How to Invest in Diamond Stocks

Like oil and natural gas, there is a finite amount of diamonds available. As the demand for diamonds increases, so does the price. For this reason, diamond stocks can be a profitable investment. But buying diamond stocks is more than just investing in a lucrative industry. The management capabilities of the diamond companies are important to examine.

Instructions

1. Educate yourself about the diamond industry. Although many people would think this is an obvious first step, it bears saying that the best way to buy profitable diamond stocks is to have an overview of the diamond industry. As an investor, you must understand what new technologies are being used for mining or cutting diamonds. There are many types of companies, foreign and domestic, involved in the diamond industry, and you need to understand what a company does before buying its stock. Some diamond stocks are of companies that mine diamonds, while other companies cut diamonds or sell diamonds wholesale or retail. You also have to decide if you want to buy stocks in companies involved with conflict or "blood diamonds." These are diamonds mined by companies who violate the human rights of the miners. To learn more, read diamond industry publications such as "Diamond Investing News."

2. Decide on a trading plan. The best way to make profitable investments is to establish a trading strategy. Know beforehand what stocks you will buy and when you will sell them. Conservative investors like to buy diamond stocks and hold them for the long term, for years. Over time the prices of good stocks will steadily increase. Speculative investors like short-term, more sophisticated investment techniques such as day trading, short selling or hedging. These trading options require more research, knowledge and monitoring of the stocks on a daily basis. Short-term investing requires more time and commitment. Another option is to buy some diamond stocks for long-term investments and other stocks for short-term investments. Whatever type of investor you are, be disciplined and stick to your plan.

3. Choose diamond stocks with good value. There are many online and print publications that recommend stocks in all industries. This is the first step to finding stocks to buy. Using reputable resources such as the "Wall Street Journal" and "Business Week" will help you to locate financially sound companies.
   The main things to look for are steady earning (and possibly dividends) and low debt. Some mining companies may spend a lot of money for research and development (R & D). A company with a lot of capital or cash available is also the mark of a well-managed company. Read the annual report of any company you are considering investing in. These reports give detailed financial information and discuss future plans for the companies and are free of charge, often on the company's website.

4. Practice buying and selling stocks. This can be done online with stock trading games. There games give you virtual money, and you can then buy and sell stocks to test your investment acumen. The system keeps track of all your trading orders and gives you a total of your profits or losses. Online trading games are an excellent way to learn how to buy and sell stocks. Thousands of real companies are available for your virtual trading, and most of the large diamond companies are available.

5. Find a broker. There are many types of brokers available. You need to assess your needs before choosing a stockbroker. All brokers handle diamond stocks, but if you want to buy international diamond stocks, you need a broker that handles foreign stocks. Full-service brokers offer research tools, free newsletters, online seminars or recommendations, while many discount brokers offer only lower commissions. The initial deposit for opening an account must also be taken into consideration. TradeKing has no minimum deposit, while larger brokers such as Morgan Stanley have an initial deposit of $10,000 or more. To find surveys of top rated brokers read "Smart Money" or "Forbes" magazines.

6. Start small. If you are new to investing or have limited financial resources, start by buying a small number of shares. As you become a more experienced investor, you can buy more shares of a company or buy stock in several companies. It is always best to diversify and not have all your investments in the diamond industry. This reduces the risk of losing money. Although a bad economy can lower the price of diamonds, for the long term, diamond stocks are a good investment.

Resources

• Diamond facts