Investment-grade Watches: Myth or Reality?

Let’s address the elephant in the room. Are watches really a form of investment? Personally, I believe that most watches, and I mean 99% out there, are poor performing assets. Not to say that you wouldn’t have any financial gains, yes you will, but they are just not a good enough investment.

Disclaimer: I’m not a financial advisor or expert in investment. My opinion is, well, my opinion.

First of all, we need to talk about assets. According to Robert J. Greer in 1997, he categorised assets into three classes: Capital, Consumable/Transformable and Store of Value. Here’s the chart:

So where do watches fall under? It’s likely a transformable asset because they are most unlikely to bring about any stream of value or returns. However, some watches do fall in the middle of capital and transformable assets. There’s hope for capital gains in these watches but there are no expected returns.

For these investment-grade watches, let’s just classify them ‘blue-chip watches’. Notable brands having these kind of watches include Rolex, Patek Philippe and Audemars Piguet.

Snap them Rolexes up?

Ah the crown jewel of watches, the impregnable class of investment-grade watch: Rolex.

You may have heard stories like this US Air Force veteran who paid US$350 for his Rolex ‘Paul Newman’ Daytona in 1971, which is now worth between US$500k to US$700k. That’s an impressive 15.99% to 16.78% of compound annual gains over 49 years!

Sounds really good, but wait a minute. If the same amount of money was invested in equities like Berkshire Hathaway over the same period of time, he would have made more money with a compound annual return of just over 20%. That’s US$2,654,294.46!

Reference point: Pretty neat from 1964 – 2018

Let’s relate it better into the recent decade. New assets like cryptocurrencies have shown to be incredible form of investment. If you had invested in 1,000 bitcoins (BTC) at US$3 per BTC in late 2011, your bitcoins are worth US$11,000,000 at this time of writing (30 July 2020). Even more recently in March 2020, buying 3 BTC with around US$10,000 will make you US$23,000 richer now.

Source: Fundstrat

But let’s not forget, equities and cryptocurrencies are much more volatile compared to blue-chip watches. And that’s because these watches have characteristics of transformable assets. A Rolex ‘Hulk’ Submariner 116610LV that can be had at around US$9,000 retail price is now worth US$17,000, making it 189% in returns.

This is no surprise since Rolex is known to control supply and 99% of authorised dealers around the world adopt an arbitrary wait list for selling to their top clients. That’s one way to prevent scalping and flooding the market with Rolexes, but at the same time driving up the prices of these watches.

Kee Hing Hung Rolex Boutique in Singapore

That being said, it’s not a given. Some models like the Explorer II 16570 hasn’t seen much big movement in price over the last few years. I had myself a used Explorer II back in 2015 at around US$3,600 and the market asking price is around US$5,000 now. It’s true about Rolex though, you really can’t lose money.

Your Money, Your Choice

Watches can be an alternative investment but will not necessarily help you make money. That’s a fact. And for these blue-chip brands, the struggle is actually getting the watches that will retain and appreciate in value. Hint: You will need to pay a premium price, which means you will not be the one enjoying the gains in the near future.

Fancy paying double the retail price for this?

Needless to say, you shouldn’t be manipulated into buying a blue-chip watch just because the market tells you to. A watch should firstly be a tool, not a tool of investment. For some people, it might be a representation of wealth or prestige. Whatever the case your watches shouldn’t be the primary or only asset class you own.

The priority isn’t returns, the priority is pleasure. You should always buy a timepiece that speaks to you and one that you can enjoy.

I would really love to hear from seasoned ‘watch traders’ about their experience. Is it really just pure luck or good foresight?

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