Basic Business Rules: Buying Rough

Can a Novice Faceter Also Buy and Sell Rough?

In any trade, very few people can play the game at the highest level. This applies to gem cutting as well as rough buying and selling. Dealing in rough is an extremely tough business. It takes millions of dollars and many very expensive years worth of experience, as well as talent, to buy and sell rough at dealer levels.

If you want to cut gemstones for a living, this shouldn't deter you from getting started. However, I hope my message is a wake-up call for any wannabe rough dealers. Yes, newcomers can succeed in the rough-and-cut business, but you have a long way to go. You may not want to take on the additional strain of competing with rough dealers.

My advice: leave the gemstone rough business to the experts. Trying to hustle a buck selling gem rough is probably the number one mistake newbie cutters make. If you're just learning how to facet, why would you think you can make money buying and selling rough? For some reason, many novices want to get into the rough business. When they do, they get eaten alive. Here's the plain truth: if you have no experience faceting gems, you have no business buying and selling rough.

Pick one field and stay with it, either faceting or rough dealing. Don't try to do both. Trying to do both will mean splitting your start-up capital, which is usually small. You'll put yourself on the fast track to ruin.

Buy Your Rough from the Experts

It's counterproductive to try and compete against established experts in a field as small, capital intensive, and close knit as the rough gemstone trade. Therefore, take advantage of other people's expertise whenever possible, especially when you're just starting out. Yes, it'll cost you to pay for the material. When dealing with professionals, you're paying for their expertise. However, paying a fair price to an expert is better than learning a lesson the hard way.

Listen to the rough experts. Most of them have more experience and knowledge than you'll ever have, unless you spend the same amount of time and money learning as they have. If you want to get into the gem cutting business, spend your time and money cutting gems. All new cutters start out at the mercy of rough dealers (and everyone else). With some common sense and a little more experience, most will figure their way out of this stage. You'll learn more about cutting and make fewer mistakes when you deal with honest experts.

On the other hand, if you really want to get into the rough business, get ready to take your lumps. Newbies in that trade usually last until they run out of money. Want to know how to make a small fortune in the rough business? Start with a large fortune.

Watch Out for Phonies

Unfortunately, there are many self-proclaimed "experts," both gem cutters and rough dealers, who really don't know what they're doing. Also, many rough dealers don't facet stones. They just buy and sell rough. Beware of these types.

As a new cutter, how can you tell the difference between so-called experts and real experts? Easy. Look at their work. Look at their cut stones and rough inventory. What type and size of business do they operate? Do they have any well-known works or professional references?

Real experts will have photos of their cut gems and rough material. They'll have established reputations. Maybe people you know have done business with them previously. On the other hand, if someone claims to be the largest tanzanite rough dealer in the USA, without any proof, or claims to have cut 10,000 gems… well, these people aren't what they claim to be.

Rules for Buying Rough

Here are my rules for buying rough. 

Ask Yourself: "Can I Make Money Cutting that Rough?"

This is the Golden Rule for novice faceters. The most important question you should ask yourself isn't "how much does that rough cost?" Don't get bogged down on the cost of rough. That's not the real issue. As long as you can afford to purchase the material, the most important question is: "can I make money cutting that rough?" 

If you can make money on any piece of rough, you should buy it. Period. Of course, you need the budget to afford it, but your only concern as a faceter is whether you can profit by cutting the rough.

Be Honest About What You Want

You'd be amazed at how many times people ask me for rough they don't really want. This is because they don't really know what they want. Other times, people want what they can't afford so they're looking for a steal.

My advice to new faceters: don't waste everybody's time. Be up front about what you want and what you'd like to pay. This will make your business transactions a lot easier. Rough dealers can say yes or no right away, or they might have some suggestions. If you're not sure what rough you want, describe the kind of material you'd like or what type of design you want to cut. Otherwise, a rough dealer can't really help you figure it out.

Expect to Pay Good Money for Quality Rough

You'll never get something for nothing. In the gem business, there are no deals or steals. I'd keep repeating this, but the people who don't get it are never going to get it.

Quality rough will cost real money and not deviate far off the going wholesale rates of the same rough when cut. Why? It's just too easy and cheap to have the rough cut and get more money. Therefore, nobody will sell quality rough for much less than they could sell the same rough after cutting. Also, keep in mind that good dealers can put away clean, quality rough, even for a few years, and sell it for more money later. They're never in a hurry to sell quality rough and have little need to strike bargains.

If you do find rough at a price significantly cheaper than the wholesale cut price, the odds are pretty good there's something wrong with the rough. It won't be the deal you thought.

Invest in Building Relationships in the Trade

A few variables do affect rough cost. For example, the amount bought and sold (both in terms of quantity as well as dollars), the connections between the people involved, the financial situation of the vendor, etc, all play a role. Nevertheless, in almost all cases, you'll get what you pay for. 

Expect to invest a lot of time (as in years) building relationships. People in the gem trade deal with customers they've known for years. They hold these connections near and dear. You won't get any inside deals anytime soon. Don't expect to just waltz in and start establishing your network. And don't expect any established dealer to just fill you in on their hard-earned business connections. You'll have to do business with people and establish good relationships slowly, over time.

Buy Rough in Parcels

The best way to buy rough is in parcels. Although quality parcels aren't cheap, they're the only really practical way to buy quality rough.

Parcels contain multiple rough stones and will always have some random pieces, including problem and special stones. You'll have to learn to work with parcels and those random stones. Quality parcels will be expensive, but picking individual rough pieces by hand will cost even more.

However, having said that…

Don't Pass on Buying Hand-Picked Rough

You can still make money buying hand-picked rough. Just keep in mind that the profit margins are generally smaller and you have to know what you're doing.

The upside of buying hand-picked rough is that you get exactly what you want: good shapes and low waste. In the long run, you can make more profit more easily if you can cut these selected pieces well.

For larger pieces, you'll generally have to buy hand-picked rough. All miners and dealers will set out large, high-quality rough and want top dollar for it. Personally, when I need a special piece, I often buy rough this way. You should consider this when you're looking for special rough. Otherwise, you may have to buy parcels of smaller, less quality rough to get the one or two very nice pieces you want. Ultimately, buying a very nice, hand-selected piece may work out better financially than buying multiple, poorer quality parcels.

Pay Your Bills Promptly

Your reputation is important in the gem trade. Paying your bills late is a good way to freeze your chances of ever seeing good rough again. Remember, most dealers who sell quality material have bills to pay, too. Getting a reputation for not paying promptly will cost you very dearly. You won't see parcels or have chances at parcels if dealers know you're slow to pay or if you cause other problems. So, don't act like a jerk. Dealers talk to each other.

Novices Should Avoid Memos

Memoing (or consignment) is when a dealer will send one or more parcels "on memo" to a customer before payment. The customer picks what they want and sends the rest back. In theory, this sounds fine (especially for the customer). In practice, however, it doesn't really work most of the time for either cutters or dealers.

Why? Cutters will usually find that dealers willing to send rough on memo are most likely sending junk they're trying to get rid of. Dealers wouldn't need to memo quality rough. That material would sell out easily. (Or, again, dealers would just have it cut themselves and sell it for more money).

For dealers, memoing can be a paperwork nightmare. If a dealer has a lot of memos out, tracking and collecting unwanted rough can become a problem, not to mention all the time and effort it takes to mail the stuff. All this has to be done, even with no assurance of profit. Furthermore, dealers can't sell rough that's out on memo to customers who are ready and willing to pay for it. 

Novices Should Avoid Buying Rough Directly from Miners

Many newbies think they can just go to mining regions and buy quality rough directly from the miners. In fact, very few people can do this successfully. Most are major rough dealers. Buying from miners is very competitive, too. It takes a lifetime of connections with people in the business. If you have no experience buying rough, remember this old saying before you head out to the mines: "A fool and their money are soon parted."

Buy Native Cuts for Rough That's Hard to Find

Some quality gem rough is just not available. If you want to cut these stones, you'll have to buy native-cut pieces and learn to re-cut them. The best example of this is sapphire. Novices will very rarely find quality sapphire rough with nice color for sale. The experts in the gem trade usually buy up the rough of this caliber. Virtually all sapphire rough of any quality is cut.

Buy, Buy, Buy Quality Rough

Once you learn enough to know what you're doing, buy, buy, buy. Buy quality rough. Invest in it and hold it for a few years. If you're serious about making money cutting gems, this is key. Buy when you have the chance, because you can't predict what quality rough will be available later. If you pass on quality rough now, I guarantee others will buy it out from under you. Of course, prices are always a concern, but things never really get cheaper. Most likely, the price of any quality rough will increase substantially over the next few years. Buy all the quality material you can, as soon as you can.

Always Be Cutting

When you're just starting out, cut all you can. You'll gain experience and build your inventory. 

If you cut nothing, you'll sell nothing.