FORGET RED roses for St Valentine's Day: diamonds are still a girl's best friend, and if you buy at auction you can pay a fraction of the retail price and leave the value-added tax (VAT) collectors empty-handed too. I know: I paid pounds 458 for a ring that costs nearly pounds 16,000 new.

The difference is that the cost of raw materials and of making old jewellery have already been absorbed. Pieces sold by UK individuals at auction do not attract VAT, except on the buyer's premium, and most dealers pay VAT on their profit margin instead of charging buyers VAT on the retail price. And old jewellery is generally of finer craftsmanship than contemporary pieces.

Buy new jewellery and not only will you pay VAT at 17.5 per cent, but you will be paying for the raw materials at present prices, the full manufacturing costs and the profit margin of the maker, wholesaler and retailer. Jewellery shops have some of the highest margins on the High Street.

Typically, a new solitaire ring costing around pounds 5,000 would sell for less than half at auction. New jewellery retailing at less than pounds 1,000 depreciates even faster. It can take 25 years for such pieces to fetch their original retail prices on the secondary market. You should look on buying jewellery as a game of Snakes and Ladders. The snakes represent pitfalls to snare the unwary, and the ladders give you value for money. But, with guidance it is possible to sidestep the pitfalls. All the major auction houses have specialists to advise potential buyers.

Catalogues for jewellery auctions appear on websites well before the sale. Or you can buy a catalogue and have it mailed. If you see something you like, ask the specialist for a condition report. This will cover repairs to alterations, the quality of the stones to the condition of the setting. Ask for guidance on the price at which it is likely to sell, because catalogue estimates tend to be conservative. Daniela Mascetti, head of jewellery at Sotheby's, says: "Today's buyer is tomorrow's seller; it is not in our interest for a client to overpay."

At Christie's, South Kensington, Keith Penton encourages potential bidders to scrutinise pieces through a 10x lens. The close examination is crucial, because the magnification will reveal defects as well as attributes of the piece. Having sought advice from many auction house specialists, my experience is that they are enthusiastic and very informative tutors.

Jean Ghika, at Bonhams, receives most requests for guidance on diamond- set jewels. Most potential bidders will have heard of the "four C's" - colour, clarity, carat and cut - but usually they do not know how to apply them. Ms Ghika's advice on a diamond ring is simple: "Buy as white a stone, free from natural inclusions, as your budget allows."

It is possible to buy interesting antique jewels set with semi- precious stones from pounds 150, although the sky is the limit as aspirations increase. Art Nouveau and Art Deco are in great demand, but pieces from the late 20th century are not as popular and prices are more affordable. But buy only what you like, always buy quality and preferably a signed piece by a well-known maker.

Auction houses are but one source of jewellery. There are thousands of dealers in the UK. Wherever you seek your jewels, train yourself to recognise what is good. Go to auction views, visit antique centres, talk to dealers and auction-house specialists, and compare prices. Is jewellery a good investment? As one old-timer says: "It depends what you pay." Do your homework, avoid pitfalls and you could do very well.

For myself, I wanted to see if I could buy a piece of jewellery at auction for a few hundred pounds that would cost a few thousand to buy new. Having scanned the pre-Christmas auction catalogues, I decided on a diamond and sapphire dress ring made by John Donald in 1967. An innovative artist- craftsman in the 1960s, today John Donald is a jewellery designer of international repute based in the City of London. His jewellery does not often appear at auction.

Bonham's offered the ring in Knightsbridge last November, saying it had "a mixed-cut sapphire set to the centre in a yellow 18-carat gold bombe style mount, comprising a series of abstract textured cubes accented by 14 brilliant-cut diamonds, weighing approximately 1.00 carat in total". The piece was offered in its original case, which is a plus factor, and the estimated price was pounds 400 to pounds 600.

A specialist at Bonham's considered the ring a good example of John Donald's 1960s work. The sapphire was described as "a little milky" with black inclusions and the pavilion (the base) being off- centre. As that made it sound as if the sapphire had come from a Christmas cracker, I left a bid of pounds 700, despite being told the estimate was conservative.

I was the only bidder and the ring was knocked down to me at pounds 380, or pounds 458.13 including the buyer's premium inclusive of VAT. I saw the ring for the first time when I collected it and felt I had a bargain. To obtain the cost of supplying a facsimile ring today, John Donald was asked for an insurance valuation. This was a jaw-dropping pounds 15,751.