Say “investment” and what comes to mind are securities such as stocks, bonds, commodities and funds. But apart from these popular and well-known instruments, there are also other, non-traditional assets that can be traded and held as investments.
Termed “alternative investments”, these range from jewellery, antiques and fine art to farmland and recently, cryptocurrency and other assets. However, one of the most enduring types of alternative investments is luxury watches, led by the likes of Rolex, Patek Philipppe, IWC and more.
Here’s a guide to luxury watches as alternative investments, the pros and cons to watch out for, and how you can get started.
The basics of watch investing
The whole point of investing is to turn a profit – i.e., ending up with more money than when you first started. For luxury watches, you only turn a profit when you sell your watches for a price higher than the one you paid for them. This can happen in a few ways.
One: The retail price for the models you own goes up, allowing you to sell your pieces at a more favourable price but still high enough to make a profit.
Two: The pieces you hold go out of production. Depending on the level of demand in the market, you may be able to sell your stock and earn a profit.
Three: Supply is capped in some artificial or arbitrary way, forcing enthusiasts to turn to the secondary market. Rolex is notorious for doing this, refusing to sell to individuals who’ve not built up a relationship first, especially newly released models.
As you can see, luxury watch investing pretty much depends on the sublime interplay between supply and demand, the patterns of which will take time and patience to learn. Therefore, don’t go blowing your bonus on some new pieces and expect to turn a quick profit come Christmas.
Can luxury watches be a viable investment?
It depends on who you ask. There have been some enticing headlines recently, ranging from how Rolex outperformed the stock market in the past 10 years, to Patek Philippe beating Wall Street, and how Swiss watches have outdone even cryptocurrency.
However, it’s important to realise that these are merely current trends, and may not mean that luxury watches are set to be the next kings of investing.
After all, luxury watches have been around for a very long time, and while there is a general appreciation in price over time, not every model is guaranteed to do so.
Besides, luxury watches have their own peculiarities, and may not be suitable for every investor.
Pros and cons of luxury watches as alternative investments
|Low correlation to the stock market||Illiquid|
|Some brands have outperformed the stock market||High barrier to entry|
|Tends to hold their value over time||Easily lost through theft or damage|
|Portable, doesn’t require a lot of storage space||–|
Pros of investing in luxury watches
One advantage of investing in luxury watches is that they have very low correlation to the stock market. As demonstrated during this recent downturn, luxury watches have held their value even as everything else came crashing down. Thus, parking some of your wealth in them could be a way to diversify your overall portfolio and hedge against market downturns.
The best luxury watch brands, such as Rolex and Patek Philippe have been shown to outperform other investments, including real estate and the S&P 500.
Because luxury watches tend to hold their value, some would prefer holding a collection of watches instead of cash, which loses value every year due to inflation.
Another benefit of luxury watches is that they are highly portable and comparatively easy to store, compared to more fragile assets such as fine art or antiques.
Cons of investing in luxury watches
Luxury watches are highly illiquid because it can be difficult to find willing buyers. Thus, you may not be able to sell your watches as quickly as you’d like.
Also, unlike stocks or commodities – which are traded over a regulated stock exchange – luxury watches can only be traded on the largely unregulated secondary market, which you have to access through second-hand sellers, watch collectors’ forums and e-commerce platforms like Carousell.
With their exorbitant prices, investing in luxury watches requires a high starting capital which not everyone will be able to afford.
Also, unless you take steps to properly secure them, watches can be easily stolen during a break in, and even the most sturdy of high-end watches can be damaged in a house fire.
Tips for investing in luxury watches
Study the market
Whether you’re a collector with some familiarity, or completely new to luxury watches, the first thing you should do is to establish an understanding of the market and how it works.
This is important for gaining a clear-eyed view of what you’ll be getting yourself into, which is arguably even more crucial for hobbyists, who may have developed some blind spots due to their fan loyalty.
Ensure you can afford to wait for the right time to sell
As outlined above, luxury watches are highly illiquid, which means you should ensure that you can afford to wait for the right time to sell.
Having to sell your watches at short notice rarely ends well, you will feel forced to accept any offer that comes along, losing out on potentially higher gains down the road.
Be ready to sell when the opportunity arises
On the opposite end of the spectrum, don’t be too attached to your watches to the point of missing out on a potentially lucrative sale.
This can be difficult because let’s face it, you’re probably a collector first, and an investor second (otherwise, you’d simply invest in a luxury goods ETF, instead of going through all this trouble).
Even so, try to keep your emotions in check and make it a point to sell when the right opportunity arises.
ALSO READ: Where can you buy affordable luxury watches in Singapore?
This article was first published in ValueChampion.