Watches For Investment: Everything you need to know/ May 05, 2020
An increasing number of new watch collectors are buying luxury watches for investment purposes. While this could be true, most people ignore the risk that their watch could lose up to 70% of its retail value.
So, what is the fuss about buying a watch as an investment?
Let’s filter through the noise, and take a look at both sides of the story to see if a watch is an investment, or if it is, after all, a depreciating asset.
What is an Investment?
An investment is an acquired asset that has the potential to increase in value over time.
When one thinks about investments, the first things that come to mind may be stocks, bonds or real estate.
In recent years, however, luxury watches have formed a new asset class that fall into the alternative investments category (other examples of alternative investments may include art, diamonds, cars, or wine).
Thanks to the growth of Ecommerce and the democratization of information about watches, more and more people are hunting online for highly desirable watches.
This phenomenon has created an influx in demand, resulting in a rise in prices for these sought-after watches. In most cases, Rolex and Patek Philippe are the more treasured brands – although not all their watches guarantee any returns.
What is a Luxury Item?
Most luxury items are a depreciating asset. A luxury product is purchased for the simple pleasure of owning something scarce and highly desirable, without the intention of turning it into a capital gain.
Items such as Tom Ford suits, Hermès ties or Louboutin shoes will lose value once purchased from the store. In fact, the vast majority of luxury goods spanning from Rodeo Drive to Fifth Avenue or Place Vendôme will depreciate in value as soon as the credit card is swiped. The easiest analogy is buying a brand new sports car: once the car leaves the car dealership, the car will lose up to 50% of its retail value.
Just like a new sports car, most watches purchased from a retailer will depreciate in value in the secondary-market. Think about the markup a watch manufacturer has to cover: expensive retail stores, R&D, manufacture cost, employees, etc. Every watch company needs healthy margins to operate, and those costs won’t be recouped in the secondary-market.
Of course, there are exceptions to the rule. For instance, some brand new Rolex sport models (i.e GMTs, Daytonas or Submariners) or some rare Patek Philippe references might immediately be resold or auctioned at a premium.
These watches, however, account for a fraction of the overall primary watches market. They are also very challenging to hunt down, and more often than not, one must belong to the dreaded and exclusive waiting-list to hope to snag one of them.
Buying a pre-owned watch has a greater potential of increasing in value over time (or at least maintaining its pre-owned price). These second-hand watches have already taken a ‘hit’ when the first owner paid full price for the watch, creating an opportunity for the new owner.
The second-hand market, which is currently growing four times faster than the primary luxury market, is also creating liquidity opportunities in this booming circular economy.
These opportunities are facilitated by technology, enabling collectors to research, and compare and contrast prices. Companies such as Watch Signals have created a new venue for collectors to conglomerate. Powered by machine-learning technology, the platform has the ability to price-track and highlight in full transparency the best deals and investment opportunities in the marketplace.
Are Watches Investment or Luxury Items?
Just like diamonds, luxury watches have an intrinsic value based on current market dynamics. But confusion emerges when people think they are investing in a watch simply because it has a high price tag.
As mentioned, Patek Philippe timepieces are better suited to be considered an investment. Ben Clymer from Hodinkee explains, “They’re not always great investments, but there is a track record for them becoming great investments’.
This ambiguity, combined with the industry’s lack of transparency, makes it challenging for a novice to get into the investment game. Watches can both be an investment and a depreciating asset depending on many variables, and it is recommended to be very well informed prior to buying a watch as an investment.
Should You Buy Watches for Investment?
Buying a watch with the intention of turning a profit has its risk factor. Watches that have the potential to increase in value over time represent a tiny fraction of the overall market, and require specific skills.
One must first master the fundamentals of trading, and have a keen eye on the market pulse. A watch trader with an investor mindset could have very high ROI – but splash of speculation and pinch of luck could play a role in the game too.
Technology has the potential to disrupt the game in an unprecedented way, as emerging data driven AI companies are able to track prices and provide a clear picture of the price fluctuations in the market. Watch Signals has been leading the way with their disruptive approach, and might become the reference in the industry for watch collectors, dealers, and affectionados.
However, for most people (outside of the watch industry) it could be risky business to start buying watches with the intention of selling them at a profit. Unlike blue-chip stocks and commodities, watches have liquidity risks. A watch is only worth what someone is willing to pay for it, and finding the right collector may represent a bigger challenge than anticipated.
Not all watches are created equal. The countless variables that could influence the resale value of a watch play an key role in whether a watch will lose, retain or appreciate in value.
Some people buy watches for the simple pleasure it radiates. Others buy them as an investment. But as Paul Sullivan warns in his New York Times article, “Discerning the investment potential of watches can be as complex as the intricate machinery that runs them.”