Teach them to give back. By giving back to your community and helping people in need, donations can make a real difference and bring real meaning to your life. In addition, a gift to a qualified charitable organization may provide a charitable contribution deduction against your income tax.
As a part of the series about “Investing During The Pandemic” a feature on Cormac Kinney.
With innovations cited in nearly 4,000 U.S. Patents, Cormac Kinney has been the founder of four software startups acquired by public companies. He is a quant finance pioneer who invented heatmaps, designed over 100 institutional trading systems, and perfected sentiment analysis for statistical arbitrage, using it to manage over 500 million dollars for Tudor and Millennium. Most recently, he built a business social network integrated into premium news publications, which was acquired by News Corp.
Cormac studied computer science at Carnegie Mellon, earning Bachelors and Masters of Science degrees. Now, as founder of Diamond Standard, he has solved the challenge of creating a standardized diamond commodity. Delivered as a physical coin or bar, this regulator-approved commodity can be transacted as a token on a blockchain, with diamonds supplied fairly via transparent bids on an electronic diamond exchange.
Thank you so much for joining us! What is your “backstory” and what brought you to the finance industry?
Starting in college, I have been interested in developing new technologies for financial trading. Since then, my innovations have been cited in over 4,000 U.S. Patents, and I’ve founded four startups that have been acquired by public companies. People are most often familiar with heatmaps, and I also designed more than 100 institutional trading systems. Later I adapted computational linguistics to calculate the sentiment of news about stocks, and ended up using that to manage 500 million dollars for Tudor and Millennium. For the last seven years, prompted by my jewelry-designer wife, I have focused my quantitative skills on diamonds. As founder of Diamond Standard, we have solved the challenge of creating a standardized diamond commodity, turning them into a liquid, investable asset. Transacted on the blockchain, the Diamond Standard Coin is a unique physical and digital asset, forming a decentralized reserve to asset-back any digital contract.
What is the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or take away you took out of that story?
Midway through my career, it’s safe to say that I had “made it,” having sold several companies, and now running an automated system to manage hundreds of millions of dollars. I had stopped innovating and building; I was managing trade execution and risk. Perhaps seeking excitement, I bought a beautiful yellow Ducati, and began racing on weekends. The proud moment — dragging my knee around a high-speed curve. Of course, then comes the fall. I had 14 fractures and spent a month in the ICU. The worst part was putting my wife and children through that stress, plus the three surgeries and a year of rehab. Afterwards, I had a new appreciation for life and work, and rededicated myself to building new ideas — one was acquired by News Corp., and now Diamond Standard.
Are you working on any exciting new projects now? How do you think that will help people?
We recently launched the first regulator approved diamond commodity, a forgotten natural resource with 1.2 trillion dollars of market value — more than silver and platinum combined. This means that diamonds are finally available as a tradable investment asset, coming soon as futures, options and exchange traded funds. Over the past year, there has been strong interest as investors realize that diamonds are an untapped store of wealth, and especially valuable as countries around the world print unlimited money. In the year since receiving regulatory approval over this new commodity, diamonds are up 32%. We think now is the best opportunity for investors who can acquire this newly available asset class, where institutional investors will be building positions for perhaps a decade — starting after the futures and ETF are launched. The diamond commodity is for investors looking for a natural resource that can offer both price appreciation and an inflation hedge.
The Diamond Standard commodities have already been approved to settle futures being listed on the CME Globex, and options being listed on MIAX Options. An ETF is pending SEC approval for listing on the NYSE.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?
When I was young, my best friend’s father was a larger-than-life restauranteur, with about 20 locations. That opened my eyes to entrepreneurship. When I moved to Pittsburgh for college, he introduced me to his brother who happened to live there and became my instant uncle. Family dinner every Sunday, and he gave me a job. The Ferrara brothers were my mentors and then my first investors. I’m eternally grateful.
Let’s shift a bit to what is happening today in the broader world. Many people have become anxious from the dramatic jolts of the news cycle. The fears related to the coronavirus pandemic have understandably heightened a sense of uncertainty and loneliness. From your experience, what are a few ideas that we can use to effectively offer support to our families and loved ones who are feeling anxious? Can you explain?
For me, a key moment was when I realized that social media is inherently dangerous, and that realization enabled me to reduce the negative impact. It’s something that I’ve taught my teenage children, who are especially susceptible. Social media algorithms are designed to feedback controversial or negative messages in the hope to engage you. This distorts your perception and makes you susceptible to misinformation. On Instagram, people always share these happy moments, many of them entirely fake, showing them enjoying brands and luxury experiences. It’s only natural to feel left-out of the party, unfulfilled, or inferior. Once you recognize that you are the product for Google, Facebook and Instagram, you can take back control of the emotional triggers.
As you know the stock market and the economy in general have become extremely volatile and uncertain. Many people “dollar cost average” and put aside a monthly sum into a long term savings plan for retirement, college, or a home purchase. If a loved one or a client came to you and said, “I have been saving and investing 500 dollars every month in an S&P 500 index fund. Over the next few months until the dust settles, should I be doing something else with my money?”, what would you say to them?
Obviously as the developer of a new asset class, I’m biased. It really depends on a person’s stage in life, and the risk tolerance they should adapt as a result. Young people should invest long term in riskier assets, formerly equities and now probably digital assets. But digital assets are extremely risky, with the potential to be wiped out instantly by the SEC, Congress, or new technology. That’s why I like Diamond Standard — it’s exactly half-way between gold and Bitcoin — a digital asset with a deliverable, scarce physical asset behind it.
Eventually the economy will recover and rebound. Certain sectors, like travel and hospitality might be hurting for a while. But other sectors, like technology and healthcare, might do very well. If someone wanted to prepare today to take advantage of the future recovery, what would you suggest they do?
In the current market environment, there are a number of risks — COVID variants, changes to the Fed’s monetary policy, and a further increase in inflation. For investors looking to protect their portfolio, diversifying with hard assets can provide capital preservation, risk management, and consistent returns. Investors have shown an increased interest in hard assets, and diamonds in particular are seeing a strong increase in demand. By investing in them now, before diamonds are added to the commodities index, investors have an opportunity to beat the onslaught of others who will be accessing them via alternative means.
Are there sectors that provide exciting and lucrative investment opportunities today, specifically because of the volatility and uncertainty?
Investors see post-pandemic inflation coming, and many are earmarking bigger pieces of their portfolios for commodities. Historically, diamond values had little correlation to precious metals. That is because in times of economic downturn, diamonds — with only one percent of global stock held as an investment — were not impacted by those fluctuations. As a result, over the last 17 years, since the launch of the Gold ETF, gold went up 400% and diamonds only 11%. Since receiving regulatory approval in August 2020, diamond values (as of September 12, 2021) are up 32%. The value of our diamond coin has risen nearly 20% since the initial coin offering in March 2021. Over the same period, the price of gold decreased by 11%. We see this as just the beginning of diamonds rising into their full potential as a safe, transparent, viable commodity.
Are there alternative investments that you think more people should look more deeply at?
Again I’m biased, but now that diamonds are investable as a liquid commodity, and soon as diamond-backed digital asset, we expect diamonds to catch up with palladium, where 15% of the supply is held by investors. That could result in a 400% price increase over the next 10 years, as investors of the world build positions from zero. If the Diamond Standard commodities also become highly demanded to asset back digital contracts and currencies, this scarce natural resource will become even more valuable. Regardless, depending on the imbalance between the demand and supply, we expect diamond prices to increase by the time investor allocations approach the 15% of supply level. And the market timing is ideal — as the pandemic lingers, and investors need the store of wealth and hedge benefits of hard assets, diamonds will continue to shine. They are a globally demanded asset, that was simply not accessible to investors before, providing both a hedge and upside.
If a person in their thirties and forties came to you today and said that they have 10,000 dollars that they want to put away today for a long term investment what would you advise them to do with it?
Unexpected inflation has the potential to erode a portfolio’s purchasing power, which can be a challenge for investors with a shorter investment horizon. As mentioned, commodities stand apart as a vehicle for hedging against unexpected inflation. They are a hard asset and precious metals in particular can protect an investor’s portfolio during times of economic turmoil as they typically outperform the stock market. In addition, they have intrinsic value since they cannot be printed or issued like stocks and bonds. No matter what your portfolio looks like today, if you add diamonds to it, your risk is significantly lower. For the next 15 years, as investors build positions in diamonds for the first time, the one-way demand is likely to outweigh short-term economic trends.
Here is a more general finance question. You are a “finance insider”. If you had to advise your adult child about 5 non intuitive essentials for smart investing, what would you say? Can you please give a story or an example for each?
One of the most important things is to teach them the value of money. It doesn’t grow on trees and should be valued as such.
Teach them to give back. By giving back to your community and helping people in need, donations can make a real difference and bring real meaning to your life. In addition, a gift to a qualified charitable organization may provide a charitable contribution deduction against your income tax.
Help them learn to earn so they can get a head start on my earlier point of understanding the value of money. Use visuals to help them better understand savings and how certain investment decisions can make an impact.
Look for something in a market that is compelling to you personally, but don’t make emotional investment decisions.
Your credit report is your lifeline for your future. Teach them the importance of building — and protecting — their credit starting at an early age.
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
“When the door slams in your face, start looking for the window.” As an entrepreneur, there are many times you will be told no and be faced with nonbelievers. Instead of taking no for an answer find another way, consider all your options, and believe in yourself and your idea. At the end of the day, it’s better to ask for forgiveness than permission.
You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be?
Loyalty is extremely important, and I wish more people would understand the effect that can have on the greater good of the universe. Trust the people who are with you from the beginning, and you are likely to build a lifetime of wealth in numerous ways, not just financially.
