Think twice, three times, before you commit your hardearned money to buying rare watches as investments.
Think twice, three times, before you commit your hardearned money to buying rare watches as investments.
SU JIA XIAN
Independent watch journalist, industry observer and collector www.watchesbysjx.com
“THE NUMBER OF WATCHES THAT HAVE APPRECIATED SIGNIFICANTLY IS TINY, RELATIVE TO THE SIZE OF THE MARKET.”
Here’s an old joke, paraphrased: The only way to make a small fortune from watches is to have a large fortune.
That seems to have become a reality, given the tremendous rise in value for some timepieces, particularly vintage watches, leading to the belief – yes, I said “belief” – that watches are investments.
One of the most frequently touted examples is the Rolex Daytona “Paul Newman”. Over the course of the last decade, it has risen in value by a factor of at least 10, with certain rare variants hitting several thousand per cent in returns.
For instance, the Paul Newman RCO – the acronym stands for “Rolex Cosmograph Oyster” – is now worth a cool $1 million. And all because of this tiny detail: While most specimens read “Rolex Oyster Cosmograph” on the dial, the RCO has the last two words inverted. For that reason, it is also known as the Oyster Sotto, which translates to “below”.
The most recent Oyster Sotto that went under the hammer was at a Phillips auction in Geneva in May this year, when it sold for 1.985 million Swiss francs (S$2.73 million). The eye-watering price was driven by what is essentially a defect: The originally black dial had turned a dark brown over time, a phenomenon known as a “tropical” dial.
Valuations like this make great headlines, just like the $20 million porcelain teacup or a $100 million painting. But such numbers don’t mean much for the rest of the art or fine china market, and the same holds true for watches.
To start with, the number of watches that have appreciated significantly is tiny, relative to the size of the market. Switzerland exported some 28.1 million watches last year alone, with a good many of them luxury timepieces.
In fact, Rolex and Omega, the two largest watchmakers, together produce well over 1.5 million watches a year. In comparison, the 1969 tropical dial Oyster Sotto that sold for nearly 2 million Swiss francs is just one of two known.
Only a minuscule number of watches appreciate, and to identify such watches requires tremendous specialist knowledge. Most people can never gain such knowledge in a lifetime.
Consequently, buying watches as an investment for the average person is like the average person trying to beat financial markets, which countless studies have shown is ineffective. Which is why ordinary investors are often encouraged to buy index funds.
Additionally, the macro picture for watches now does not bode well for valuations. Firstly, the last decade has seen an unparalleled increase in certain vintage watch values. Extrapolating that degree of returns into the future is misguidedly optimistic.
Secondly, the market for new luxury timepieces at retail is suffering a slowdown. The likelihood of this spilling over into the vintage market is high.
But because making money from a hobby is such an alluring idea – having fun while making a return – horological investment schemes regularly pop up every so often. Some are touted as useful diversification, reducing risk by spreading one’s wealth across unrelated assets.
Caveat emptor: Watches are such a niche subject that there are few individuals who can conceivably make money investing in them. Most experts who can will be working for themselves, as auctioneers or dealers, because the economics of watches are not conducive to raising money.
For one thing, the watch market is small. Watch sales by the world’s largest watch auctioneers – Christie’s, Sotheby’s and Phillips – total a relatively modest US$300 million (S$405 million) or so.
Besides, watch values tend to rise gradually, in fits and starts, since valuations are usually benchmarked only during the twice-yearly auction seasons. Returns are uneven and choppy, and valuing watches is difficult. The only public prices are those achieved at auction, but the identity of buyers and sellers at auctions is unknown, making market manipulation possible.
Such manipulation is more likely in a small market such as that for watches, since the sums required to do so are smaller, relative to, say, the art market where the most valuable items can cost tens of millions of dollars.
For that reason, horological investment funds have a poor track record. One of those with the highest profile, Luxembourg-based Precious Time, suspended redemptions last year and is in the process of selling off its assets.
Its travails prove the old adage: Liquid assets become illiquid when you most need to sell.
