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Interview with Brendan Cunningham – Horolonomics

/ February 17, 2020

Ari: Could you share with the audience about who you are and what you do?

Brendan: I am an economist by training. I have been publishing and teaching in that field for over twenty years. I am presently a Professor at Eastern Connecticut State University. Previously I was a visiting scholar at the U. S. Federal Trade Commission and a Professor at the U. S. Naval Academy. I also served as the co-editor of Journal of Media Economics for three years.

Ari: When did you start your blog?

Brendan: I started my blog in July of 2019.

Ari: Why did you start it?

Brendan: My blog was started in response to some commentary I’d heard and read about the watch industry relating to the shortage in the steel sports model references last year. Many people were discussing how hard it was to buy Rolex, AP and Patek in steel but I felt like there was not enough discussion of how the brands might be feeding into this shortage. Economics can provide some really important insights into shortages and similar market phenomena so I wrote the article through an economics lense.

Ari: What brought you to horology?

Brendan: It was a bit of a winding road. I was so busy through graduate school and in my early academic career that I didn’t really pay much attention to the watch industry. But I’d always had a passing interest in watches and also technology. The tech entrepreneur Kevin Rose was someone who I followed on Twitter and at one point he took a leadership role at Hodinkee. I kind of followed him there and started reading more about the industry. I took my first Horology 101 class at the New York Horological Society and I was hooked!

Ari: Why should people read your blog horolonomics.com?

Brendan: The blog provides two types of discussions, in-depth analysis and some commentary on current events. The in-depth analysis is meant to provide valuable information about the industry which will last over time. It should help consumers and producers understand some of the phenomena that are taking place by applying the tools of economics. This allows me to assess whether industry patterns are good or bad and also predict where the industry might be heading. The commentary on current events is a little more fleeting in interest but often closely connected to the in-depth articles.

Ari: What are your favourite watch brands to analyze and write about?

Brendan: I really like writing about Rolex. Without a doubt, if it involves Rolex I get a lot of readers and commentary. The Rolex brand has a really wide and deep pool of interest. And there are so many developments pertaining to both new references and vintage pieces. Just a few weeks ago an older man discovered a Daytona which he’d bought in his youth and never wore. It was about six or seven decades old. He brought it to a TV show called Antiques Roadshow to have it appraised and when he found out the value (easily six figures) he literally fell over! There pictures of him with his feet up in the air at that moment. Rolex has been around so long and has always offered such quality and interest that you can find those kinds of stories over and over again.

I also like writing about the independent brands because they are at the forefront of horological innovation. It is amazing to me that they are able to support themselves with small batches of watches and move the industry forward.

Ari: Which independent brands do you find the most interesting?

Brendan: I honestly love them all. If you are an entrepreneur out there on your own with a small team trying to carve a niche I just completely respect your efforts. That said I think very highly of Romain Gauthier. He is working to solve important technical problems when it comes to even delivery of power, which is important for accuracy. At the same time he has a great design aesthetic in his pieces. He is also very approachable and personable. Then there is Valentin Remontet who is at the very frontier of production methods. He’s used 3D printing to produce an extraordinarily light timepiece. These and other novel methods will lead to all kinds of innovations in mechanical watchmaking. And you just have to pay homage to Philipe Dufour, who has sort of been the carrier of the torch over decades when it comes to independent horology.

Ari: How about the ever rising micro-brands that are selling via ecommerce to Millennials? Are they in the category of “independent brand” as you describe?

Brendan: Yes, micro-brands are independent but I think they’re distinct from those I mention above. Independents often have traditional training in horological skills and have served apprenticeships or worked in haute horology service centers. Micro-brands have a far wider dispersion in terms of bona fides, which is completely interesting and lends a different culture to that market segment. Their products tend to be a bit more accessible and use a wider range of movements such as Japanese Miyotas or Seiko NH movements. With all of these smaller firms you have to do a bit more due diligence to make sure you will get what you pay for, that it will be serviceable, etc. That said, the micro-brands are offering so many novel designs, I find that they’re absolutely essential for the ongoing success of the industry.

Finally, I think Omega is really fascinating. They also have the kind of legacy we see in Rolex and they’re simultaneously innovating while keeping the history of horology alive today.

Ari: Do you think of luxury watches as an investment? And why?

Brendan: There is no doubt that luxury watches are collectible and durable. But their value is subject to significant variation. Some brands are a bit “safer” in terms of maintaining value or appreciating. Patek comes to mind. Their legacy and reputation for quality means that they will always be in demand and they just do not produce that much so the watches maintain value. But even within Patek there are certain references which just aren’t that desirable, such as the Ellipse. I think these timepieces aren’t really doing well in terms of appreciation because of changes in style and tastes. For whatever reason it just isn’t a design people want that much.

So I think viewing luxury watches as an investment is OK but you have to realize there is risk, like any other investment. For some references you buy them knew, take them out of the store, and they’ve immediately lost value when you take off the stickers. For others that might not happen or they might even gain value if they appear on an episode of Hodinkee’s Talking Watches! You just never really know for certain. So to deal with that its best to buy what you also like so that even if the watch declines in value you still have something that you personally appreciate.

Ari: You have attended so many luxury watch auctions and taken live notes on them. Tell us about your obsession with watch auctions.

Brendan: Watch auctions, particularly of the premier variety, offer a rare opportunity to see some of the most exotic and unique timepieces in the world. The auctions typically offer a preview so you can go and look at them, ask questions, and talk to those who have expertise in particular references or vintages. And you can even pick up the watches and look at them. There is no substitute for seeing watches “in the metal.”

The auction houses are incredibly important repositories of knowledge when it comes to timepieces. If you read a catalogue you realize you’re reading incredibly detailed information about the history of a reference which you might not find anywhere else.

Finally, as an economist, I find the moment of an auction very fascinating. You can get a sense of where the market seems to stand in real time and compare that to where it has been. If you see one auction and everything is selling at or above its estimate and another where the lots are struggling to make reserve prices you have to start wondering about the state of the market (or perhaps the state of that auction house!).

Ari: What do you find the most interesting at auctions?

Brendan: I think it is interesting to see the people who are there. The last auction I attended I saw John Goldberger standing in the lobby just hanging out. I’ve followed him on Instagram for many years, he is one of the premier collectors in the world. We didn’t get to chat but it was just neat to know we were sharing that auction experience. And you can’t beat the drama. When I saw the Paul Newman Daytona auction in ‘17 the first bid was $5M, maybe more. There was a collective gasp in the room. It is a moment I’ll never forget.

Ari: Is it the Game Theory applicable at the auction house?

Brendan: I think Game Theory can certainly be applied to auctions. Bidders need to develop strategies for whether they’ll raise their bid or not. I think it is a lot more difficult for bidders now to develop those strategies. On Instagram Arthur Touchot, head of Digital for Philips Auction, shared that he thought 2019 was a turning point for online bidding. Before then bidders weren’t really placing seven figure bids but now that is happening more regularly. When you’re not in the same room as your competitors it is a lot harder to know if you should raise your bid or not. Before internet bidding you might actually know the person and know that they had deep pockets so you just shouldn’t even bother.

The field of Game Theory is all about strategies and the payoffs to those strategies and that can certainly be helpful for bidders and also auction houses. The houses have to decide where to position the prominent lots (earlier or later) and how to sort of build and sustain bidding fervor. Game Theory can help with that.

Tony Traina and I have a co-authored article on some other strategic issues at play in charity auctions, I don’t want to give away any spoilers but it should come out fairly soon in a tax publication.

Ari: How do the auctions affect the market price in your opinion?

Brendan: I think auctions set the market price for vintage pieces. Once a lot is sold everyone sort of benchmarks off of that price. When the Paul Newman Daytona set the work record around $17M for every major auction after that everyone was wondering if the high profile lot would reach or exceed that price. Sometimes the auction price is maybe over or under what it “should” be but generally speaking for references in similar condition we look to the realized price at an auction as an indicator of the market price.

Ari: What are your outlooks on the luxury watch market 2020?

Brendan: I think 2020 is going to be filled with a lot of uncertainty. We’ve started the year with some significant disruptions from an economic perspective, particularly in China. The coronavirus has already negatively impacted the US stock market and we just don’t know how long it will take for that to recede. Forecasts are that the US economy is likely to become a bit more tepid and the same is true of some economies in Asia. The industry is also trying new forms of trade shows, the major shows are losing participants and the brands are trying to host their own shows. Some have wondered if that will make it harder for them to deliver at the end of the year with the holiday season. Swatch already cancelled an event due to coronavirus.

But it is also true that the global outlook has been remarkably robust when it comes to these kinds of challenges. I don’t think anyone could have anticipated how well things played out in 2019. So I guess I’d say I have a “wait and see” mentality. I do have a lot of confidence that any slowdown will be temporary in nature. Industry leaders know how to weather these storms.

Ari: Based on your analysis, what are your predictions/main events to be happening in 2020?

Brendan: There is a lot of buzz about Rolex releasing something novel and important. I think 2019 wasn’t very significant for them in terms of new references. But they’re so secretive it is a bit hard to know if that will actually happen. The Geneva auctions towards the end of the year are really really important. There are so many watches bought and sold that we just get a lot of information about which timepieces are hot. And I’ll be fascinated to see how people feel when they begin to take delivery of the Omega Speedmaster Professional reissue with the 321 calibre in steel. Collectors have been wanting that timepiece for decades and I can’t wait to see when it shows up on Instagram.

Ari: Which watch is Number 1 on your Wish List?

Brendan: I’m a big fan of the Blancpain Fifty Fathoms. That was the first true dive watch and I think the vintage references are absolutely beautiful, even if the hands lose their lume! There is a special place in my heart for the Barakuda reissue. I think they hit it out of the park with that design and I think it is something collectors will want for many many years (a bit timeless).

Ari: Do you consider a career in the luxury watch industry in the next chapter of your life?

Brendan: That’s a great question! I do have a lot of ideas about where I’d like to head with my interest in the industry. Right now I’m just kind of nourishing things and seeing where they take me. So far everyone I’ve interacted with has been really friendly and collegial. I found a rare reference on Facebook recently and contacted a prominent dealer about it, I was worried that the owner might be taken at a low price and I know this dealer is above board. He was really appreciative and he even offered me a commission if he obtained it! That’s an example of a lot of the opportunities I’ve found with the industry and I’d be very happy if more of those chances came along in the future. But I love teaching also and doing research in economics so I know I’ll always keep a foot planted there as well.

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Ari Pham
Co-Founder, CEO WatchSignals.com