The Fourth Wheel, Issue 7
"I had almost 70 Daytonas at any one time, which is fine"
I made a promise to myself a long time ago - about 2015 - that I wouldn’t do this again. I would not write about watches as investments, no matter who asked or how much they were paying. It was a epiphany slow in the coming (writers generally being quite fond of commissions that can be fulfilled in a matter of hours) but after I’d informed the readers of the FT, Men’s Health and the Evening Standard about the wonderful world of watch investing, it all began to make me feel a bit queasy.
This week A Collected Man published a long read on the subject, and although no-one’s forcing me to, I am going to take the bait once more. At least this time I’ll be telling it exactly as I see it.
Several things have changed in the last seven years, too. We’ve seen the emergence of the ‘hype’ watch, the widespread adoption of online retail for both primary and secondary markets, the knotweed-like spread of NFTs and ever-higher headline figures for auction sales. A new demographic is piling into watches and while I’m not saying everyone’s in it for a fast buck, the notion of luxury watches as a path to quick and easy profit is an idea that just won’t die.
Investment-grade watches, 2014 style. (Image: WatchClub)
ACM’s write-up sits on the fence a little bit1, but covers the ground better than anything else I can remember and does highlight some of the most valuable points that I think more enthusiastic coverage tends to gloss over (watches are illiquid; very few watches actually make money; you usually don’t get to actually wear the watches, which is sort of a shame). There are two bigger points that are well made, with the help of Alfredo Paramico (who sounds a little jaded from his experiences running the now-defunct ‘Precious Time’ fund) and Eric Ku of LoupeThis.
Firstly: there’s not enough good data. Auction sales don’t provide enough data points and the numbers on Chrono24 etc don’t necessarily indicate accurate market prices.
The second point is that for watches to be a true investment, you have to be prepared to hold them for a while - Paramico suggests at least five years. If you’re looking for an immediate return, you’re flipping, not investing. As a purely financial strategy, flipping is hard to beat: the returns are instant and they are large. But you will quickly exhaust your access to flippable watches (and everyone will hate you).
And this is what really starts to unravel the whole story for me. The overwhelming majority of watches are not a good financial investment. Not even all Rolexes or Patek Philippe or AP models are guaranteed, or even likely, to rise in value. As we all know, the ones that will are the ones you can’t buy, and if you can buy them, the system is set up to incentivise you to not sell them and realise that potential profit, otherwise you’ll be blacklisted. 2 All stories about investing in watches tend to make the assumption that we operate in a market where anyone can buy anything, like the stock market, but in reality investment-grade watches are only really available to people with two things in abundance: money and access. It’s less clear-cut if you’re happy to buy on the secondary market; in this case, it’s easy to see the launch of a new watch as a bit like a company’s IPO - the launch price is set, but now the market is going to take it up or down.
Investment-grade watches, 2022 style. (Image: Rolex)
But here I’m making another assumption too, and this exposes probably the biggest point that the ACM article declines to address, although perhaps it’s implied: when people talk about watches as investments today, they are talking about new watches. Not very long ago, the investment potential in watches was perceived to be entirely in vintage. When I wrote about investing in 2014 and 2015, the focus was on 1960s chronographs, with Daytonas having led the charge, followed over the top by Universal Geneve, then Heuer, then the entire trench full, right down to brands you’d never heard of. Now it’s all about the latest hype thing.
There are some pretty major differences between vintage and modern watches; every single vintage watch is unique, while every box-fresh, ‘still got the stickers and tags’ Aquanaut is identical. A complicated cocktail of factors determines value in the vintage market: brand, model, rarity, condition, provenance, and the intangible ‘mood’ of collectors - that which determines that a 35mm watch is too small, or that Cartier is ‘having a bit of a moment’… A modern watch only has brand and rarity to consider (hence the incredible popularity of limited editions).
I can’t be 100 per cent certain, but I have always said that one reason to be cautious about investing in watches, if you’re impressed by the profit seen by, say, Rolex Daytona Paul Newmans3 in the last two decades, is that there is very little chance that today’s new watches will be tomorrow’s vintage. I think this for a few reasons:
Today’s manufacturing quality is much higher; patina and character are less likely to develop and fewer watches will bite the dust.
Today’s record-keeping is better; the void left by the Quartz Crisis and other industrial upheaval drives a lot of the speculation (not the financial kind) and intrigue that the vintage market has been able to exploit.
Today’s production volumes are much higher; rarity will be harder to come by.
Let’s be honest: anyone talking about ‘investing’ in modern watches isn’t interested in waiting fifty years for them to be the BiCompaxes and Rallygrafs of tomorrow. It’s the short-term spikes for watches like the Nautilus that has got people interested. But we’ve already covered this - no-one can get their hands on one. Enter a parade of fintech bros touting the hottest new concept: fractional investing. For a mere £250 or thereabouts, you can buy a fraction of a hype watch - represented by, you guessed it, an NFT - to be ‘collected, traded and enjoyed’, as start-up platform Koia rather cutely puts it. Personally my heart is warmed by the idea of ‘collecting’ fractional shares of a Royal Oak and the amount of enjoyment it could bring me - gosh, I’d better sit down. They can’t talk about it as an investment opportunity, of course, because this isn’t a regulated investment platform and has no security behind it. You’re just going to have to hope that while you’re enjoying your fractions, they increase in value, because you’ll be charged a fee to sell them all the same.
As luck would have it, one of these joyous new platforms, which all have names that sound like Greek islands or Scandinavian restaurants, has teamed up with one of the original watch investment vehicles4 I covered for the FT back in 2014. Konvi, it’s called, and it’s crowd-sourcing fractional investments to place with The Watch Fund, a business I assumed had folded, like Paramico’s Precious Time or others of the last decade. But no, it’s alive and well. Although I’m not sure I find it entirely convincing.
Firstly there’s this example of the untold riches just waiting for the new horological investor.
The eagle-eyed will see a Girard-Perregaux Tourbillon Three Bridges 40mm in rose gold, launched in 2012 and still available from Girard-Perregaux, priced at £149,000. If I’d had one of these for five years from new, I’d have seen a 148.8% increase in its value, according to the Watch Fund. Surely some mistake, then, that one was auctioned at Antiquorum in 2018 with an estimate of CHF55,000 - 75,000. Or that there are three on Chrono24 right now, priced between £57,000 and £65,000. Maybe it’s just a hypothetical example - although it does say ‘based on real data from WatchFund’. Maybe I’m expecting too much from a company whose own FAQ includes this gem:
“Are you regulated by the Monetary Authority, etc?
Nope but we’re even better – we’re regulated by YOU. Typical funds need regulation largely because the way they use investors’ funds are quite opaque, and also investors are holding onto a piece of paper the whole time. With us, the investors are holding onto their entire purchase of watches from day one, and they can even call up the watch boutiques to check the prices!”
There’s one last aspect of all this that ACM touches upon in a few different ways, and that’s the attitudes towards anyone trying to make money out of watches. Among a certain type of collector, there’s an arrogance and a snobbishness - bound up with the idea of ‘true’ or ‘pure’ collecting, which should somehow be unsullied by financial matters. Thomas Mao, of the Purist forum, is quoted (in a previous interview) as saying “An inside joke among ThePuristS' old-timers goes: how do you tell a true Purist from those who are not? The true Purist most often forgets to even think about asking how much it costs.” If you’re someone who’s going to have to sell a piece to fund a new one, its value becomes pretty important. If you’re so rich you never have to think that way, it’s easy to make high-minded statements about the philosophy of collecting, as Mao does here.
Where am I going with all this? It’s not wrong, or lesser, to want to be reassured that your watch purchases won’t lose money. But that’s a long way from trying to deliberately speculate in watches. Like picking shares and playing the proper investment markets, I think it genuinely can be done - but in reality it’s much, much harder than it looks.
Timepiece NFTs Expand The Watch World’s Metaverse, The New York Times (paywall)
“Watches are very similar to crypto technology,” Mr. Behnoud said, explaining that both items continually increase in value. Watch collectors can — and should — join the NFT scene, he said — it’s just that “they have to leap over this technology curve.”
I think if you’ve read this far you’ll know how I feel about this… Watches and crypto continually increase in value? That’s funny, tell me another. It’s sort-of-but-not-really reported speech so I can see why it was allowed to stand unchallenged but if I’m being honest, that’s not great journalism. Normally I make a point of being positive with these links, but this popped up right as I was in full-on rant, and I couldn’t let it pass.
Watch Fairs Still Attract Interest, The New York Times (paywall)
“Watches are an absurd product, and they require all of the sorcery of marketing at its most grandiose and bellicose.”
Moving on - the NYT watch special had some nice pieces, and the pick of the bunch if you’re close to the world of watches was Robin Swithinbank’s post-Watches and Wonders report. Mostly for this excellent quote from Andrew McUtchen, but also because Robin brings cold hard numbers and a smattering of little scoops. Who’s in and who’s out? How much does a Carré des Horlogers stand cost? Particularly interested to see cold water poured on the idea of W&W expanding to new locations.
On My Watch, Vol. 3, Mr Porter
“I don’t regret much, but once I was negotiating to buy a unique Rolex Daytona with a rainbow gem-set bezel. We were $10k away on the price and I lost the watch. About seven years later, I finally bought it, but it cost me nearly eight times more.”
I must start self-promotion corner this week by thanking Eric Ku - there he is again, and not even for the last time in this newsletter… people will talk - Roni Madhvani and Justin Hast for appearing in this story. I’ve really enjoyed hearing from collectors about their grails, their first watches, their near misses and misjudgements. You can feel like you’ve read it all, seen it all, but no two collectors have the same stories to tell.
An Industry Insider’s Take on François-Henry Bennahmias’ Success at Audemars Piguet, Watches by SJX
“Going from CHF 630 million in 2012 to CHF 2 billion this year while keeping product scarce and demand high, and simultaneously enhancing brand equity and increasing margins is an achievement many bosses can only dream of”
Oliver Muller delivers a fair and reasonably concise epitaph for F-HB’s tenure at the helm of AP, now that the energetic CEO has confirmed he will step down by the end of 2023. Francois-Henry Bennahmias won’t be missed by some journalists - he frequently got into heated exchanges during the SIHH presentations, which he would always preface with a mixture of grandstanding and surprisingly open Q&A with the press, and once smashed (and refused to replace) a writer’s phone in a fit of pique. Or so I’m told. But whatever you think of his personal traits, Bennahmias also gives journalists exactly what they want - proper quotes. He provided one of the best CEO interviews I edited at QP, but his tendency to shoot his mouth off did land him - or at least, some of his communications team - in hot water. Only a few people know what the unedited version of this story looked like.
As for what’s next, I can’t see Bennahmias moving to another watch brand, although there are several that could do with his services; similarly, I can’t see AP recruiting from elsewhere in the industry. Stepping into a brand on such a sure footing might look appealing - you’d have to really go some to screw it up - but on the other hand, you’ll have your work cut out to make your mark.
Switzerland Revealed As The Safest European Country To Visit On Holiday In 2022
Only tangentially watch-related, but I got this press release and while not at all surprised at the headline, was amused and depressed in equal measure to note the UK came last, by a sizeable margin. Switzerland, the study reported, has a ‘safety index’ of 88.3 out of 100, while the UK’s is just 41.2. Of course stories like this are complete bullshit from start to finish, but happily the press release included the methodology for calculating the ‘safety index’ so we can see exactly why it’s such nonsense: for reasons known only to themselves, the bods at Forbes Advisor who compiled it decided that the percentage of excellent bathing waters (on which the UK scored particularly badly) was a more significant factor than, er, total number of homicides and thefts. It’s a funny old world.
Proof that 50m water resistance is sometimes all you need, I think this is what’s called Living Your Best Life. Have a good weekend everyone!
Surprisingly for a story published by a trusted retailer of independent watches, it does flirt with the suggestion that the best investment might be… independent watches.
I’ve never been sure what the statute of limitations is on flipping versus simply selling at a profit. Is it ok to sell after a year? Two years? When the model is discontinued? If you work for a retailer or brand I’m very eager to hear what you think.
Daytonas Paul Newman? Like Attorneys-General? Again, please, write in.
Like Koia, Konvi is at pains to point out it is not an investment platform or broker; it is instead a crowdfunding platform. Pity that’s in the small print, and the words ‘Your investment journey can start today’ are right at the top of the page, above a number of ‘investor’ plans and an example of profit on a hypothetical investment.