Monday, March 6, 2017

False Dreams

***False Dreams

Probably the most common question we get asked: is the watch I intend to buy a good investment?

The question is not just a regular reoccurrence but also a very important one. I do my best to address this subject every now and then - yet somehow there are many subscribers who simply struggle with the whole 'investment' concept.

I'll keep it brief, but please try to digest it at your leisure: if busy, save and read later.

The first question you need to answer for yourself (and I can't answer it for you): are you an investor, collector, enthusiast or just a happy watch owner?

Of course, you can be all of the above at the same time, but here is the catch: unless you have an excess amount of cash you are willing to invest, then you are not an investor. Unfortunately we live in a world where many are sold a false dream called "borrow to invest". You can actually call yourself an investor without even having any money! The financial institutions are happy to lend money so you can "invest" in shares or buy your fifth "investment" property. Imagine a world where any 18 year old kid could obtain a law or medical diploma and start his own practice today - just by promising that one day, in 5 or 10 years, he will actually complete the studies. As ridiculous as it sounds, this is precisely what you can do if you wish to enter the speculative world of quasi-investing with money you don't actually have.

So if you are putting a watch on a credit card then you don’t have to worry about its "investment potential" because such a transaction is not an investment. By the time you pay that watch off, any potential investment return will be long gone, your bank will have made a nice profit on their loan and ironically, it won't even send you a thank you email.

Now the reality is that many of my customers actually do have a solid disposal income, including a significant amount of cash which could be potentiality invested. However, watches are not an income-generating asset. You cannot milk it; skin it; the watch cannot employ or educate people; it cannot be lived in, leased or rented out. Your watch will never find a cure for cancer, develop an app or figure out an algorithm to speed up the data flow. Actually, the amount of income they generate over time is precisely zero. So watches are an extremely poor income generating asset and, if anything, you would want to avoid them as an investment all together, at any cost.

If you are bit confused then you are actually paying attention. How come, then, that watches are always sold for more than what they were worth new, a decade ago? Surely, some of them are a great asset?

Unfortunately, based on my lifetime dealing in watches, such phenomenon is a myth. Only a fraction of watches in circulation actually increase in value. The majority don't. And picking a winner is like predicting the future - the outcome is highly unpredictable and often surprising.

There is however a clear pattern: those rare winners which have increased in value over time would tick most of these boxes:
- they are ‘locked in time’ (a unique design, discontinued, or of a certain size or shape)
- they have a GREAT STORY (provenience, past ownership)
- fantastic condition (all original components, good working order, cosmetically near mint)
- well-documented and well-researched pieces (i.e. there is a book or numerous articles about the watch)
- limited production run (only a few pieces made)
- feature a unique horological innovation, or was a trend-changer
- made by a famous, reputable maker

It goes without saying that collectors who have made money on watches have done that for a reason. They invested their time rather than their money doing the research, closely following the market trends and buying at the right time, snatching the pieces that do not often appear on the market. But it is clearly obvious that their motive was not only the monetary gain. They didn’t do it for money but for pleasure.

Someone said that luxury yacht owners are happiest twice in their lifetime: first, on the day they buy the yacht, and then again on the day they sell it. The same goes for most watch owners. But it shouldn’t be like that – you, as a watch owner can be perfectly happy with your choice every day of the week, for the rest of your life. Simply, follow the above guidelines, do plenty of research, take your time and learn how to say ‘no’. Instead of volume, focus on quality. Collect thematically – rather than just stockpiling the watches, build your collection in a meaningful and organized way (for example: focus on a particular brand, style or model – more about that some other time).

Over the years I have had countless opportunities to add more pieces to my modest private collection, but I restrict myself to no more than 2 watches per year. Actually, in 2015 and 2016, I only bought one watch each year and I could not be happier with my choices.

In my next newsletter I will be pleased to tell you which watches I bought and why. And then, I will also tell you which watch I regret selling – and which one is on my ‘to buy’ list for 2017.

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