Investing in Luxury Watches VS. Cryptocurrency / NFT’s — Not Investing Advice
A SHORT OVERVIEW ON HOW THE WORLD OF MODERN FINANCE, ESPECIALLY ALTERNATIVE ASSETS, RELATES TO “WATCH INVESTING”
The enormous development of the internet, among other things, has led to a multiplication of possibilities for both individuals and companies — and this business has obviously expanded to cover areas such as investing, with effects that we cannot help but define as devastating.
And we mean this in a positive way: from a traditional chain model made up of markets that were accessible only through intermediaries, the new world of investment leaves individual investors free to act directly on the assets, which have diversified from the traditional equity, public and private bond, currency and commodities markets to include highly specialized vehicles based on the intermediation of rare and exotic goods like luxury watches, or whisky. Not to mention the boom that cryptocurrencies have had, spawning another spinoff, the NFT market — and we’re just getting started.
THE ABILITY TO INVEST SHIFTS INTO THE HANDS OF THE PEOPLE
This transfer of power has resulted in a substantial change in the public’s propensity to invest. People who until yesterday were reluctant even to subscribe to a US State Bond today find themselves willing to invest in new cryptocurrencies, relying on the market buzz that has seen virtual currencies such as Bitcoin grow to reach figures unimaginable just a few years before.
Exploiting this exact optimism, numerous operators started offering alternative investments, trusting that the market would absorb this continuous upwards price race. Stocks have been bullish for the last few years, and watch prices have not been immune to this upward race.
We, horology lovers, have seen what has happened with specific watch references. Think of the latest exploits of brands such as Rolex and Patek Philippe, which have seen some models reach impressive figures. We refer, for example, to the recent exit from the scene of the Nautilus ref. 5711 in steel, a move that has seen street prices of existing references leap upwards to reach a ratio of five to eight times the former list price.
And this speculative “bubble” doesn’t seem destined to deflate, at least for now. On the contrary, it seems to progressively involve other models and brands that have remained almost untouched until now. This mechanism is very similar to what has happened so far with investments in cryptocurrencies — a typically bullish market, which has done nothing but grow. But until when?
WHAT IS THE DIFFERENCE BETWEEN WATCHES AND CRYPTOCURRENCY?
The most significant difference between these two markets is that the watch represents a physical object, while cryptocurrency continues to be an intangible asset. Although crypto tokens, thanks to blockchain technology, are inextricably linked to one individual, the watch is still a physical asset whose existence is easy to acknowledge.
Different is the discourse of those who offer financial vehicles based on an underlying asset composed of luxury watches: in this case, you buy a share of the vehicle, which invests on the possibility of the growth over time of the fundamental — that is, what lies in the vehicle. Obviously, you find here a very different level of protection compared to the single operation of purchasing an investment watch. A physical watch is an object that you own. A share of an asset is more similar to owning stocks.
A watch physically purchased for investment is not technically an investment but a shelter good as it does not produce anything during its possession (exactly like physical gold). In short, it does not “yield” anything. By definition, shelter goods are those with an intrinsic, “real” value, which tends to be maintained even in periods of market turbulence or when the economy registers an increase in inflation, i.e., the general level of prices. Therefore, investment in shelter goods responds more to a need for protection in a phase of economic recession, financial crisis, and substantial price instability.
WATCHES AND THE SPECULATIVE BUBBLE
But does this apply to watches? Typically yes, unless, as in the case of the Rolex, Richard Mille, and Patek Philippe as mentioned above, a speculative bubble has originated, i.e., that particular financial formation that projects a drugged market far removed from its underlying fundamentals — exactly as is happening today with the quotations of certain timepieces on the second-wrist market, which have far exceeded their list price.
How to recognize a speculative bubble? It is not always easy, mainly because we tend to be influenced by prices that continue to grow, instilling in us the idea that it will always be so. Precisely as has happened in recent years for cryptocurrencies, which after reaching a peak (Bitcoin was worth about $70,000 dollars) have begun to stabilize when not to fall.
The cardinal investor’s rule of thumb says, “when the blood is flowing in the streets, it’s time to buy.” Certainly not when the market is rising sharply, with profits and prices that continue to skyrocket. On the contrary, that’s the time when savvy investors stand at the window and wait for the right moment to enter the specific market.
“INVESTING” IN WATCHES
Now, this is not the place or the medium to give investment advice, nor we can give you investment advice — and so it is not our intention to do so. But investment always presupposes research and knowledge of the relative market: otherwise, it is not an investment but gambling.
So, we feel like stating that, despite the declarations of so many YouTube gurus who make it as easy as 1–2–3, investing in watches is possible, but just as definitely, not recommended to everyone. At least, not to anyone who does not have an excellent knowledge of the specific timepieces they are buying and of market trends, as well as of the current financial and economic climate.
Buying luxury watches has a lot more in common with buying works of art than it does with buying cryptocurrencies or other financial instruments because it fades into a myriad of sophisticated different evaluations that could relate to minute details, such as the presence of a more or less pronounced patina on the dial — which makes this a field for true experts.
On the other hand, an instrument such as cryptocurrencies is only and solely supported by the trust of its investors, who have chosen to attach a specific value to a piece of code. If everyone had second thoughts hypothetically, that same piece of code would no longer be worth anything. And this volatility, caused by loss of faith in one asset, is what makes sudden crashes in the system, making the “bubbles” pop out.
This is what happened during the Quartz Crisis in the 1970s: mechanical watch companies had a vertical meltdown because no one recognized the value of the mechanical movement anymore, so some closed their doors, and others switched to installing quartz movements in their watches.
For example, in 1979, a watch like the Concord Delirium, the world’s thinnest quartz watch (1.95 mm thick), had a list price of $7,500 when it was launched, while a Rolex Submariner cost about $950. The appeal of quartz reversed shortly, as we have seen historically, but the example of a sudden variation in the value attributed to an object due to the “sentiment” of the public remains. It has happened. It might happen again.
WHAT WILL HAPPEN THEN?
Studies conducted by top research institutions predict a rosy future for luxury mechanical watchmaking, and especially for second-wrist watchmaking — which would prove the proponents of the “bubble market” right. However, we, who follow the advice given by investors far more informed than we are, advise everyone to proceed according to their judgment, but always with extreme caution.
And above all, never forget that, despite the possibility of realizing an increase in value over time, a watch remains a watch and is made — or should be made — first and foremost to be worn and used.