Dear friends,
Wearing a watch has not only a functional use in being able to tell the time, but is also one way to make a fashion statement especially for male buyers who have limited options. Recently, luxury watches gained another use case as stores of value. A secondary market for luxury watches has existed for a while, but it is only in the last couple of decades when buyers saw them as liquid investments.
The logic is quite simple; buy low, store for a period of time, and sell high. Especially with the rise of an affluent middle class in many developing markets, for more than 10 years the prices for luxury watches were going only one way – UP. Watches from brands like Rolex, Patek Philippe, Audemars Piguet were traded like stocks and bonds and, since the buyers were international, the prices for all models converged regardless of the country where they were sold.
And then the bubble popped. A combination of several factors happened at once and luxury watch prices started crashing. First the crypto market crash; crypto bros were one of the biggest fans of luxury watches so the crash in crypto prices meant that demand from these buyers disappeared. Then China; Covid lockdowns last year forced many Chinese High Net Worth Individuals to pawn their luxury watches in search of cash, bringing more second-hand supply. Finally, the announcement by Rolex that they will set up an official resale channel; even more supply of second-hand watches exactly when it was least needed.
At Artemis Assets we see two fundamental problems with using watches as an investment vehicle. Firstly, they don’t produce cash flows. After its purchase, the owners must store the watch and pray for prices to go higher and also pray that it doesn’t get stolen or lost. Praying is never a sound investment strategy. Secondly, the supply of watches depends on the manufacturers and it can be increased or decreased on short notice. The manufacturers need to maintain an equilibrium of volume and margin, and that strategy goes against the interests of an investor. Who watches the watchmakers?
If you are using a watch to build wealth, reach out to us because we think you need some investment advice.
Until the next one!
