Watches as an investment

The definition of an investment according to Investopedia is:

in·vest·ment [in-vest-muh nt]

An asset or item that is purchased with the hope that it will generate income or appreciate in the future

We all hear about Pateks and other various watches being auctioned at record breaking prices. I doubt there is anyone who has purchased their watch (or has thought about buying a watch) who has not tried to justify it as an investment. That is, hoping that the watch itself will appreciate in value over time. I certainly find myself guilty of this. I put it down to three reasons:

1. Luxury watches are a luxury purchase at a high price point (as much as we love them, we do not need luxury watches). For many, a watch  purchase consumes a large amount of your disposable income and hence you would love to think that it is going to something worthwhile.
2. The second hand market for watches is quite mature and generally liquid for most well-known brands (so you can easily trade/sell your watch)
3. As with most items, prices are based on supply and demand. If you pick the right piece, you can have some influence on its future price.

The kind of chart we would all like to see

The above chart is what we would like to see all our investments mirror. The reality can be different. As with all investments, you should choose them after careful and rational analysis. They should also be based on your investment requirements. This is where many of us fail, a watch purchase is usually an emotional purchase (or sometimes impulse) and we don’t always make rational decisions. As soon as we find a watch that ‘sings’ to us, it is very difficult to sway an aficionado the other way. Sadly, many of us find our watches only depreciate in value, immediately so after purchasing it.

Partly the reason why watches easily lose value is that they are usually one of the first things people will sell when under financial stress. They can be easily sold and there is a market out there waiting to buy your watch. Luxury goods by definition are also expensive to begin with. Furthermore, the problem is that you don’t know the real worth of the watch either. For example, when you buy a diamond, you generally know whether you have paid below or above the market price. With watches, you don’t even know where to begin to assess its true value, you simply have the price tag on the watch and maybe its price on the second hand market.

It is very rare to find any modern watch appreciating in value, even for Rolex or Patek Philippe. However, at the same time, your Rolex or Patek is unlikely to erode in value very quickly as well. Due to the high demand and healthy auction markets for these watches, they tend to preserve value much better than other watches. Nonetheless, there are some people who get it right and it usually comes down to a few brands where its a safer bet. Rolex, Patek Philippe, Breguet, Vacheron, Cartier and occasionally Panerai. Geoffroy Ader from Sotheby’s auction house says that:

Most demands are based on the brands … the two ‘star’brands are Rolex and Patek Philippe

Getting it right certainly pays very large returns, but you really need to concentrate on extremely rare watches. Collecting rare watches has even become a progression. There is an established hedge fund known as “Precious Time” run by Alfredo Paramico, an ex-investment banker and watch aficionado, that invests in luxury and rare watches and looks to achieve a rate of return of 15% net of fees for its investors. You might find this comical, but looking at the funds prospectus, they appear to be as serious as any other hedge fund.

Let’s have a look at some watches that have fetched extraordinary prices at the auctions.

A rare pink gold and pink dial Patek Ref. 1518 Perpertual Calender Chronograph
Sold in May 2011 for USD$1,285,180

A 1953 Patek World Time Ref. 2523. Unpolished for 55 years
Sold for USD$1,340,675

Rolex Daytona “Paul Newman” dial sold by Hermès in 1971
Sold for USD$524,000 (auction guide was at USD$125,000) 

Vintage Rolex Explorer
Sold for USD$152,000

A modern A. Lange & Sohne Lange 1 in stainless steel
Sold for USD$156,000

You might might be asking what makes these particular watches fetch such prices at auctions

More specifically it comes down to:

• Don’t think of your watch as an investment. Picking a watch as an investment is more difficult than picking stocks. We know how hard that can be.
• Buy the watch that will bring a smile to your face everyday. Don’t choose one over another because you think it will appreciate in value.

If you’re worried about value:

• Stick to a brand and model most people recognise and that there is demand for. This is challenging as some of us like to be different.
• Choose a watch that has consistent pricing. Consistent pricing by a brand means that there are no large price  fluctuations in prices from different authorised dealers to internet stores. By doing this, you’ll find prices on the second hand market will also be consistent.
• Take advantage of second hand watches if you can. The previous owner has already taken the price hit for you.