Are Watches Investments?

Are Watches Investments
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One of the biggest phenomena that has occurred in the last 2 years has been the rise of a brand new asset class in the form of luxury watches. In the past, luxury watches were seen as conspicuous consumption, nothing more than a way for people of wealth to show their social status. Prior to 2020, watches were similar to cars in the sense that they tended to depreciate significantly. Typically, luxury watches were a way that people would reward themselves for hitting goals, think back to the 1980’s Wall Street traders and how they would reward themselves at the end of a good year with a Rolex. This created a public perception that luxury was a symbol of success, a sign that the person wearing it had overcome all the adversity that comes with chasing large goals. In the year of 2020 though, something very interesting happened in the world of luxury watches. In response to the Covid-19 Pandemic, governments around the world such as the United States, United Kingdom, European Union, and Japan primarily, began a series of unprecedented money-printing in an effort to fund the spending measures necessary to both fight the pandemic and prevent the world economy from collapsing. Of course, any time that a government, or governments, take action at a scale as was taken, there is going to be unintended consequences. While there were many unintended consequences that we won’t get into in this article, we will focus specifically on how these policies affected the luxury watch market and created a brand new asset class. 

Rolex investment watch brands

To start, it’s important to understand the idea of watches as investment. To a novice in the watch space, it’s easy to fall into the trap of thinking that all luxury watches are investments, which is absolutely NOT true. In all honesty, outside of a few brands, most luxury watches depreciate instead of appreciate. The reason for this is simple: the majority of luxury watch brands produce far too much supply and are NOT able to generate enough demand to create enough scarcity that would cause the watches of those brands to appreciate. Understanding the relationship of supply and demand combined with prestige is the foundation of understanding the reason why a few watches are considered investments, while most are still just consumption goods that will depreciate. The supply and demand aspect is very easy to understand, but the prestige aspect of investment watches is less of a science and more of an art. When looking at the prestige of the timepiece there are a couple things to look at such as the history of the brand, the relevance of the brand in mainstream culture, and the popularity of the brand among collectors. The history of the brand is important because if a luxury watch brand has been able to continue to succeed over 100-150+ years, it shows that the brand has longevity and consistency. Moving onto the relevance of the brand in mainstream culture, this has become one of the most interesting phenomena that has occurred in the watch community in the past 20-30 years but has accelerated even more when the advent of social media. The key here is to look at which brands celebrities such as rappers, politicians, Hollywood stars, and business moguls are choosing to wear. The best case study of this is shown in the Richard Mille brand. Only a few short years ago, Richard Mille timepieces could be purchased at the boutique for 40% off. However, something occurred that changed everything, and that was rappers took a huge liking to Richard Mille. Not only were many of the stars in the rap game wearing the Richard Mille timepieces, but they even started rapping about the timepiece in their songs.  This led to a domino effect where more celebrities such as Connor McGregor started embracing the brand, and because the brand was smart, they kept production numbers low which sent the value of their brand skyrocketing. What Richard Mille was able to figure out was humans are naturally attracted to exclusivity and scarcity, and by making incredibly innovative designs that would appeal to the type of celebrities that had the ability to create a feeling of exclusivity around the brand, they were able to engineer possibly one of the greatest marketing campaigns in history. As of today in March of 2022, many Richard Mille timepieces are now selling 300%-400% over MSRP and it’s impossible to get. Finally, when looking at the prestige of a timepiece, you must look at the popularity of the timepiece among collectors. When I say collector, I’m talking about the big time collectors that own millions and millions of dollars of timepieces, not the guy who owns a few Omega Speedmaster Moonwatches. When you look at big watch collectors, for example the Shark Tank investor Kevin O’Leary, you will notice most of them have several things in common. For one, you notice they tend to own a number of brands, even if there’s one or two brands they specialize in. They also tend to own dozens of timepieces, and many of the pieces tend to be very rare and hard to get timepieces as opposed to basic ones such as the Rolex Submariner. The big thing to note here is even though the collections will vary based on the taste of the collector, there are a few brands that will pretty much be included in every serious collector’s collection, and these are the brands that can possibly do well as a timepiece as long as other factors are present as well. However, just because a brand is popular among collectors does NOT mean it’s automatically a good investment. We will get into which brands are good for investment purposes in the upcoming section. 

IWC Portuguese 7 Day Automatic Watch Rose Gold Grey IW500702 IW5007-02 Box/books

What makes a watch brand considered to be an investment grade timepiece

Next, we will discuss what makes a watch brand considered to be an investment grade timepiece. By definition, when people talk about investment timepieces, they are talking about timepieces that are trading for more on the used market than it costs to buy it brand new. For example, the Rolex Daytona 116500LN has an MSRP of $13k but is trading around $40k-$50k on the used market. Now for somebody who is new to the timepiece industry, they may be thinking “why would anyone pay more for something used than they would for something brand new?”, and this would be a very fair question to ask. The answer is the demand for these timepieces FAR exceeds supply, so as with any item where demand far exceeds supply, it creates an incredibly profitable secondary trading market where people are willing to pay more or in some cases significantly more than retail to acquire the timepiece. Another question that is commonly asked is “if demand is so much higher than supply, why doesn’t Rolex significantly raise the MSRP or increase the supply?”. In short, Rolex has begun to increase MSRP in small amounts, but the reality is even if they significantly increased the MSRP, as long as the demand is higher than the supply, it will still trade for more on the secondary market. While Rolex could make some short-term profits by raising MSRP to the same price or higher that it is currently selling on the secondary market, it’s important to note that Rolex is a privately owned company, they are not playing by the same rules as companies here in America where all the company cares about it the stock price the next quarter. By having a brand that sells for significantly more on the secondary market, it creates even more prestige for the Rolex brand, and guarantees the long-term relevancy of the brand. Simply put, Rolex and the other investment grade brands are focusing on their long-term brand and not their short-term profits. 

Which brands are investment grade timepieces

Finally, we will dive into which brands are investment grade timepieces and which one’s are not. There are four main brands that are investment grade: Patek Phillippe, Richard Mille, Rolex, Audemars Piguet. That being said, that does NOT mean ALL models of these brands are investment grade! There are certain models that are investment grade, few examples are: Rolex Daytona, Patek Philippe Nautilus, Audemars Piguet Royal Oak Offshore, and Richard Mille RM030. While the list definitely extends beyond just these models, this is a good place to start. Now in terms of what brands are NOT considered investments: Omega, Panerai, Hublot, Breitling, and pretty much every other brand. That being said, does that mean there aren’t a few models within those brands that are trading above MSRP on the used market? Of course not, there are some Omega Speedmaster Moon Watches that are discontinued that are trading near or above MSRP, so occasionally you will find a model that trades above MSRP in these brands that trades for more, but the key is to recognize that those  models are the exception and NOT the rule. 

To conclude, the events of the last two years have created a brand new section of the timepiece industry called investment grade timepieces. The factors that play into a timepiece being investment grade are that brand’s history, cultural relevance, and its popularity among collectors. The definition of an investment grade timepiece is whether it trades for more on the used market than it does costs to buy brand new. The main brands that are considered investment grade are: Patek Phillippe, Rolex, Richard Mille, and Audemars Piguet. 

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