There is something that concerns me about diamond investments, especially on a large scale. Several years ago, one of the news magazine shows (60 Minutes, I believe) had a story about the ex-soviet union. Seems Russia has in their vaults, billions of dollars worth of diamonds that they are hoarding in reserves (for what reasons, who knows).
My concern has been if you held diamonds (or De Beeers stock) and this flood of diamonds was released into the market, prices of stones and stock would have to plummet. Knowing the financial problems of Russia, some of the stones may have been sold, and I don't know how to tell if they still have room fulls of them.
For that reason, I have always been cautious of diamonds/stocks. They may be waiting for the market to get right in South Africa to release some of their reserves. I am sure WB is aware of such reserves. I hope so, anyway.
I saw the same show on Russian stockpiles of diamonds.....talk about "hard" currency waiting to be unleashed. Second concern is specific to De Beers involvement in South Africa. It won't take Mandela and his crowd too long to turn that country into junk. I assume De Beers saw this coming decades ago and is prepared.
The concern you mentioned is what chased me out of Debeers years ago. I noticed the increasing diamond inventory Debeers carried on its books. They even were borrowing to support their purchases. The supply of diamonds continues to grow with new mines coming in all the time, not only in Africa, but Australia as well. And there may be huge amounts of diamonds in Canada. Diamonds are not the rarest of stones. Rubies for instance are more rare than Diamonds. From what little I have followed Debeers over the last ten years, its hold on the diamond market seems to gradually slip. The percentage of world wide diamond production that is not from a Debeers owned mines is constantly increasing. They have had an especially hard time with Russia. Russia is more difficult to deal with, not less difficult since the break-up. It is the wild West over there. I know that the marketing agreements with Russia have been allowing Russia to make more direct sales of finished diamonds than in the past, thereby bypassing Debeers eintirely. There is a trend here I did not like ten years ago. I really do not know what is going on today. Even though Debeers has substantial non-diamond investments and is a huge store of value, I am still surprised to hear of Buffett buying into it If indeed he has.
For anyone interested, it is propbably the most difficult company to understand I have ever seen. Not only must you understand Debeers ( and it is a paired stock to boot ), but you must understand its sister company, Anglo-American Company of South Africa, which is also an impossibly complicated company. They have substantial cross holdings and therefore in effect control each other. And they contol a large portfolio of other South African and international corportations. Add to all of this, a lot of the diamond marketing operations are carried on by private companies in which Debeers has a partial interest. Those operations therefore have no public disclosure. And if in an off chance, after years and years of diligent research, you think you finally have it figured out, they shuffle all of the subsidiaries, create a few new holding companies, merge far flung companies into a new international company that does whatever, put all the gold mining companies into this one and take all of the platinum mining companies out of that one and......
If Buffett wants to understand a company before he buys it, Debeers will be a real challenge. I never could do it.