Should You Invest in Watches?
If you want a quick answer to the question of "Should you invest in watches", my answer is No.
Over the past few weeks researching and writing this piece, if you are looking to make money on an investment ( and you don't have $250,000 to spare) then invest in something else. I don't know what that something else is, but talk to your financial adviser, I'm sure they can give you good advice.
At some point in their passion, every watch geek has asked themselves that question at least once. "Maybe I could start investing in watches?". According to Knight Frank's 'The Wealth Report' from 2016 (Last available data), watches as a commodity have grown 5% in the last 12 months, 35% in the last 5 years and 67% in the last 10 years? Sounds great, doesn't it?
Unfortunately, the types of watches that will make serious money over the long term are not going to be available for you or I.
There is a lot of misuse of the term 'investment' when it comes to watches, especially when it comes to sources that are not specific to watches. Esquire's article "10 Watches to Invest in Right Now" listed, among others, the Tudor Heritage Black Bay, the Omega Seamaster Professional 300 (quartz) and the Omega Spacemaster Z-33. GQ's "Best Investment Watches released in 2016" include a Rolex Cosmograph Daytona, a Panerai Radiomir 1940, a Shinola 'The Canfield' Chronograph ("In the realm of investment-worthy-but-still-affordable watches, Shinola is always on our list") and the Vacheron Constantin Overseas Ultra-Thin.
In buying the Vacheron Constantin Overseas, you could probably sell it for a figure close to what you paid for it after a few years, if it was in good condition. But the Shinola 'The Canfield'? A quartz watch costing between $850 to $1000? An investment piece? Not in a million years.
There is a difference between buying a watch to make a small profit, a watch that will retain most of its value and buying a watch as an investment commodity. If you bought a Snoopy watch at launch and flipped it for $2000 above RRP within a few weeks to capitalize on desirability, you made money. But that's not an investment, that's a sale. Whilst the mechanics of the sale are like investing (Buy low, sell high), the frequency of sale and volume of investment are very different. Warren Buffet defines investing as "the process of laying out money now to receive money in the future". So flipping watches every few months is technically an investment, but is that money enough to live or retire on? Or is it only enough to buy the next watch?
In Bloomberg's video "Building a Watch Portfolio: The Four Brands to Invest In", Central Watch owner Steve Kivel says that you should invest in an original Breitling Navitimer, Rolex Submariner, Omega Cosmic Triple Calendar and a Patek Philippe Nautilus. Mr. Kivel even gives his prediction on the potential growth of each watch:
- Breitling Navitimer
- Price: $5385
- 10 Year Growth Estimate: 30%
- Return after ten years: $1,615
- Rolex Submariner
- Price: $7500
- 10 Year Growth Estimate: 50%
- Return after ten years: $2,550
- Omega Cosmic Triple Calendar
- Price: $5500
- 10 Year Growth Estimate: 50-55%
- Return after ten years: $2750-$3023
- Patek Philippe Calatrava
- Price: $9750
- 10 Year Growth Estimate: 40-50%
- Return after ten years:$3900-$4875
Whilst these suggestions are more sensible, I fear that it still sets a bad precedent to the average consumer in thinking that watches are a good investment. Vintage watches have so many variables that mean the difference between a huge payout and huge disappointment. For example, take the Rolex Submariner, one of the most recognizable watches regardless of expertise.
There are so many subtle variations that can affect the price that it would be easy for an uninformed investor to be mistaken into buying what they think is a sure thing. The length of the E in Rolex, the style of coronet, the color and order of the text, meters first, feet first, the year of production, the providence, etc. etc. The list goes on. Is there a Rolex Submariner that would make 50% over 10 years? Yes, of course there is. But how likely is it that you will:
- Find this watch before the dealers
- Know its worth
- Know that its genuine
- Know where to sell it to get the best price?
- Know how to do it again
It is bad idea to invest in any market without understanding the intricacies and trends in play.
There are exceptions but modern watches are bad investments. By the time the watch has made it to you, the price has been increased several times as the watch changed hands. Modern watches are made in huge quantities and will never be considered rare enough to earn a large return on your investment. As a former sales assistant in a jewelers, I can say that a lot of customers came in looking at TAGs, Longines or Omegas with the idea of making money. I'm sorry, but its just not going to happen.
If you buy at full price or close to it, then you have such a small amount of room to make money. Why would a future customer buy your second hand Tag Heuer Aquaracer for $2500 when they could buy a new one for $2700? Is that $200 worth it to them?
"But Ben", I hear you say, "what about those customers from the 1950s who bought a GMT-Master for $100 and now its worth $65,000. That could be me!". Yes, I watch Antiques Roadshow as well and that is an exciting prospect but its a gross misunderstanding of how the industry has changed in the last 50 years. For comparison, let me talk about comic books.
From the mid 1980s to the early 1990s , there was a speculator boom surrounding comic books. When examples of Action Comics No. 1 (First appearance of Superman) and Detective Comics No. 27 (First appearance of Batman) were selling for millions of dollars, everyone started thinking "If I buy the first issue of Comic XYZ today for $5, my grand-kids can make millions!". This was encouraged by a comics industry that pumped out new hero after hero, each debuting in their own comic.
Soon everyone was rushing out to buy in the hope of buying a million dollar investment for $5. But that copy of Youngblood No.1 isn't the same as Action Comics No.1. There are thought to be only 50 to 100 copies of Action Comics No. 1 that exist, whereas there is a landfill somewhere full of debut issues of Youngblood. Action Comics No. 1 has proven itself over the course of 70 years to become a cultural icon that is financially valuable, the other is a Rob Liefeld comic (Shout out to the 5 people reading this who get that joke).
No-one who bought Youngblood No.1 is ever going to make millions. No-one who bought a Shinola will make millions, thousands or will break even.
If you realize that you need the help of an expert to invest in watches, there are options available. There are several privately held investment funds that specialize in investing in rare watches with the goal of making investors money.
The Watch Fund is a privately held investment fund run by Dominic Khoo that, as of 2015, has $29 million dollars worth of assets under managements with 60 investors in the fund. Investors have a guaranteed net annualized return of 10%, or a variable return of 20-30%. Sounds great doesn't it? Well there is a minimum investment of $250,000 and there rules about the watches you invest in.
After investing $250,000, you receive 3 to 4 watches with a retail price of $500,000 to $750,000. Your contract with The Watch Fund prohibits you from selling these watches but you can wear them if you'd like. After a few months, the fund will call you with an offer for one of your watches. You can reject the first offer for free but any subsequent rejection incurs a 10% fee based off the purchase price of the watch. A year goes by and all your watches will sell and you can chose to either reinvest or walk away.
In interviews, Mr Khoo is wonderfully refreshing when it comes to dispelling myths about investing in watches. He says that 99.9% of watches will lose you money. The remaining 0.1% of watches that do make money fall into two categories:
- Watches that money can't buy, but connections and knowing the right people can
- Watches bought a price that normal people can't get them at
The exact methods in which The Watch Fund buys watches is undisclosed, but Mr Khoo says there are 4 types of watches they invest in:
- Queue-Cutting Watches: By using industry connection and prior knowledge, The Watch Fund buys special watches before they hit the market
- Extreme Limited Editions: Watches that only VVIPs can buy through access, even if a regular collector has the money to pay for it
- Provenance Pieces: Timepieces owned by royalty or historical figures
- Price Advantage Category: Ultra Luxury Watches that are obtained below retailer/distributors costs, sometimes up to a 70% discount
It's not rocket science or magic, it's actually fairly obvious (if an impossible task for most people).
But that impossibility is what makes The Watch Fund a possibility. If everyone could buy watches at 70% off then it would drive the market down. It takes years of work and a lot of money to build up connections that offer what Mr Khoo can achieve.
Ironically enough, Mr. Khoo says that the best investors into the Watch Fund are not watch collectors. In his experience, collectors care more about the watches they get rather than the lure of a 20 to 30% return. To collectors, it is the chase of obtaining rare watches and the joy of wearing them that brings them the most joy. Investors who don't care about watches are better customer. They look at a one of a kind Patek and can't see any difference between it and a portfolio of oil futures.
If you are able to invest in any of the 4 categories of watches above then perhaps investing in watches is for you. If you can afford $250,000 to invest into the Watch Fund, then perhaps investing in watches is for you. If you can't do either then I would say leave it to the professionals.
By all means dabble in flipping a watch, buy a Rolex Submariner with the aim of selling it for around what you paid, but don't kid yourself into thinking you'll make bank. Do it for the love and enjoyment of wearing beautiful watches. If it loses you money then c'est la vie , but remember it gave you more enjoyment than a portfolio of orange juice futures sitting in a filing cabinet.