So this friend of mine deals in estate sales. Somebody dies, a bank happens to be the trustee, it calls in several estate liquidators to bid on the estate, and my friend is often one of them. He comes in to the bank and looks at the stuff — the jewelry, for example — or goes out to the house and eyeballs the furniture and the car, and he makes a bid.

If he’s the high bid, he uses his wits to dispose of everything in a way that will net him more than he bid.

That’s the game. It’s the free market working pretty well. None of the liquidators bids so much that they can’t make a decent living. But there’s enough competition that the estate generally gets a reasonably good wholesale price for its goods. (If the bank were willing to do more work, and parcel everything out itself — to auction houses, primarily — it might eventually get the estate the extra money the liquidator earns. But it generally doesn’t work that way, and bank trust departments often don’t have the expertise and savvy these nimble fellows do.)

So in he goes to one of the banks that regularly calls him in to bid (sadly, rich people die on nearly as regular a basis as anyone else), and he bids on the jewelry, a field he knows well — but not on the diamonds. Diamonds he doesn’t know so well.

“Oh, come on,” says the bank trust person handling this, “bid on the diamonds.”

“Well, you know, I really don’t know diamonds that well. I’d rather not.”

“Listen, do me a favor. You don’t have to bid high, you won’t get them, but I need to show five bids … help me out.”

So my friend (who may not know diamonds that well, but who sure knows them a heck of a lot better than you or I) looks at the diamonds, still in their settings, looks at the appraisal — they are graded “G” by a Gemological Institute of America-certified appraiser — and he bids $70,000.

You already see where this is going. Yes, he got the diamonds. And when he went to sell them, and a jeweler took them out of their settings and really looked them over in ideal light (not a bank vault), he found that really they were not “G” grade after all, but a few steps lower — “J.”

I don’t know what this means any more than you do, except that it means trouble.

My friend went back to the bank, explained what had happened, and asked for his money back.

No, the bank said, they couldn’t do that. The money had already gone into the deceased’s trust account. It couldn’t come out. The sale was clearly marked “As Is.”

“Yes, sure,” said my friend, “but ‘As Is’ included an appraisal. You represented these stones were ‘G,’ and that’s the way I took them. I relied on your representation that they were ‘G.’”

Sorry, said the bank.

To my friend — to almost any of us, really — $70,000 is a lot of money, and while “J”-grade diamonds are not worthless, they are worth a heck of a lot less than “G”-grade stones — nearly 40%. This was a serious disaster.

He got the bank’s annual report and wrote a letter to each of its directors. (It is a very big bank.) A couple of weeks later, he got a call from someone in headquarters that the bank would reverse the transaction … assuming he gave back the same stones. They sent the appraiser who had done the appraisal to pick up the stones for the bank. The appraiser measured the stones and said, “These are not the same stones.”

My friend’s heart began to race. They were indeed the same stones, but this appraiser had an incentive to think they were not — especially because now, removed from their settings and viewed in good light, the appraiser could see they were definitely not “G.”

“Measure them again,” said my friend. “And again and again and again.”

The appraiser did and reluctantly agreed they were the same stones.

“How could you appraise them ‘G’ if they are ‘J’?” my friend asked. Well, said the appraiser, he hadn’t been able to take them out of their settings, and the light in the bank vault was lousy. “Well then,” asked my friend, “how come you didn’t at least append a footnote to your appraisal noting that?” Mumble, mumble.

My friend showed up at the bank for his check, and they handed him a check drawn on the trust account. No, said my friend. “Every other bank I deal with takes my personal check, but you always require a cashier’s check. So I want a cashier’s check from you.” (Well, he was angry.) So the bank drew him a cashier’s check, and he had his $70,000 back. (This bank has not invited him to bid on an estate sale since.)

Later, he ran into one of the other guys he frequently bids against on these sales. A more senior veteran of these wars. “How come I got the diamonds?” my friend asked. “How come you didn’t bid on them.”

The other estate liquidator said, “Well, I never rely on a GIA appraiser — only on a GIA appraisal.”

An appraiser is just one guy who belongs to the Gemological Institute of America giving his opinion. A GIA appraisal means the stones have been sent to New York, removed from their settings, observed under ideal conditions, and appraised by a committee of three expert GIA-certified appraisers.

Why do I tell you this story? Because I find this kind of thing fascinating. Not diamonds per se (to me, the only fascinating thing about diamonds is why anyone would buy them when synthetic diamonds look — and are — essentially identical), but just the drama of everyday commerce … how the world works. And because, also, it shows yet again that when it comes to investments, the fellow with the most expertise and information and experience has a big edge. If you’re not that person, you should think twice — especially when you’re buying something that lacks an easily ascertained market price.

PS — As I write this, I see in The Wall Street Journal a little ad for “Diamond Studs Priced Right.” Is this a good deal? I have no idea. (And aren’t buttons a lot easier anyway? Surely they are more economical.) But click if you want to take a look. “Inspect 10,000 fine diamonds with prices online.” They’ll even let you send anyone a “virtual diamond.”

PPS — My own instincts run more toward the financial instrument known as diamonds — stock symbol DIA — which more or less mimics the Dow Jones Industrial Average.

PPPS — Finally, should you be interested in the (lengthy and roundabout) details of how I obtained my own diamond from the Cheese of the Month Club once upon a time, it’s all in Chapter 13 of Money Angles, long out of print, but yours for the clicking.



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