Is Investing in Luxury Watches a Good Idea?
Buyers have to wait several years for coveted classics: luxury watches are experiencing a boom, also because of low-interest rates. But very few models increase in value. Maybe it’s about something else.
A fine watch can be many things for the wearer: a piece of jewelry, a status symbol, the reward for achieving a certain career goal – or all of these together. But is a high-quality mechanical watch for which you will need an automatic winder fot watches for also suitable as an investment?
When there was talk of a “Rolex crisis” in Munich around Christmas 2019, one could assume that. The watches of the most famous watch manufacturer in the luxury segment were sold out everywhere. The wealthy, it was speculated, fled in the face of low-interest rates on real assets. Why not combine the beautiful with the useful? But anyone who believes that every expensive watch brings a return is mistaken.
Investing in luxury goods
“Luxury goods such as art and watches have a more personal value compared to shares, which is defined by scarcity,” explains Nicolas Pilz, Managing Director of Societas Vermögensverwaltung. Compared to securities or real estate, there are no classic valuation methods that could economically justify the traded value or price.
Disadvantage: “In the event of an economic crash, luxury goods are difficult to sell, as potential buyers also keep their money together.” Trends and values also changed over time: “Whether in 20 years a Rolex can still be sold at the price it currently does, nobody knows,” says Pilz. Watches are therefore not a separate asset class.
Nevertheless, there are watches that have risen sharply in value in recent years – but it is only a fraction of all models. So you have to know your way around or get advice.
How the hype around certain luxury watches works
“If you want to buy watches as investments, you end up with seven to eight mainstream models, which have already had the highest increases in value in the past 20 years,” explains Henri von Laufenberg, watch expert at the retailer Colognewatch. These are the sports models from Rolex such as the Submariner, but also the Datejust, at Patek Philippe the steel model Nautilus and at Audemars Piguet (AP) the Royal Oak. The prices here are usually well in the five-digit range.
The models are traded on the grey market far above the list price at which the manufacturer sells the watch. If you want to have the Submariner directly from Rolex, you have to put yourself on the waiting list and, in case of doubt, wait several years. Or he has a particularly good relationship with his concessionaire.
“Those who then resell the watch get significantly more than they paid,” explains watch YouTuber Marcus Finger, who has traded watches for many years and now has his own brand. “The difference can be many thousands of euros for the coveted models.” This is the profit that can be reaped. But for this, you have to get the coveted watch at the list price – difficult.
According to Finger, the hype surrounding Rolex can be explained by a mixture of high demand and partly artificial scarcity. Rolex watches are quite a mass product, according to industry experts, several hundred thousand pieces are produced annually. Nevertheless, Rolex as a foundation can reduce production and does not need to saturate the eager market. Patek Philippe and AP are family businesses that produce much smaller quantities anyway.
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The risk of a bubble
From the experts’ point of view, buying a watch cheaply in order to resell it at a higher price is a bet that the hype will continue. “In consultations, we always point out that you can’t look into the future,” says Henri von Laufenberg. There are, of course, tendencies. “Anyone who has money in abundance will always buy what is rare and socially accepted as counter value, thus offering value stability.” The counterpart to the Rolex watch of the man is the Hermès handbag for women.
“You can’t predict whether a hyped watch will be worth significantly more in five or ten years,” Finger emphasizes. “This could just as well be a bubble that eventually bursts.”
It’s all about the emotions
Investors with a lot of money on the high edge should ask themselves anyway whether a watch is really interesting for them. “I find a watch as a pure investment a bit dreary. A watch always has to convey something,” says Henri von Laufenberg. First of all, it is important to be enthusiastic about the watch. “A watch is actually too good for a cold investment.”
Marcus Finger takes a similar view: “I think it’s a bit silly to buy a watch just as an investment and put it in the safe.” A mechanical watch is an art object, a piece of jewelry. “It’s a passion to own and wear something like this.”
Finger, therefore, warns against a mistake: “There are people who would like to get into the watch theme and then decide solely on the basis of the value aspect for a watch that they themselves do not find as beautiful as their actual desired watch. I think that’s such a shame.”
Value retention instead of value growth
In any case: “About 98 percent of all luxury watches experience no increase in value.” And this also applies to models from renowned luxury manufacturers such as Jaeger-LeCoultre, Omega, and Breitling, which have great prestige but rarely have the potential for value appreciation.
What most luxury watches offer from Finger’s point of view, however, is value retention. And this also applies to the “entry-level models”, which cost 2500 instead of 15,000 euros. “I think it’s completely legitimate to buy a watch with the idea of preserving its value.” The prerequisite is that you do not buy the watch too expensive.
“I wouldn’t recommend anyone to buy a watch at the list price. When I leave the store with the watch, it has often lost 20 to 30 percent of its value,” explains Finger. “It’s comparable to a new car.” The expert advises talking to the concessionaire about the price if it is new. “With friendly negotiations, a 5 to 15 percent discount should not be a problem.”
Alternatively, it is worth buying a used watch. Here you can find out about the price at which the watch is currently traded on major trading platforms such as Chrono24.de. It is best to observe your desired model for a while before you strike. Above all, it is important for value retention that the original box and the original papers are available. The watch should then be treated with care after purchase. “Mini-scratches will not detract from the value,” says Finger.