The Case For and Against Watches as Investment
How to keep a healthy mindset towards value retention in watch hobby and be happy?
We often hear about advice given to new watch collectors that they should just buy what they like, follow their hearts and never think about value retention as if it is a dirty word. On the other hand, there are folks who pitch watches as investment and cite a long list of models from Rolex, Patek and AP as examples. Like many things in life, the truth is often somewhere in the middle. If long-term investment is the main objective, then S&P 500 is a much surer and safer bet than watches. However, for watch collectors who focus on acquiring rare timepieces with intriguing complications and distinctive aesthetics, the value will grow naturally by virtue of quality and scarcity. A sustained rising value is one of the clear signs confirming a worthwhile timepiece being included in the collection.
We may list the case for and against watches as investment and see if we may arrive at some conclusions that make sense. First, the supporting arguments that watches can be an investment.
The list prices keep going up every year, which leads to steady rise in watch value. Top watch brands routinely raise manufacturer suggested retail prices by 6% to 8% every year. Each model’s lifespan as a current production model is around seven years or so before it is phased out from the catalog. Assuming that a model is purchased at its initial release, the list price is increased by 7% for seven years. At the end of the production cycle, the list price may go up by as much as 61% (1.07^7 -1 = 0.61). This is an astonishing amount and it is risk free based on recent data. So, the tip here is to purchase watches very early in their production cycle from brands who raise list prices every year, such as Rolex, Patek, AP, VC, and Lange.
Limited edition watches tend to go up in value due to the scarcity. It is basically the supply and demand that plays a role in driving up prices. One example is Kurono Tokyo who makes limited edition watches in the hundreds, a few times a year. The prices at the secondary markets are 2-3 times of list prices for all of their models.
Many top watch brands have small production volumes. Even though the models are not limited edition ones, in reality, the volumes are quite low. Patek produces 60K watches annually, AP 40K and Lange 5K. Now, think about the stainless steel models which are produced in small quantities among the majority of precious metal models, it is easy to see why the SS models are fetching much greater prices compared to list prices.
The production volumes are even lower at the independent watchmakers. The annual production numbers of F.P. Journe, De Bethune, and Gronefeld are 900, 160, and 60, respectively.
Watch auction provides a highly visible venue to showcase vintage and modern timepieces and facilitates price appreciation through heavy promotion and heated bidding from wealthy collectors. The record breaking auction prices fuel confidence and further boost prices in secondary markets.
Precious metals like gold, silver, and platinum have been used as hedge against inflation for a long time and are part of a diversified investment portfolio. Therefore, watches that are built with precious metal cases and bracelets can be good alternative investment assets.
These are all pretty compelling arguments and hard to rebut, huh? Now, let’s look at the opposite arguments against watches as investment.
Most of the watches are not limited editions and they do lose value after use. Watches are like any other commodity and the second-hand values will drop for sure. One often used comparison is cars. We may only look at the Kelley Blue Book or Edmonds to see the big price drop after the first 1-2 years.
It is mission impossible for most people to buy the hard-to-get models at retail prices. It is just like the IPOs in stock market that pop 2-3 times in prices on the first day, but only the privileged few may get these stocks at the IPO prices because they are the big account clients at the investment banking firms. Therefore, investing in these sports luxury watches or others “winners” is just day dreaming for common folks.
Some new watches may go up in values immediately following their releases, but the prices will come back when production is ramped up. One example is the Tudor Black Bay GMT, launched along side Rolex’s new “Pepsi” GMT in 2018. It was a smashing release leading to 10-15% price increase over list for the first year or so. As expected, the prices on the secondary market return to below list price when production is catching up the demand. Many watch brands like Tudor would produce as many watches as the market can absorb, so the list prices are pretty much the ceiling for the values.
When selling watches to the secondary markets like WachBox, Crown and Calibre, Bob’s Watches and Delray Watch, the purchase prices they pay watch owners are wholesale prices, rather than the market prices. It is fair as these platforms need to run websites and staff people to sell watches online, offer their own warranty and still need to make some money at the end of day. Watch owners may list the watches at Chrono24 or Ebay directly, but it will take time and effort and may run into various issues like scams. The easy route for watch owners is to sell to the pre-owned watch platforms and get cashes quickly, but expect to get prices 25-35% lower than the market prices.
The service costs during ownership of the watches could be pretty high which need to be included in the total cost calculation.
When buying vintages and pre-owned watches without manufacturers’ warranty, there are always chances of getting bad watches or fake watches. It is a very risky way to “invest” money.
When selling watches through auctions, the high commission would eat into profits and there is no guarantee to get high prices.
See, it is simply not a sure thing to treat watches as investment. What should we do then?
Here is my take. First of all, watch collecting is a hobby that we watch lovers enjoy for the fun, happiness and the friendship and community built around it. Investment is not and should not be a first goal. However, as taste and priority changes, we often have to sell some watches to fund new purchases. It would be hard to keep on upgrading a collection if each sale incurs big loss. Just like any other kinds of collecting, we are always seeking those special timepieces with intrinsic value embedded in the design, craftsmanship and history. It is a piece of art and micromechanics wonder resting on our wrists. If selected carefully, the values of the horological creations by artisans should be retained and recognized over time. In other words, the market value of the timepieces can be a reflection of the hard-work and thoughtful deliberations put into acquiring the pieces.
Recognizing that most watches are not limited in quantity and tend to go down in value, we should have a realistic expectation on the value retention of this hobby. The correct mindset is to anticipate a value drop in most cases when considering an acquisition and try to minimize the depreciation. We may try to negotiate a discount and pay more attention to the intrinsic value of the timepieces.
I will share the case of my purchasing the VC Overseas automatic in black dial in mid-2019 to try to illustrate the points. As it was not the most sought after blue dial, I was able to get a nice discount (about 15% off 2019 list) from an AD. There was no waitlist needed and I just walked in the store and bought it. I loved the movement and case with Geneva Seal, the design of the dial and bracelet, and the interchangeable straps. It was from the Holy Trinity and there was nothing not to like. I was not expecting it to go up in value at that time, as I was simply very happy with a fantastic watch at a good price. Fast forward 21 months, the list price today is quite a bit higher that the list price back in 2019 (echo one of the for arguments above). This exact watch is listed today at a top pre-owned watch site for 15% over the 2021 list price. Apparently, the intrinsic value of the outstanding Overseas collection has been recognized slowly and surely.
Of course, for every case of one watch I actually purchased going up in value, I have 2-3 cases of value going down. It is a reality of this hobby that we need to face and be prepared. Buying what you really like is still a key, as you will be fine to keep the watch long term if you continue to enjoy it, even if the rescale value goes down. With deeper knowledge in both top brands and independents, more hand-on experience in watch acquisition, more sharing among the watch community, and stronger relationships with ADs, we hopefully may seek out the horological gems and get access to desirable pieces. “Investment” is too heavy a burden to put on this hobby. However, if we pursue and collect timepieces with intrinsic value and limited quantity, there might be just nice surprises down the road.
When one of the most prestigious finance publications discussed watches as investment, we know that watch as an alternative asset is here to stay. Please check out Barron's recent article "What Investment Beats Stocks, Bonds, Real Estate, and Gold? A Rolex." (https://www.barrons.com/articles/rolex-appreciation-beat-other-investments-over-past-decade-01643746951)