The Luxury Watch Market Presents Opportunities for the Savvy Investor
The watch market has recently surprised even the most experienced watch experts.
I have been a collector of horological instruments for over 30 years. Despite the current meteoric rise in prices, certain watches continue to present an opportunity for long-term appreciation and market diversification.
Highlights of the current watch market
A recent New York Times article rhetorically posits: Do watches present a Bitcoin-in-2017-like growth opportunity? Or are they in a Bitcoin-in-2017-like bubble? I subscribe to the former, although some watch dealers and collectors disagree.
The recent increase in value of certain watches is unprecedented. It is mostly attributed to increased scarcity, which can be attributed to 3 main factors:
1. Increase in market demand
2. Covid-related disruption of the production chain
3. Market manipulation by manufacturers and other major market participants (i.e. big dealers, auction houses, even whale collectors)
The watch market is just like the art market. There is no real industry watchdog, secondary market participants don't need training or licensing and manufacturers only influence certain collectors and designated official dealers. It is a true laissez-faire marketplace — the kind celebrated in Ayn Rand novels and Milton Friedman musings on market economy, and not unlike other markets for alternative assets.
Driven by collector passion, hedging of growing inflationary risks and aggressive industry promotion, complicated watches appeal to tradition and exclusivity to draw in collectors, speculators and Instagram show-offs. The ultra-luxury watch industry markets aspirational and coveted expressions of artisanship as though watches were paintings of old masters, family legacy acquisitions and alternative investments. Keep in mind that only men's watches appreciate or have a robust secondary market. Women's watches are relegated to the world of accessories, and for the most part, are not investment material.
Rolex is king
Authorized dealers' Rolex displays are empty these days, and if you want a stainless steel sport Rolex (i.e. Daytona, Explorer, Submariner, Sea Dweller, Air King, Sky Dweller), you will likely pay a large premium and be forced to acquire in the secondary market. Many industry experts do not see Rolex watches dropping in value. Unlike the ethereal grand complications that most collectors seek out, Rolex is positioned as a durable professional instrument that can withstand extreme conditions.
Rolex is different in that it is not a creative display of time and is not a company that prides itself on artisanship. It manufactures aspirational, anachronistic devices for professionals harkening to pre-Swatch/Seiko days before the quartz and smartwatch revolutions. It celebrates the daring explorer type (i.e. the Marlboro Man, the Aviator, the Adventurer).
If you want a formidable sport Rolex you will spend at least $15,000 and if you want a stainless Daytona — $40,000 and climbing. There is a tremendous opportunity in price appreciation when buying older Rolex chronographs. These are still undervalued.
Patek Philippe's transformation
Patek Philippe has become a mainstream status symbol for the affluent and now made its way into popular culture, trading in some of its elitist mystique for higher production and more money. Patek's sport watches such as the Nautilus and its historically less favored stepbrother, the Aquanaut, are now objects of obsession for new money types. A friend of mine just bought the Tiffany Nautilus at an auction for over $5 million. Patek's market hegemony has made its owners, the Stern family, billionaires, but its auction legacy foreshadows continued future appreciation.
Audemars Piguet is mostly a sports juggernaut
What its eponymous president, Francois Bennahmias, had done for Audemars Piguet is analogous to what Tom Ford had once accomplished for Gucci — reinvented it (and saved it from almost inexorable collapse). Now, AP is a powerhouse and manufactures much fewer watches than Rolex and Patek. AP became the aspirational symbol of the tennis player, the regatta team or the formula one driver.
By contrast, Rolex appeals more to the rugged type — the mountain climber, deep-sea diver, and even the first responder — until the very recent price surge which made the watches inaccessible to most blue-collar professionals. AP's Royal Oak and Royal Oak Offshore are the most sought-after lines in the brand, and despite the recent runup should continue to appreciate.
Related: The Rise Of Responsible Luxury
Omega is a relative bargain
Omega watches have been to the moon, been used for countless Olympic Games and been featured in James Bond films. The Omega watches that will likely continue to go up in price are Speedmasters and Seamasters; these are considered to be good investment pieces and are more price accessible than Rolex and the ultra-luxury Patek and AP. It is a brand with a great legacy that is less ostentatious than Rolex, but markets itself to a similar audience.
Other brands are worth considering, but they will require more research and will likely involve higher risk.
If you want to resell to make money stick to Rolex, Audemars Piguet, Patek Philippe and to some extent Omega. You could venture out to other brands, but be forewarned that the marketplace outside of certain models within these 3 – 4 marque names is fraught with pitfalls. Of course, all these considerations matter less if the goal is to acquire a watch that "talks to you", and reselling it is of secondary or tertiary concern.
If you venture out, look for sport watches that look cool (but might be overlooked) from strong brands or grand complications and limited editions. Check auction results before you buy.
There is no watch market bubble
Despite the uncharacteristic market spike, watches are still a good alternative investment. I believe that horological instruments are still a nascent market, and that demand will continue to grow because watches represent an alternative asset class that is collectible, highly portable, and scarce considering growing market demand. Collectible watches are imbued with certain artisanship — an old-world set of skills that combines micro-engineering prowess with the talent of a master jeweler or an artist.
Moreover, as many collectors point out, you cannot wear your Ferrari on your wrist and bring it into the corporate boardroom — but you can bring your watch. Therefore, taking a longer-term position in the right watches even during this unprecedented market frenzy is a smart move.
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