Time is Money — how watches became financial assets

“Our brand value is higher than ever. Today, 18 references are selling for more than their retail price. Four years ago, zero.

– Audemars Piguet CEO, François-Henry Bennahmias speaking recently at a Singapore Watch Club event

Watch brands are increasingly reinforcing their own value and the value of their products in financial terms. It’s not a good product unless it at least holds its value, and it’s not great unless it appreciates. Everyday consumers and seasoned collectors are both locked onto the probabilities a potential purchase decreases, holds, or gains value over time. As contagious as the topic seems, there is remarkably little information online explaining the factors bringing us where we are today. Watches are now firmly thought of as a financial asset, but why?

A recent read, Narrative Economics: How Stories Go Viral and Drive Major Economic Events by Robert Shiller, provides some interesting context and insights. Shiller argues that major economic shifts occur, and are accelerated by constellations of narratives that come together to create perfect storm conditions for economic booms and busts.

“If we don’t understand the epidemics of popular narratives, we don’t fully understand changes in the economy and economic behavior.”

— Robert Shiller

Shiller identifies a number of perennial narratives, prominently examining how historic debates over the gold standard and bimetallism continue to permeate much of Bitcoin’s viral growth today. Other timely and powerful economic narratives addressed include automation for a better or worse future, and boycotts against ruthless profiteers.

Narrative Economics shows that there is no single actor driving popular narratives to create economic outcomes. It is a community-driven, social affair that touches everyone in one way or another.

In the watch industry, you can see a similar system of narrative constellations at play, driving watches as an investment. It touches brands, collectors, and everyday consumers alike. As I see it, there are three primary narratives:

(1) Auction Houses

Narrative: Watches are stories and provenance 

Watches are fetching monstrous prices at auction, as Paul Newman’s Daytona sold almost two years ago for ~US$18mil including buyer’s premium. GQ has a well-written piece on the auctioneer who sold the record breaking Rolex, Aurel Bacs. The making of the modern vintage market is a pivotal part of how we think about watches as financial assets today.

In the above article, Bacs discusses how watches should not be seen as expensive – expensive things are frequently overpriced. Rather, watches are valuable, making what you own more than an everyday commodity. The simplicity of the sales pitch alongside recent track records has worked wonders. Watch collectors, or investors, don’t need much technical or historical knowledge as long as they delight in the story of the watch, trust the auction house with its veracity, and accept prices the market sets.

(2) Online Marketplaces

Narrative: Everyone can find value

As the high-end of the market, auction houses, told great stories that set records, online marketplaces brought visibility to a much wider audience. Chrono24, WatchBox and Chronext provide every Joe and Jane with instant access to almost every imaginable watch along with pricing and supply. Fundamentally, these online marketplaces have elevated watch trading beyond local retail jewelers to a massive global industry.

Online marketplaces not only democratized access to product, it also “democratized” the auction houses’ focus on value. Most of the “popular models” online, Rolex Submariner, Patek Philippe Nautilus, Audemars Piguet Royal Oak, all sell online at huge premiums above retail prices. Caused by a mixture of artificial scarcity and massive demand, nontrivial gains of US$10,000-50,000 can be made through flipping a retail priced watch online.

(3) Instagram

Narrative: We’re all together here 

The size of social media followings across the watch industry is largest on Instagram. This applies to brands, individual collectors, the media, satirical meme pages, pages focused on watchmaking history, etc. You name it, it’s all biggest there. This makes a lot of sense – the platform is fundamentally visual, optimal for showcasing and centering community around physical objects. Due to the centralized role it plays in spreading information, it’s the perfect place to reinforce narratives.

Effectively, almost everyone sees and experiences the narratives created by auction houses and online marketplaces in their feeds – watches are provenance and everyone can find value. It is not a coincidence that the watches trading highest above retail are also hashtagged most frequently on Instagram. The social media platform is truly where both of the above narratives take on life and exist in a viral state, infecting new passerbys enamored by the stories, the value, and the perceived opportunities.

There is no single leader or agenda driving the direction of economic behavior – each narrative plays its own role in the outcome of things. In the modern watch market, this constellation of narratives produces an overall increased awareness of “value,” and it’s elusive to grasp.

Auction houses bake value into the sales pitch of unique stories and rare vintage. Online marketplaces lay out value more like financial exchanges, where mispriced assets are constantly sought. For insiders and the masses, Instagram occupies a role comparable to Bloomberg, shaping and reinforcing perceptions of value in the market. The picture I paint here is that this constellation of narratives has worked quite effectively – even the most knowledgeable among us will primarily consider the “value” of the watch in terms of financial return on investment and commercial resale opportunity.

I would venture to say that this method of evaluating watches suppresses purchases solely on the merit of watchmaking – finishing, movement construction, dial manufacturing, case making, etc. Today, luxury watches are mostly a means to another, financial end.

Keep on keeping on,

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