months before he

entered the Cuban War of Independence.



– 5 –

The Bay of Pigs incidentFollowing the ascent of Fidel Castro in 1959, the CIA was keen to stamp out communism in Cuba, which it considered the US’s backyard. To do this, it secretly trained a brigade of around 1,400 Cuban exiles in Guatemala, the Brigada Asalto 2506. Its task was to return to Cuba and overthrow Castro in an armed invasion.

Castro’s total available force numbered close to 250,000. But it was hoped that the invasion would throw Cuba into chaos and that Brigade 2506 would gain momentum when Cubans disillusioned with Castro joined its ranks.

The operation was a multilateral failure. A covert bombing operation intended to wipe out Castro’s air force destroyed only a few aircraft. JFK hesitated to order another as it would make US involvement blatant; it was meant to appear as a domestic counterrevolution within Cuba.

To compound matters, Castro rounded up 100,000 suspected enemies of the regime as soon as the invasion occurred, dashing any hopes of rallying disillusioned locals to the cause. Running out of ammunition and without support, the brigade surrendered, just three days after the invasion.

Che Guevara gloated to JFK in a note: “Thanks for [Bay of Pigs]. Before the invasion, the revolution was weak. Now it’s stronger than ever.”

Before the dust had settled, the embarrassed Kennedy administration was already looking at other ways of putting pressure on Cuba. The CIA redoubled its efforts to kill Castro (resulting in over 600 assassination attempts), while the public side of the US government drew up a trade embargo, which gained congressional approval not long after.

But before JFK signed the embargo into law, there was one last thing he had to do. A hidden task he gave a confidante, which has only come to light decades later.

For JFK knew the value of this hidden asset class was going to increase markedly – and he wanted to be on the right side of the trade.

JFK’s last request

It is here we introduce Pierre Salinger, who was JFK’s press secretary and friend. Salinger was a leading figure in Kennedy’s presidential campaign, and a trusted unofficial adviser – part of JFK’s “kitchen cabinet”. The pair had much in common, both having commanded small US Navy vessels in the Pacific theatre of World War II.

Flag of Brigade 2506



– 6 –

Salinger and Kennedy

Early one evening, Kennedy summoned him into the Oval Office. Standing before the massive desk of the president, JFK gave him a special assignment. Salinger recalled:

“Pierre, I need some help,” he said solemnly.

“I’ll be glad to do anything I can Mr. President,” I replied.

“I need a lot of cigars.”

“How many, Mr. President?”

“About 1,000 Petit Upmanns.”

I shuddered a bit, although I kept my reaction to myself. “And, when do you need them, Mr. President?”

“Tomorrow morning.”

I walked out of the office wondering if I would succeed. But since I was now a solid Cuban cigar smoker, I knew a lot of stores, and I worked on the problem into the evening.

The next morning, I walked into my White House office at about 8 a.m., and the direct line from the President’s office was already ringing. He asked me to come in immediately.

“How did you do Pierre?” he asked, as I walked through the door.

“Very well,” I answered. In fact, I’d gotten 1,200 cigars. Kennedy smiled, and opened up his desk. He took out a long paper which he immediately signed. It was the decree banning all Cuban products from the United States. Cuban cigars were now illegal in our country.

– Cigar Aficionado Premier Issue, Autumn 92


– 7 –

Yes dear reader, our first undying wealth recommendation is cigars.

You may not have considered cigars to be long lasting – people smoke them after all.

But they can survive for hundreds of years in the right conditions. In fact, some 600-year-old Mayan cigars were auctioned for half a million dollars in 2012.

Now, I’m not recommending you go to your corner shop, buy a packet of Hamlet and hope it appreciates in value.

The cigars we’re going for are the Cuban variety made before Kennedy’s embargo.

Immersed in the rich history of Castro’s revolution and the Bay of Pigs, these cigars trade almost like antiques, and they appreciate in value in a similar fashion.

But they differ from antiques in one crucial way: people smoke them.

Well-aged cigars have a refined and mellow taste, which cigar smokers love. And while any decent cigars can be aged, there were only so many made before the Bay of Pigs and the embargo that followed. Cigars made prior to these events hold unique historical value that cannot be replicated, and they’re decreasing in number all the time – literally going up in smoke!

Whenever a wealthy cigar fan decides to indulge himself with a smoke from Kennedy’s time, these gems of history get a little rarer... a little more exclusive... and a little more valuable.

But while the supply is being torched, demand is only increasing. Cigar nuts hail from all over the world, but a new generation of wealthy Chinese have begun feverishly buying them in bulk to diversify and flaunt their fortunes. Some are investing six-figure sums into rare cigars as a means of passing wealth down to the next generation.

The fact that the main buyers of such cigars are very wealthy is important, as this has actually recession-proofed this market. The ultra-rich indulge their passions whatever the state of the real economy – they can afford to, after all. So during 2008, when financial markets were plummeting, the rare cigar market didn’t take a hit.

Forward to today, and the rare cigar market is booming, with some cigar boxes going for tens of thousands of pounds under the hammer. Shrewd investors are tripling their money or more in short spaces of time.

And this is only set to continue, for as long as cigar aficionados keep puffing away...

Alright, so how do I get in on the action?If you’re very lucky, you may be able to find a UK tobacconist who has some pre-embargo cigars in stock. But they probably won’t have any.

In which case, you’ll need to fight for your fine Habanos at auction. Christie’s puts cigars under the hammer occasionally, but your best bet is with C.Gars Limited, who runs online



– 8 –

cigar auctions every season. At the time of writing, it’s auctioned £8.7 million worth of cigars since it began at the end of 2009, with more than 450 pre-embargo lots sold.

It also authenticates the cigars, which removes the risk of you buying fakes, which does occasionally happen in the vintage cigar trade.

Once you’ve registered and applied for a credit limit, you can bid online for the cigars, and have them delivered or pick them up if you win. You can find out more here.

Now we arrive at which pre-embargo cigars to bid for. We’re bullish on the pre-embargo cigar market as a whole, but it’s worth arming yourself with knowledge before you wade in.

Pre-embargo Dunhill cigars are the apex of this market. They’re very rare and command very high prices because Dunhill was the world’s premium cigar manufacturer at the time. They’ve gone up in price considerably in recent years and have a very bright future.

JFK’s favourite cigars were Petit Upmanns, made by H.Upmann. Winston Churchill favoured Romeo y Julieta and La Aroma de Cuba, the latter of which is now defunct.

Other pre-embargo cigar brands with a strong pedigree include Troya, La Corona and Belinda.

Cohiba is one of the world’s most famous cigar brands today. It was set up by Castro in 1966, after he tried one of his bodyguard’s smokes and liked it so much he set up an elite factory to make them for government officials only.

1966 was after the embargo of course, so we’re not interested in those. But there was actually another cigar brand named Cohiba with a similar logo that existed before the revolution, run by a man by the name of E. Chateloin. Brand exclusive stories like this may add value, especially if you’re holding on to them for the longer haul.

Limited edition batches almost have a guarantee of future demand, and as such can be strong investments. In a similar way, some defunct pre-embargo cigar brands can stand out from the crowd. There are also styles and sizes of cigars that ceased to exist shortly after the Cuban Revolution. Collectors will pay for these kind of novelties.

Let’s be clear: it’s not all pre-embargo cigars that have gone price vertical in recent times – some are much more successful than others. However, the older these get, the rarer they become, so even if the cigars you own aren’t the best make, they will still gain value if you hold on to them.

On the topic of ageing, long cigars with a large gauge (broader) age better than smaller ones. And as ageing makes the flavour milder, cigars that were strong to start with are more desirable.

Sealed boxes of pre-embargo cigars in good condition can also be found at auction. Provided you just hold on to them, these can be a good investment, as boxes still sealed from decades ago are very rare. But never open them – you may find the cigars within have degraded, and are thus almost worthless. If you just leave it sealed, it doesn’t

https://www.onlinecigarauctions.com/



– 9 –

matter about the cigars within – that’s a problem for whoever buys the box from you in the future.

Becoming a cigar nutIt’s also possible to speculate in cigars post-embargo to make great returns. But there’s more risk involved, as you don’t have the Bay of Pigs on your side. This requires more research, and hands-on experience, but this can be great fun if you’re a smoker.

Speaking to cigar specialists and keeping up to date with new cigars as they come out will give you an edge. Cigar Aficionado maintains an annual “top 25” list of cigars which may help in this regard.

Cohiba Behikes have rocketed in value in recent years, and have since become very scarce. They contain a fine blend of tobacco, which includes leaves from the top of the tobacco plants. These leaves supposedly only grow on one in ten tobacco plants, making Behikes more expensive and exclusive.

Cuba has had very poor weather recently, which has hindered tobacco supply and made Cuban cigars all the more scarce. However, an insider who visited Cuba recently told me he saw Behikes in the Cohiba factory, so these may well reappear in the months to come.

As a general rule, any limited edition Cohibas stand to gain value over time. The same applies to vintage Davidoff (pre 1991) and Dunhills.

There is also an active market for the accessories that accompany cigars. Antique humidors and Colección Habanos “books” (small cases of cigars that appear as books) are niche, but have strong demand.

But before you get bidding...As mentioned earlier, it is only properly stored cigars that retain their value. This means that they have been kept at the right temperature and at the right humidity (70 degrees Fahrenheit and 70% humidity is a general rule, but some contest this). There is also VAT and auction fees to consider.

Companies such as James J. Fox and C.Gars will store your cigars for a fee – however this re-introduces counterparty risk to the equation, something we’re seeking to avoid in the first place.

If you want to hold on to your valuable cigars yourself, and we recommend you do, you’ll need a humidor. It’s essentially a box, usually made of cedarwood, with a humidifier in it.

The cost for one of these varies with how many cigars you’re looking to store, and how fancy you want it to be. As an example, a cheap one with a capacity of 40 cigars will cost about £60. A decent tobacconist will be happy to help you out in finding you one that suits your budget and needs – I’ve found C.Gars to be particularly helpful in this regard.

http://top25.cigaraficionado.com/

https://www.jjfox.co.uk/storage

https://www.cgarsltd.co.uk/



– 10 –

SmokescreenSo there you have it. Who would’ve thought that an invention of the Mayans a thousand years ago, virtually unchanged in form, would be a strong investment today?

Of course, they used cigars for different reasons, as a mystical aid and a painkiller.

The aforementioned Pierre Salinger used them to make himself look senior to the crew he commanded in WWII, all of whom were older than him.

Today, you can use this undying asset to unplug your wealth from the financial system and make strong returns all the while!

Stoking investment smoke with Mitchell Orchant

To get some deeper insight into the investment opportunity in cigars, I had the pleasure of interviewing Mitchell Orchant, cigar aficionado and founder of the aforementioned C.Gars Limited, earlier this year. Mitchell has decades of experience in the space, and in this interview he details the outstanding gains that shrewd cigar investors can make, as well as where prospective investors should look for new opportunities...

Note: Southbank Investment Research does not have any commercial arrangements with C.Gars.

How long have you been in the cigar trade and what attracted you to it?

I have been in the cigar trade since 1993. I started the first Havana cigar website in the UK back in the days of dial-up! I had been selling Havana cigars in my previous business of convenience stores but my mail order and internet cigar business became so successful I decided to make it my full-time business.

I have been a Havana cigar smoker since I was 15 and my father and grandfathers also smoked cigars so it felt almost natural to become a cigar merchant.

What are the largest capital gains you’ve seen cigar investors make? What had they invested in?

Clients that invested in limited edition humidors seem to have made the best gains if they got their timing right.

Cohiba 40th anniversary Behike humidors of 40 cigars were selling at around £15,000 on release and now sell for around £90,000-£100,000.

Habanos 1994 humidors of 50 cigars sold for around £800 15 years ago and now sell for around £17,000.



– 11 –

Cubatabaco 1492 humidors of 50 cigars shot up in value from around £2,000 in 1992 to £40,000 over the last few years.

Cohiba 50th anniversary Majestusosos humidors of 20 cigars were around £4,500 on release a year ago and have gone beyond £13,000 this year.

1980’s Dunhill cigars have seen incredible increases in value. I was selling boxes of ten Churchill-sized Dunhill Estupendos for £2,500 ten years ago and they now sell for around £12,500.

What are the most undervalued cigars in the pre-embargo space? Pre-embargo Dunhills are the best, but as supply is very tight, what are the alternatives for a buy-and-hold investor with a long time horizon?

Big name brand and large vitola (or “format”) pre-embargo cigars are the most desirable as most pre-embargo cigars were small format. Unusual presentations such as variety boxes and cabinets of 100, 250 and 500 are hyper rare and always have a lot of interest in them.

Well stored pre-embargo Havanas are all undervalued in my humble opinion as they are sublime smoking experience and the current values don’t seem to accurately reflect the quality of the product.

By large format you mean long and with a large gauge, correct?

Correct, more length and larger ring gauge.

Are there any cigar styles or sizes that are more in demand? I understand there are some discontinued styles that are very rare.

Big brand names such as Partagas, Montecristo, Cohiba and Ramon Allones are generally the most sought after. Large formats as mentioned above are always more desirable as are more interesting presentations. Figurados in discontinued sizes are very popular.

For examples, have a look at these:

H. Upmann Dunhill Seleccion no. 335

H. Upmann Dunhill Double Claro

H.Upmann Berilos

H.Upmann Perfectos

H. Upmann Upmann’s - 1905 - 1912

Any particular old cigar brands you’d avoid?

For investment, stay away from small brand names that the new investor does not recognise. Though for smoking these can be some of the finest cigars.

https://onlinecigarauctions.com/sold_lot_info.php?products_id=4041

https://www.onlinecigarauctions.com/sold_lot_info.php?products_id=4040





– 12 –

Are there any cigars being made today that you think will increase markedly in value in years to come? (The next batch of Behikes, perhaps?)

Any and all Reserva, Gran Reserva, Coleccion Habanos and most Antique Replica series humidors will, we believe, always increase in value. The trick is to buy them on release to get the best possible staring price.

I believe that when the Cohiba Reserva is finally released the value will increase immediately and substantially over the first year or two.

I’ve seen several cigars out there with Reserva and Gran Reserva labels – do you mean all of the Cuban ones, like these below?

Confirmed... that’s the list.

Are we talking about the cigars themselves here, or only Reserva and Gran Reserva humidors (full of said cigars)?

They are presented in cabinets of 15 (Gran Reserva) cabinets of 20 (Reserva) and Seleccion Reserva was a cabinet of 30. They are not presented in humidors.

And are you referring to Cohiba Robusto Reserva, due to come out this year?

Confirmed though there is no release date yet.

Do you see any possibility of rare cigars declining in value?

Anything is possible but I have never seen a mass decline. Many see rare cigars as an



– 13 –

alternative investment.

The only other factor that would cause a decline in value is if the cigars have deteriorated in appearance and condition due to bad storage. Best to leave cigars with a professional cigar specialist. It also helps value as it adds to provenance.

Also, am I correct in saying that if you buy five boxes, customers can store their cigars for free at C.Gars?

Correct, five boxes a month for free locker storage or £350 plus VAT per annum for a small locker.

You can find out more about C.Gars cigar auctions here, or check out its main site here for more on cigar storage.

Now our next “old money” secret will be a bit more familiar: it’s diamonds. Not just any old diamonds however, my colleague Nick Hubble has a very specific kind in mind... with huge investment gains waiting in its future.

Before we get on to that however, a friend of his, a diamond expert, has very kindly written a short introduction to diamonds for you. I will now leave you in the capable hands of Roy Cohen, who lays out the basics that all shrewd diamond investors should know.

https://www.onlinecigarauctions.com/

https://www.cgarsltd.co.uk/



– 14 –

An Investor’s Best Friend?

By Roy Cohen, of the Diamond Certification Laboratory of Australia (DCLA) and The Gold Company

Diamonds have always been in my family. Well, I should say my family has been involved in diamonds for as long as I can remember.

When I was in my twenties my grandmother gave me a 2-carat vivid fancy yellow diamond. She told me it wasn’t worth much and my grandfather had bought it, along with other diamonds, for around $1,000 in the early seventies.

I sold that diamond in the late nineties for $40,000. That was my first taste of the investment value of diamonds.

The same diamond would probably be double that price again today.

Diamonds have always had an attraction and throughout time have been associated with wealth and status.

Couple that to the high growth in diamond prices and you have a very alluring investment class.

Diamonds, like other commodities, are priced in US dollars and then converted to local currencies. The economist in me sees the price rise in diamonds more as devaluation in the dollar and all other fiat currencies.

Because of the steady debasement of money around the world, investors are increasingly looking into real assets, particularly in the East and in countries where governments are less trusted.

Diamonds, gold, silver, art and other hard assets are in big demand. The wealthy in particular are piling into tangible investments because they act as a store of value and a hedge against inflation.

Preserving your wealth is a crucial part of wealth management. Diamonds are a much a more concentrated and portable store of value than other types of tangible assets. This makes them ideal for the upper middle class who want to protect their wealth as the wealthy do without the flamboyancy or cost involved in art or collectables.

All diamonds retain some value, but not all diamonds are great investments. To understand the difference, you have to understand what gives a diamond its value. For that matter what gives any item its value? Its usefulness? The cost of producing it? Neither.

What gives any good its value is the subjective value individuals put on that good. That is what drives the demand for any goods – the price buyers are willing to pay.



– 15 –

What about supply? The supply of diamonds is determined by mine production. Diamonds are rare and cost a lot to get out of the ground. Put together, the market of individual buyers and sellers determine the price.

The problem with diamonds is that they are difficult to value on the demand side. But several factors are important.

A diamond’s value is determined by size, clarity, colour and cut. Unlike gold and silver, diamonds are not homogenous. There are thousands of colour, clarity, shape and size combinations, not to mention differing cut and proportion grades.

Suffice to say every diamond is unique – no two are the same. In this respect they are more like fine art, a vintage car or property as investments. But without the costs or inconveniences that come with owning those alternatives.

The best diamonds for investment are the rarer diamonds. Larger diamonds, say 5 carat plus, in top quality. D colour flawless clarity is the best quality, being totally colourless and with no visible inclusions under ten times magnification. Certain fancy colour diamonds in one carat plus sizes are also extremely rare and valuable. The rarest colours are red, blue, pink and orange diamonds.

So how do you invest in diamonds? Well, you could buy shares in a diamond producer, or other listed company. Their prices are highly correlated with diamond prices. This however, defeats the purpose of investing in diamonds as a real asset in your possession not subject to any counterparty risks.

Alternatively, you could invest in one of the numerous diamond funds that have been established recently, where experts buy and sell diamonds on behalf of investors. This is more of a pure diamond investment, but still subject to management and other risks.

Or you can buy physical diamonds directly. This too comes with risks in that you need to know where, what, and how to buy and store. But at least your successes and mistakes are your own and the diamonds are in your hands.

If you are taking the third option of buying and holding physical diamonds, there are several things you should do to ensure the best possible experience:

1. Only buy a diamond with a grading report. Most investors are not going to be an expert diamond trader, so you need to rely on an independent expert to determine the quality. This is where reliable diamond grading reports from reputable diamond grading laboratories come into play. They also provide price indication reports. The best known is the Rapaport Diamond Report.

2. Buy the right diamond. The rarer the better. All diamonds are rare, but some are rarer than others. These are the diamonds which perform best as investments. You are generally not going to find investment grade diamonds at your local jeweller. Monitor the market and see what special stones sell for at auction. After every sale of magnificent jewels at Sotheby’s or Christie’s, the results are published on their websites. In any event buying at retail prices is not the best way to go.



– 16 –

3. Buy from the right source. The spread or difference between the buy and sell price can be vast depending on how and where you buy and sell. So do your research and try to get as far up the supply channel as possible.

How well a diamond performs as an investment depends on the price it was bought at, how rare the diamonds is, and the fundamentals of supply and demand of that particular diamond’s category.

When it comes to selling a diamond, be aware of your options. You can sell to a dealer, but may have to sell at a discount. Or you can put the diamond on one of the well-known auctions houses.

To store the diamonds, whether loose or in jewellery, think about a private vaulting company. Insurance is also a consideration. Some private vaults offer insurance at reasonable cost because of reduced risk. Insurance is really a personal choice depending on risk aversion and exposure. You may also choose to keep the diamonds in a personal safe depending on how secure the location is.

So what is the state of the diamond market at the moment? The fundamentals for diamonds are very good and getting better. Supply is flat or decreasing, particularly in the larger better quality or fancy colour diamonds. Demand is increasing due to the move to real tangible assets versus paper assets, led by Eastern countries. On top of all of that, the cost of mining is increasing. This all spells higher prices going forward.

In the end, owning a diamond isn’t just an investment decision. Diamonds are not financial assets inherently, although you can treat them as such. That would be a mistake. A diamond is a real asset, and like a fine piece of art or wine, is an investment you can enjoy as well as profit from.



– 17 –

The future's bright... pinkRoy Cohen’s guide to buying diamonds is a great start. But there’s a unique opportunity in the diamond market that I want you to know about.

The mine responsible for 90% of the world’s rare pink diamonds is going to close in 2020.

Can you imagine losing 90% of the supply of any good? The price spike would be spectacular. Well, it’s going to happen to rare pink

diamonds. That’s why I think you should invest in this specific opportunity.

Here’s what you need to know...

The Argyle mine in Western Australia was established in 1983. It quickly became the world’s biggest source of diamonds – 40% of total global production at its peak in 1994. Thanks to this prolific production boom, it’s estimated that 300,000 people in India are employed to process the diamonds.

But the Argyle mine is most famous for its rare pink diamonds. Thanks to their unique and easily identifiable features, they’re even known as Argyle diamonds.

In 2020, the Argyle mine will be closed. That’ll take 90% of the world’s supply of rare pink diamonds offline. And all of the unique Argyle diamond supply with it.

Some of the coming supply change is already priced into this investment. With extraordinary results. Argyle Pink Diamond Investments reports that “In the past 11 years Fancy Pink, Fancy Intense, Fancy Deep and Fancy Vivid Pink Diamond prices have increased by 367%, making them one of the fastest growing hard assets in the World Today.” That’s based on figures from accounting firm PWC .

But the gains are set to continue as “leading World experts estimate that over the next few years the annual wholesale price will surpass the documented historical annual price increases.” The owner of the Argyle mine, Rio Tinto, agrees:

Source: APDI

“Projected closure of the Argyle Diamond Mine forecast to dramatically increase Pink Diamond prices.”

Nick Hubble



– 18 –

Since 2014, pink diamond prices have stabilised. I see this as a consolidation – the sign of a healthy bull market to come.

Source: APDI

So how do you go about investing?

The most important thing is not to buy from a retail jeweller. The mark-up will undermine the investment returns far too much. You need to access wholesale prices from diamond investing experts. This is especially true because you’ll probably be selling at wholesale price to an auction house, so your sale price will be lower than the retail.

In addition to the features Roy outlined above, coloured diamonds have unique additional considerations:

• The hue is the colour of the diamond. If it’s a mixture, the dominant colour is mentioned second. For example, “purplish pink” is a popular Argyle diamond hue.

• The saturation is the intensity of the colour. Lite, intense and saturation vivid are examples.

• The tone is the amount of lightness or darkness of the diamond.

Because they’re coloured, and it’s the colour you’re buying, these characteristics become incredibly important to Argyle diamonds. In fact, the strength of the colour – the saturation – is the most important factor determining the value of Argyle diamonds. The stronger the saturation, the more expensive. And the smallest difference in colour makes a huge difference in price.

Interestingly, clarity matters proportionally less in coloured diamonds than white diamonds. Especially if the saturation is high. Arguably because you can’t see any so-called “inclusions”.

A rule of thumb is that diamonds of higher saturation will be less clear – they’re likely to have “internal graining”. To find a diamond with strong saturation and high clarity is very rare, and they’re very expensive. But when investing in Argyle diamonds, you should focus on the colour saturation, not the clarity.

Pink diamond colours are also classified by their coolness and warmth. People tend to prefer cool, sweet pink to the orangey warm pinks.



– 19 –

Even though you might not be able to tell the difference, the identified characteristics and their classification on the various scales diamond certifiers use are very important to establish value. You must make a note of them when investing, and be sure to compare prices extensively between diamonds of the same characteristics.

What about shapes? The rule of thumb is that the “round brilliant” shape will always sell for the highest price because it requires the highest amount of offcut wastage, and because it is most popular. Variations in shape reduce your target market.

However, Argyle Pink Diamond Investments’ research suggests that investing in round brilliants doesn’t pay off as well. The premium paid reduces your return too much.

The Argyle diamond target market enjoys shape variations. But not if they’re too unusual. That’s why “traditional fancy shape” diamonds are a better option than the classic round brilliants or the really unusual “modified fancy shape”.

Christie’s has reported that Fancy Intense Pink Diamonds from the Argyle mine will be priced at a 25-30 % premium over an identical diamond mined elsewhere. Why? They have a unique “DNA” which makes them identifiable. And the tests for doing so are simple :

Argyle Pinks Diamonds are statistically Type Ia in structure and fluorescent blue under ultraviolet light. The high fluorescence background observed by using a Raman Spectral Analysis (RSA) is the result of natural radiation from the surrounding rock layers of the Argyle Ore. No other sources of Pink Diamonds exist that exhibits such an effect from radiation.

Another significant feature unique only to an Argyle Type Ia Pink Diamond is its chroma and thermochromatic properties. The intensity of Pink colour typically will not temporarily alter (lighten) by exposure to either UV light or heat as most Type IIa pink diamonds do.

This makes it difficult to pass off any other diamond as an Argyle diamond. It also makes them more valuable.

So how do you get your hands on an Argyle diamond? You can’t just waltz into the mine’s showroom on your road trip through the Kimberley. I checked six months ago when I moved from Perth to Brisbane by car.

Argyle diamonds are sold in a complex tiered system of various tenders. Which you don’t have to worry about unless you’re a jeweller. Some of the tenders are open by invite only!

The best way to buy the diamonds is from an approved diamond investing expert. They’ll reference wholesale prices and provide all the reports and certification you need to be able to sell the diamond at its true value.

How do you sell out when the time comes? There are three options.



– 20 –

You might be able to find a buyer individually. That’s ideal because you can split the difference between the wholesale price and retail price with your buyer. But it’s difficult to pull off. Marketing diamonds is a very specialised business.

Auction houses are suitable for Argyle diamonds. They’re famous enough to attract plenty of attention in places like this. But the commissions are high.

The third option is to place the diamond on consignment with a jeweller. This means the jeweller will try to sell your diamond for an agreed price and commission.

There is one key pitfall to buying diamonds as an investment in the UK. They’re subject to Britain’s whopping VAT of 20%. A 20% loss is a painful starting point. The gains in the last decade make the loss look tiny. But it’s still not a good place to start.

British investors who buy diamonds in countries with lower consumption taxes and bring them back must pay the VAT at customs. Both the Beckhams and the Clooneys have fallen afoul of this rule.

Above, we’ve looked into the reason why the supply shock to Argyle diamonds promises good returns. But there are also several demand side reasons why I recommend you invest a small amount in diamonds, despite the upfront cost of doing so.

The first is the trend of inequality. Personally, I blame this trend on government and technology. And I think the data is deeply misunderstood. But the point is, there is a growing class of very high net worth individuals around the world. And a disproportionate number of them are seeking to invest in tangible wealth thanks to the political instability of their home countries.

Diamonds fit the bill perfectly for the reasons discussed above, and the two I’m about to highlight. Inequality and booming economies in Asia give you a compelling demand story for diamonds. A huge number of diamond consumers are coming online around the world thanks to spreading capitalism combined with government encroachment.

The second reason to invest is that diamonds are the ultimate when it comes to portable wealth. And storage is far easier than for other tangible wealth forms for the same reasons. Diamonds are tiny, tough and the value is highly concentrated. They’re the most convenient form of tangible wealth out there.

The last reason to invest is simple. The consumption of diamonds doesn’t deplete or risk damaging them. That’s because you wear diamonds, you don’t eat, drink or smoke them. Nor do you hang them up in the vicinity of dangerous toddlers or stumbling cleaning ladies. They’re still there tomorrow, after you’ve “used” them.

This means the consumption and investment uses co-exist at a low level of risk. You can invest in and use your diamonds at the same time, if you choose to.

I can’t think of any asset this is true for in the way that it’s true for diamonds. And it’s a significant advantage that makes diamonds an excellent choice for holding tangible wealth.

ALERT - Southbank Investment Research...Well-aged cigars have a refined and mellow taste, which...

Documents

Transcript of ALERT - Southbank Investment Research...Well-aged cigars have a refined and mellow taste, which...