"Congrats on your new investment piece" is a caption we see all too often on Social Media, posted by many Watch Dealers following the sale of a Rolex sports model. Whether it is voiced with a comprehensive understanding of the investment landscape, or simply a cheap sales tactic, many individuals have been led to believe that buying a luxury watch can be a lucrative investment.
In today's ever-changing investment landscape, people are constantly searching for alternative avenues to grow their wealth. In this blog, I will delve into the world of luxury watches as investments, focusing on various spotlighted brands, the pre-owned market, and limited edition models, to determine if they are indeed a good investment option and whether there is merit to watches being an asset class.
Unpopular Opinion: Labelling Watches as Investments is Inherently Toxic for the Industry
Endless blogs from the likes of GQ Magazine, Forbes, Chronext and Watchfinder carry the narrative of "Hottest Watch Investments of 2023" and "This watch is going to skyrocket 2023". Regardless of whether watches are bought as an investment or not, this widespread boom of "Watch Investing" has been adopted not only by the end users, but all the way up the chain.
With brands introducing "waiting lists", being secretive on new releases and having a general lack of transparency, there is a risk of neglecting the core base of enthusiasts. The value that we bring as core enthusiasts of watch brands, and our relationships with them, has been integral for their survival, but this toxic approach of superiority and lack of transparency will negatively effect those relationships in time.
To give credit to this boom in "watches as investments", the watch market has seen an increased exposure, whereby more people are excited about watches and more people are talking about watches. However, the appeal of luxury watches has historically been attributed to excellent craftsmanship, longevity from quality and desirability of limited editions. This "investment" trend will fatigue, investors and bandwagons will move on and many brands and stakeholders might come to regret their obsession with the term.
Today, the concept that a wristwatch holds financial value plays a significant role in shaping consumer behaviour and motivations when it comes to purchasing in today's market. This notion becomes particularly crucial in times of economic downturn, as perceiving a timepiece as a financial asset enables buyers to justify their purchases with greater rationality. So, let's takes a look at the upside of labelling watches as "investments"...
Appreciation Potential
Luxury watches, particularly renowned brands like Patek and Rolex, have shown the potential for appreciation over time. Even other brands, such as Panerai, attract the attention of collectors, enthusiasts and investors eagerly seeking specific watches, typically limited editions or in-demand models due to their exclusivity and rarity. This demand can drive up prices, making it possible to sell a luxury watch at a higher value than its original purchase price. However, it is crucial to note that appreciation is not guaranteed, and market conditions and brand reputation play a significant role.
Quality and Craftsmanship
One aspect that sets luxury watches apart is their exceptional craftsmanship and quality. Brands like Rolex and Patek Philippe are renowned for their attention to detail, precision, and durability. These timepieces are often made with exquisite materials, ensuring their longevity and desirability. The inherent quality and craftsmanship can contribute to their value over time, especially in the pre-owned market, where collectors appreciate the enduring appeal of classic models.
Limited Edition Watches
If I were to give advice on investing in watches, my main query would be whether the production of the watch is finite or infinite. Many "standard production" Rolex sport models are unlikely to be discontinued during the brand's existence - take the Rolex Submariner for example. To label an infinitely produced watch as a "hot investment" doesn't sit right. However, when released in small quantities, it creates a sense of exclusivity and rarity. The idea that only a small pool of individuals, or even just one individual, has a unique watch with all its accessories intact, can increase the demand for that particular watch. Such models can become coveted items among enthusiasts, leading to potential price surges in the secondary market.
Diversification and Tangible Asset
Investing in luxury watches can offer diversification benefits to an investment portfolio. While traditional investments like stocks and shares are intangible, luxury watches provide a tangible asset that can act as a hedge against market fluctuations. Owning a collection of watches allows investors to broaden their investment portfolio and mitigate risks associated with a single asset class.
General Considerations and Risks
Despite the potential advantages of luxury watch investments, not all luxury watches appreciate in value, and many depreciate over time. Research, market knowledge, and careful selection of brands and models are essential to minimise risks.
Limited Liquidity
One of the primary drawbacks of investing in watches is the limited liquidity of this asset class. Unlike stocks, which can be easily bought or sold on financial markets, luxury watches face a more restricted market. Finding a buyer for a specific watch, especially at the desired price, can be challenging and time-consuming. Consequently, liquidating a watch investment during financial emergencies or changing investment priorities can be arduous. If you did want to sell quickly, you'd have to be prepared to make a loss when offloading to the trade.
Volatility and Market Fluctuations
The luxury watch market is subject to significant volatility and fluctuations. Prices of watches can be influenced by factors such as changing consumer preferences, economic downturns, or shifts in trends. The value of a watch may depreciate rapidly, leading to substantial financial losses. Investing in watches requires a deep understanding of market dynamics and the ability to accurately predict shifts in demand and pricing.
Maintenance and Depreciation
Unlike traditional investments that generate income or interest, luxury watches require ongoing maintenance, which can add to the overall cost of ownership. Servicing and repairing watches can be expensive, particularly for older or rare models. Wear and tear, technological advancements, and changes in style can all contribute to a decrease in market value.
Conclusion
Investing in luxury watches can offer unique opportunities for investors seeking alternatives to traditional investments. These watches possess qualities that can contribute to their appreciation over time, such as exceptional craftsmanship, limited availability, and desirability among collectors. However, the ideology of "watch investing" is flawed, in that the main purpose of purchasing a watch is that you enjoy owning it - whether it's due to appreciating its craftsmanship, enjoying its exclusivity or sharing your enthusiasm with the watch community.
I must stress that buying a watch is not a mistake financially, as you can take precautions and do research to increase the likelihood of the watch retaining its value, or hopefully, appreciating.
It is crucial to approach luxury watch investments with a comprehensive understanding of the market, brand reputation, and specific models. Like any investment, risks exist, and thorough research is necessary before committing to such a venture. Ultimately, whether buying a luxury watch as an investment is a good idea or not depends on individual circumstances, financial goals, and risk tolerance.
