The luxury watch market seems to be hotter than ever these days. Market prices for some of the very sought after pieces have been soaring for years resulting in substantial paper gains for their lucky owners.
With more and more people getting into the watch market this raises the question whether watches are actually a good investment. And should they be considered an investment in the first place?
If you listen to professional investors like Warren Buffet the answer is likely to be no. Like precious metals or crypto currencies, watches are not productive assets. They do not produce anything, they do not generate a profit and therefore do not pay any dividend or coupon.
So, why puting your money in a luxury piece today? For most buyers the answer is simply the joy of owning and wearing an exclusive watch. However, at the other end of the spectrum watches are also bought and put in a vault for years waiting for their value to increase.
While the first approach seems reasonable (assuming you can afford it) the second one is speculative by nature. Same as for other asset classes, this kind of collecting requires good knowledge of the market, a long-term horizon and the capacity to digest losses. Even then, it is far from guaranteed that you will outperform stocks or bonds over a longer period of time.
Nevertheless, what if you want to combine the two approaches? Say, you want to buy a luxury piece, wear and enjoy it but without taking a massive hit.
Here is what we would do: first, find out what you like and want to own. Second, do the research on prices in the secondary market. When it comes to value preservation there is empirical evidence that some models are better suited for this scenario than others.
Generally, “popular” models in standard configuration will do best. The more exotic you go the smaller the group of people that would pay a price for your watch. Again, if this is your grail watch you should go for it and not care about resell values.
If the brand or model does not hold its value over time (which is the normal case), decide if you want to take the hit or buy it pre-owned. You might even get a watch that has never been worn and still be below retail.
If you are looking to buy a “hot” watch that is trading over retail there are other factors to consider: you can either try to get it from an authorized dealer (AD) or buy it in the secondary market and pay the premium. The first strategy will only work if you have a very good relationship with your AD or a buying history (obviously the two go together).
So, you have identified your object of desire and know how to buy. How do you know if the watch in question is “a good buy” for the future? Watch prices are influenced by a number of exogenous factors that are out of our control (the economy, change in consumer preferences, crisis, etc.). Hence, no one knows what happens over the next 3 months, 12 months or 10 years. Also, past performance is not indicative of future performance. If a watch doubled in price during the past year will it double again in the next 12 months? Or is there some sort of mean-reversion?
To sum it up: buy what you like first and foremost. If value is a concern do the research, choose the brand, the model and the configuration that is most likely to keep its value. Stay away from the hype and finally, enjoy!
