High Interest rate means higher cost of borrowing. Business needing loan expansion will have to pay much interest on the borrowing. This in turn will cause a slowing down in businesses hiring and hence competition for hiring qualified workers become less intense. Inevitably, the need to pay higher salary to attract the suitable workers is no longer necessary. Lower salary and a higher unemployment rate, will bring along lesser consumer spending power, hence easing the inflationary pressure. That’s main tool that Fed Reserve using in the battle against inflation of the past few decades . Again this discussion on luxury watch market will be dominated by the monetary policy of the central banks. Curbing the spending power of individuals are the most effective tools they have to bring down this runaway inflation.
The cheap money, the ample funds which government dished out during the pandemic, a tight job market aftermath all contributed to the phenomenon price surge for Rolex and Sports Patek and AP prices up till the early 2022.
Since peaking during March of 2022, plummeting prices wipe away 40-50% value of many people watch collections. We shouldn’t be too surprised that the decline of watch price coincided with the start of Fed Reserve interest rate hike at around March 2022. Some journalists are quick to connect the dots and attributed the watch market burst because of cryptocurrency downturn. I personally disagree (to some extent) with this notion, as it is clear that other asset classes such as Bitcoin, bond prices, and housing market in some countries also start reeling from the steep rates hikes: As the supply of fresh funds to pump up the asset markets sudden slowed.
In May, cryptocurrency market was further rocked by the dramatic collapse of Lunar and triggered the fallout of a major hedge fund, the Three Arrow. These send the crypto world into a downward spiral. The crypto market themselves like the watch market are merely the victims of interest rates hike. The lack for regulations and governance will further exacerbate the situation as we witness several more collapse of the crypto exchange and funds, just months following the start of rate hikes. Rates hike don’t imploded the crypto market, it only provide a spark in the sea of dry hay, as poor regulation and lack of clarity were cruelly laid exposed.
Now, we all should come to a consensus that for inflation to be eradicated, 2023 will have be a year with less job opportunities, less salary growth, slightly higher unemployment rate, higher interest and month installment for house mortgages….etc. So spending on luxury will slow down and prices of watch may take a further dip. High interest rates will around longer than most people hope: hence a sluggish rebound watch resale price will be expected. It might be late as 2025 before the watch price will start the appreciate once again.
Previous review: we highlighted the risk of inflation and what are the consequences of Fed Reserve’s action will bring:
The inflation of today can be resulted from the Quantitative Easing (QE) policies from the central banks has been in place for past decade. Cheap borrowings flooded the markets with hot money ended up speculating almost on anything with value, from Crypto to Nike Sneakers, from watches to properties. Compounding this problem are Geopolitical problems like Ukraine war which created havoc to energy and food supply chain; OPEC cutting energy output amid European energy crisis, changing weather pattern, trade wars etc..
At the same time a very tight job market (favorable wage growth) means the purchasing power of individuals improve and runway asset price and unwanted inflationary pressure follows. When individuals are flush with cash, surely they will indulging or speculating/investing on luxury watches Rolex and Patek watches. These luxury watch is a symbol of wealth and they become a common goal for many.
Now as interest rates rise many of these individuals experienced increasing difficulty on the cash flow. Houses bought with low cost loans (low interest rates) previously now have to repay at a much higher SIBOR rates. Some may sell watches from their collection to free up some cash as their priority is to have adequate funds to refinance the loans, to lower the borrowed amount. Cash rich individuals who once lamenting on low interest rates were and decided to put money into watch investment instead for better yield, can now sell of their watches and go back to bonds or fix deposit.
What might happen?
China and post lockdowns
Many of the people I spoken to are hoping that the opening up on China economy will no doubt positively impact the luxury market. This might be true, but only for a couple quarters at most. China emerged from the lockdowns much later than all the countries, the people have penned up frustrations and willing to spend. However, at the same time, the world demand for the goods that Chinese produces are waning: Western countries and USA economies are still engaging in a form trade against the Chinese. China just entered the period of negative population grow last year, yet the entire generation are saddled with a housing loan that may take more than a generation to repay. They too will be heading for a 1990s Japan style of housing bubble collapse, yet at the same time have to difficult situation of inflation to deal with. The authorities may have to keep the interest low, to reverse the fortune of the property market, but this will cause inflationary pressure, especially raw material and food prices, which will harm their competitiveness.
The business of war in Ukraine:
War is inflationary. Imagine nations spending heavily on weapons, then destroying them in action and buy more again, the cycle continues on. This cycle consumes energy and raw material. It has to be funded so how by someone. It is actually a cycle inflation:
Drive up the demand for raw material and energy
Jobs creation in the arms industry.
Funded by loans and money creation. This have to be bear by tax payers for years to come.
War machinery built will to be destroy in action and new weapons will be needed once again.
Being a big agricultural country, food supplies web across the world are disrupted, leading to higher food prices.
Perhaps now is not the best time to keep non-yielding assets, such as gold, watches, crypto etc. Basically assets that rely on capital (value) gain for profits. (Even properties for that is not rent out also falls into this category, especially those properties that is funded by loans). These will be stagnant in prices, while investors holding them will be losing opportunities on interest generation in bond or fixed deposit (FD).
For example: Rather than buying a Daytona 116500LN at S$40,000, putting this amount of money in the bonds and FD, the investor can instead gets 4-5% (S$1600-2000) return next year.
Travel resume, will-be buyers channeling funds for travels or choose to buy luxury when overseas, taking advantage of tax free shipping instead, hence a weaker demand on resale or grey market.
Investors/speculators exited:
Rolex, Patek Philippe AP, Richard Mille etc. now close to pre-covid prices. Painful for the collectors and investors who bought luxury watches as a hedge against the surging inflation. This correction of 2022 was caused by bursting of speculation bubble. We believe prices will continue to show weakness till 2024 after. Even by then, there may not have a situation of a quick price rebound, as confidence had taken a hit; speculations on watches will not re-emerged so quickly.
the demands of luxury watches is expected to slow down next 2-3years, although the current stock situation in ADs remains visibly low.
situation at AD waitlist may improves a little as premium of resale of hot models in grey market drop. These help watch buyer as AD will be asking for a potentially smaller bundles attached to some of the hot models too
What we ought to do?
As always, we urged everyone not to put all the cash into watches. This more critical now as situation now is clearly not the most ideal time to invest into physical assets. While we can take comfort that watches are going to worth some money at the end of the day. In events of economic downturn, watches are the first thing people sell or pawn; most people need a roof, they need a mode of transport for delivery and continuation of the small businesses. Let’s continue the process of reviewing the watches held within our collection. Streamline our collection and at the same time free up capital to fund for new purchases or simply standby some cash for any possible opportunities that may come by. Some affluent individuals may still need material comfort even in lean times, so there is really nothing wrong hanging on to a watch collection. After all we do want to enjoy the finer things in life; we must understand as long there are speculation and profiteering, losing value (or gain) on watches is a byproduct that we all have to deal with.
However, the shift trends was evident, current models and newer model/design have better resale price. This means as time goes, a watch actually suffers from degenerative price as it gets older. So it is unlike few years ago, when any discontinued watch is naturally a good investment bet. This we feel is the most troubling now, as it is making modern luxury watches un-investable.
Brands in prospective
Rolex
Rolex continue to lead the market as the premium luxury brand, although speculations had eased somewhat; many people still is Rolex watches and value protectors. Daytona received a total make over for the 60th anniversary; certainly to the delight of collectors who are hopping that the “Panda” and “John Mayer” Daytonas will see significant gains in prices after discon. Also Milgauss was removed from catalog. However, we urge caution in to buying discounted models as the appreciation in price very much depends on the future taste/trend. As mentioned earlier, people prefer now prefer newer and slicker Rolex. We aren’t too sure if collectors will be consider a 116500LN or 116400GV when come to grail hunting. Since 126500LN are making in the thousands and 116400GV seem pretty dull and not as exciting as the GMT or green Submariners.
Patek Philippe
Patek Philippe continues its rebranding process and continue to try be relevant to the trend of the day, launching colorful Grande complications and Calatrava models. I haven’t enjoy looking at these new PP creations over past few years; perhaps they are try too hard to stay relevant to the demand of today’s watch collectors. Needless to say, we aren’t to worry about what we don’t like. We just make sure the Nautilus and Aquanaut remain popular and liquidatable.
Audemars Piguet
AP once part of the “Trinity”, seem to join Vacheron Constantine and slipped quiet in to obscurity. After Offshore, AP banked on Royal Oak series to generate the buzz which didn’t happened. The push to introduce tens of new model and hundreds of new colors only left collectors dumbfounded and confused. It back fires big time. We definitely not considering AP watches to be investment worthy anymore.
What have Les Precision been doing:
We felt the worst for the watch market is over, yet we resisted the temptation of going all on watches. Although inflation is improving, but still it is far from over; the collapsed of banks in USA only send a clear signal to central banks that they cannot raise rates they deem fit, without harming any parts of the financial system. It is a tricky situation, as slower rise means the battle against inflation will prolonged. It is evident from the sharp rise in gold price lately, that investors rather park their wealth in asset and hold on to the safety of gold. We understand watches can never be on par with the safety of gold, yet better rather than hold cash and be eroded by inflation. (Gold can be subjected to quick price fluctuations as nigh funds or institutions can move vast amount in and out of it as situations arises) We prefer this strategy for 2023, 30:40:30 (Blue-chip watches*:fixed income deposit:cash).
*Some blue chip watches we recommend:
PP 1518, 2499, 5970, 5004, 5711, 5712, 3712, 5980. Rolex sport with stable price history and such sports models.
As it stands, we may want to reduce watch holding further as 2024 approaches. It is going to get harder to cash out watch investment, as challenges in the greater economy, will put many people off against buying more watches.
“What watch to invest?” I was asked this question countless of times. Although I have flipped enough watches in the recently past. Yet never once I can answer this question with any full conviction.
Why is it so hard? First we must understand the intend is to “invest”. Many people (who asked this question) just want justification to buy a watch to wear, but they are hoping it’ll worth more in future too. Factoring headwinds like deterioration of watch condition and servicing cost, it is indeed a challenging question to answer. This is almost the same question as “which company shares shall I invest?” These watch buyers want to buy the next FAANG of Geneva……
It is impossible to predict the trends of the future. Some of the watches that became a real collectable like Rolex Paul Newman Daytona, Patek Phillipe Nautilus, Audemars Piguet Royal Oak etc. weren’t born a celebrity. In fact they are not popular at launch and it difficult to sell them in the 1970s and 1980s. Because they didn’t sell exactly that well, number made were limited, hence making them a rarity. Once considered as a “funky” the exotic dial Paul Newman suddenly became a hot property as taste changed. But we shouldn’t be choosing to buy “ugly” unpopular watches now, but rather, we shall put the focus on choosing the timepiece that will still be love by collectors in future. How can we start choosing a watch out of the thousands of design? First we need to ask yourselves, why do we need a beautiful hand crafted mechanical wrist watch?:
Hobby
Asset
Discreet
Easy storage and transport
Watch as buddy follow where you go, part of your life; your legacy
Pass it down to the next generation
Investment for Monetary and Value appreciation
The main motivation behind having a watch collection + investment is the journey and joy of doing it. Before we part our hard earn cash, we need to how to protect our investment and to ensure choice of watches will not fall off the trends and value plummets in future.
Fundamentals that make any watch a great investment:
Craftsmanship
Design that’s Iconic and evergreen
Watch brands that is not so market driven (or not driving by profits and take a wrong path that will harm future valuations)
Choose the correct metals (steel is evergreen and yet subtle, Platinum in some cases for rarity)
Watch models that are discontinued (we can estimate its production numbers)
Watch size about 38-42mm (human don’t changing wrist size)
Provenance: watches with “good” ownership history, ie. owned by famous watch connoisseur will fetch a premium
*Don’t get too excited about limited edition (LE). Too many of LE watches out there are just marketing gimmick. Often manufacturers create a LE by changing the dial colors, hands and accompany it with a special box. Unless it strictly a LE with a unique case/bracelet design or a watch that is build around an entirely new movement (for example: Harry Winston Opus series).
Previously I talked about some basic fundamentals and principles on watch selection. Choosing a watch for collection is just the first step. Next phase is perhaps the most fun and exciting for collectors: Hunting.
SEEK & ACQUISITION: 1) buying used watch for collection is OK, but we it is important to scrutinized its condition. Whether was it unpolished or still having the original factory parts such as (dial or hands). Factors such as this may not affect the price a lot now, but it will determine whether it fetches a premium price years down the road. 2) Network: Build a strong network with fellow collectors and watch dealers. Do look out for opportunity to trade among the circle of collectors. Sometimes we do need to sell or trade before more acquisitions can come along. You definitely need a trusted avenue for both buying, selling or trade. Also good piece tends to be offer to someone we know since collectors are often remorseful when letting go of watches. We prefer to sell it to someone we know; who knows we may want it back someday? 3) Get compete set, with Box & Paper. It is important to try and get a complete set, ie. box, warranty card, tags and instruction booklet. It is often more desirable to collectors when a watch comes as a complete set. A complete is easier to sell and of course it commands a higher price too.e know; who knows we may want it back someday? 4) Budget. It is important to invest within one’s budget; similar to all other forms of investment, we only do it with surplus cash.
Wearing, maintaining and reviewing:
Wearing: I often encourage people to wear watches and enjoy. However, we must be clear which are watches in your collection that are the most precious or fragile and limiting their usage will goes a long way of keeping it pristine.
Brand New condition watches my collection will not be worn, for one simple practical reason: Since most of them are still with the original factory seals; wearing it will immediately reduce its status from “NEW” to “USED”. Hence, I must keep them in the same showroom condition, however if I like it so much, I’ll purchase an Used piece of the same model for wearing.
Fragile or precious ones like vintages watches, should see more limited usage. it is almost inevitable that we will knock our watches against the something as we wear it, so it necessary to choose the correct watch to suit that day’s activity.
Daily Beaters, I know it may sound contradictory to have daily beaters as investment watches. Sport watches’ greatest virtue is they can take some punishment without resulting big penalty in valuations, hence it is possible that a daily watch that will appreciate over time, despite for its usage and deterioration of condition. Owners of modern Rolex submariners and GMT will understand this very well.
Keeping your collection is great condition is also paramount to its future valuations. Below is a great article from the famous auction on how to keep our watches collection in great shape:
Keeping a record: It is also important to keep track of cost, servicing history of individual watches. Ultimately we to know how much money was committed to each piece and we need it to know whether our investments are indeed profitable of not.
Review the composition of your collection every half a year or so. We are easily affected by blogs & review. There is always temptations of better watches, but we must keep faith in why we make as a purchase in the first place. However, we do need to a periodically review of the collection and sell off less desirable pieces, because priorities, trend and taste may have being shifting gradually.
Selling and Profiting taking:
Perhaps the least talk about topic on the subject of Watch investing. For any form of investment there must be an exit. Avenues available to sell a watch can be:
Network of collectors
Trusted dealers who will either buy-in or do consignment of your watch
Online platform such as eBay, Chrono24, Facebook marketplace or Carousell
Some collector choose to build a profile over social media like Instagram and market their watches there themselves
Auctions house
**My Thoughts: “As the monetary easing continues well into 2020s so the stubbornly low interest rates environment will persist, fiat currencies values will continue to erodes. Holding physical asset such as watches might be an good hedge against it. So on a longer run I will continue to maintain a stable holding of Rolex & Patek Philippe. Pressure from near term COVID crisis may present some buying opportunities, in view of this, I’ll be looking to de-invest some holdings to free up some cash in anticipation.”
**Disclaimer: Past performance does not ensure future results, and there is no assurance from Les Precision that any investment objectives will be met solely base on the information in the above article. Investors should consider their investment objectives and risks before making an investment. Real world economy and financial markets do have a massive influence on the luxury resale market, so please exercise with caution.
Is there such thing as a Recession Proof watch? It’s really been a kind of revaluation for some watch collectors/investors to see a price correction for some of the most sought after watches. I too eagerly watched the video on recession proof watches. (link below:) https://www.youtube.com/watch?v=e-aOJ85cPME unfortunately I may have to express a differ opinion in some of the things he mentioned:
1) Recommending to buy models the never appreciated recently: There is a reason why these watches (he mentioned) never appreciated in value in the first place, and quite honestly I will feel my wrist deserves better than those “recession-proof” watches. They either not suited for my lifestyle or my age. For example the 36mm President are too small for my wrist.
2) Seriously… going back to AP offshore 42mm? AP offshore is a massively and insanely popular watch up to a few years a ago. Quite naturally this trend dies off and price had fallen and remain stagnant lately. While it is not exactly a obsolete design like Cathode-Ray tube television, it definitely seem better days. The biggest risk I will run into, is having mocked by friends with slick Royal Oak 15202 on their wrist. Further more I doubt the value of Offshore will hold if there is a price onslaughts during a full blown financial market recession. For a stock that never rise in a boom market, how will you expect it to survive a downturn?
3) Datejust 41mm the worry of greater evil ahead Nice to see the popularity and fortunes of Datejust Improving. We all know why: Sport Rolex models just simply too hard or expensive to obtain. We use to be able to buy a Datejust from ADs with some discount years ago, now they (Datejust) are flying off the shelf at RRP or being bundled deal with a sport model. Some people I know even purchased Datejust/Day-Date in order to build a relationship with the retailer, in hope of getting a sport Rolex allocation some time in future. In my opinion, to many people bought Datejust that they don’t need recently. When recession hits and there is a need to free up cash, trust me, people will offload the Datejust first. When that happens, secondary market may not have the ability to absorb them all and that make them an illiquid asset. What’s worse? Falling price for sports Rolex or illiquid dressy Rolex?
4) Gold President Day-Date If there is one thing that’s as true as: “sun rises from the east” that will be Rolex President (“Rolex King” 1803, 18038) value will appreciated over the time. They are make of solid 18k gold and hence the value material provides a good hedge against inflation, as simple as that. Those Day-Date with extremely desirable dial like “Stellar” have prices already shot up into the stratosphere recently, so please be extremely careful.
SO? What shall we do then? While we love to see the price of watches grow, too many of us simply neglected what other advantages a wrist-watch have: for example, giving us the style, the confident, the distraction of modern day stress, the projection of our personality , etc.. I’ll argue that NOW is even more crucial to have a “correct” watch wrist strapped on our wrist than any other time, since the invention of portable time-telling devices: We often don’t want to be spotted with an ugly watch or too expensive timepiece that too overwhelming for the occasions, etc. So please choose the watches wisely. It is true price will fall during recession, so is other asset classes like shares and property. BUT isn’t it true that they will rebound after the recession? We can hold back the expansion of our collection, and postponed the purchases. Maybe in time, lower prices or better opportunities may present itself. Just please don’t buy whatever (that’s presented in the video that I share) if you don’t like them, it is hard to liquidate them in future.
While we can’t live without a roof over our head, neither do we want to lose the comfort and luxury having beautiful timepieces. Every unhappy day is a waste, as our time on this planet is finite. So is every day that has passed by without a good watch on our wrist. Believe me, value isn’t everything…..
There’s certainly a cloud of uncertainties going to the final months of 2019. The 2 biggest economics are locked in a long and sustained treat of trade war; while the biggest watch market, Hong Kong is deeply embroiled in unrest. After a strong showing in the H1 2019. The sustainability of the price growth was severely tested in the Q3. Weakness in price for popular modern Rolex models such as Daytona, Hulk, GMT. Prices have dropped about 15-30% in some of these models. Patek Nautilus too are fell 10-25%. Though the correction was after an unprecedented pricing boom, many investors who have faith still pretty much sit on a large paper profit. For example if you bought a new Hulk in 2014 it is still worth about S$4000 more than what you has paid for.
We do find some stability in the resale prices lately, although the sale volume is predictably low. Nevertheless the price crash which we worried didn’t happened. This could be due to the fact the there’s still a long line of people on the waiting list for some other these models. The price drop on the secondary market is inconsequential to those the wait list, because are they (the wait list people) will not want to pay the premium prices to get hold of these Rolex or Patek; they continue to soak up the new stocks and not spilling it to resale market yet. Thus the supply continues to be tight.
Silver lining: 1. Investing for the future? A Patek Philippe watch recently smashed the world record for the most expensive watch ever sold. What so surprising is that, unlike the previous record holders, this watch is just newly created as a unique piece for a charity auction. No history, no provenance, just the most complicated Patek Philippe wrist watch movement housed in a stainless steel case. This we observed it as a sign of new investment mindset that’s prevailing in today’s financial world: people are buying into future prices. They are willing to risk paying higher price premium on an investment now and wait for it to mature to realized the full price potential many years down the road: Likes of Uber or Netflix are good example. Rolex Hulk are another good example: investors and collectors alike bought the prices up in anticipation of the discontinuation of ref. 116610LV. Surely it is matter of time Rolex will stop making the 3135 Calibre. This is phenomenal is mainly due to the very stable and prolong low interest rate environment. Fixed income yield are getting scarcer, investors don’t mind parking cash on investment that will eventually yield years down the road. Some countries where there’s negative interest rates, the people have to pay interest just for keeping the money in the banks. Why not invest in watches instead? 2. Omega moonwatch, is doing particularly well. The white snoopy has hit S$30k, great accomplishment. For a modern Omega, of course partially have to thanks to 50th Anniversary of the Apollo landing. Just when the overall market is dull, this looks like a light beacon in the stormy coast. 3. Watch Safe haven? Amid the uncertainty else where around the globe, people are exiting from investment that’s hit by the trade wars. Like physical gold, value of a Rolex will not plummet to zero in value. This could well be an alternative hedge as compare to bonds, the latter yield is at all time low as result of many factors (which I am not able to cover in the write-up. Of course choosing the correct watch model is paramount. But important to remember safe haven don’t means profit. It’s just like one’s having to decide gold to meet his hedging needs, he will not expect gold trade to make money, rather it is purely for value or capital protection. In troubled time when asset value vaporizing and crashing, having protected his capital, one’s able buy more asset simply with this same amount of capital, isn’t that a form of profit?
Les Precision: how we reacted Remember last quarter (Q3) I mentioned we are looking to lower inventories and free up cash. That pays off somewhat, we liquidated some of holdings such as the 116710LN, 16600 and 116520. That enables us to hit the cash target, at the same time avoiding losses due to the falling prices of 116710LN prices. Of course we still have a sizable holding of 116710LN, but we expect the price to stabilize as the ADs by now have cleared the last of the 116710LN stocks. We are now 40 – 60 of Cash vs Rolex/Patek. All the watch held are discontinued models, where we have greater clarity of its production numbers etc. We also not expect any strong price surge as the trade war had clipped the wings of many deep pockets Chinese buyers and dampen mood of other collectors. Neither will we expect a price crash as the linger low interests environment will continue to encourage people to spend.
What’s next for us? As the monetary easing continues, fiat currencies values will erodes again physical asset. So on a longer run we will continue a stable holding of Rolex/Patek. Near term we might seek to de-invest some Rolex pieces and prepare the cash for better opportunities. This might means realizes loses on 116710LN and etc. As the market enters a lull, good pieces may be easier to obtain as seller is more patience with offers and negotiations.
Disclaimer: This is solely a personal interpretation of the current situation and macroeconomic. I am not liable for any losses resulting from any misinterpretation, copycat investment or what so ever. If you are thinking of making an investment into watches, do understand the risk involved. My article are solely based on current outlook and it does not guarantee situation will remain as described in (near) future. Real world economy and financial markets do have a massive influence on the luxury resale market, so please exercise with caution.
PATEK PHILIPPE NAUTILUS Stainless steel bracelet for ref. 5711/1A, 5712/1A, 5980/1A and 5800/1A from 2006-2012. Historic Background:
PATEK PHILIPPE revamped the Nautilus collection in 2006 as part of the 30th Anniversary celebration. 4 stainless models was introduced 5711/1A, 5712/1A, 5980/1A and 5800/1A. These modern Nautius come a three-part case, notably the case back is now integrated with sapphire crystal to display the movement. The ‘ears’ slightly changed with a subtle curvature for better overall harmonization with the bezel. The screw-down crown was slightly increased in size.
In 2012, Patek Philippe decided to change the Nautilus braclet system and obsolete the screws-type on links. In place is the rather disappointing, the pin-sercured links, which need to be hammered in. The new links type, definately simplier and easier to manufacture. Hence a rather weird decision that Patek Philippe took.
Collectors Reference:
Original Factory issue bracelet a full bracelet should have:5711/1A: 7 removal links5712/1A: 7 removal links5980/1A: 6 removal links5800/1A: 9 removal links