Is the secondary watch market a bubble?

It might seem like a self-evident point, but all across the watch community, it doesn’t seem to stick.

I often see collectors and enthusiasts complaining about the secondary market, while also discussing how the value of their watches have appreciated/depreciated in the same breath – all without realizing that one is reinforcing the other, and vice versa.

So, how can we better understand the secondary market? Are we in a “bubble”? What’s actually happening here?

The timing of the growth of online marketplaces like Chrono24, the widespread adoption of social media (mostly Instagram), and skyrocketing auction results coincides too perfectly with the bubble-like behaviors of the secondary market. It cannot be a coincidence that the watches with the highest degree of demand / price-speculation are also the timepieces most frequently in our Instagram feed, i.e. Nautilus’, GMT’s, Submariners.

This is what I believe is happening: our Instagram feed is a desire-producing engine. It influences not only what we see, but what we find attractive and reinforces it socially – “someone I follow has this timepiece and I want it too.” With this desire, all of our demand is channeled through the secondary market because the primary market (buying from AD’s) gives you lottery-like odds for obtaining the most sought after timepieces. Dealers in the secondary market are taking advantage of the fact that there is no alternative by price gouging.

As an aside, it seems comically fitting that Instagram and Chrono24 were founded in the same year (2010).

Global online supply, manufacturer scarcity, booming auction results, and nonstop Instagram feeds are all factors that make me believe that the watch industry is experiencing its own version of the Dotcom bubble. That is to say, that I do not believe that the current market conditions would exist in this state without the internet.

You might have noticed thus far that I am reluctant to call the current market situation a bubble. That’s not because I believe it is not. Rather, it’s an issue of definition – bubbles burst, and I’m not sure what we are experiencing now ever will.

History shows us that bubble bursts have a narrow technical origin, not a psychological or social origin. In the case of the Dotcom bubble, it was dramatically underestimated cash flows. In the 2007-08 financial crisis, it was an unprecedented number of defaults on home loans that led to the dominos falling one after the other. In short, most bubbles burst because there is an unresolvable financial discrepancy between expectation and reality – the math just doesn’t add up in the end.

For luxury watches in the secondary market, I cannot conceptualize of a technical constraint that would lead to the bubble bursting. There is only the price movement of a given luxury good to the next level of wealth – moving from single-digit to double-digit to triple-digit millionaires and beyond. The number of buyers might shrink, but that doesn’t necessarily mean overall consumption will as well. When the buyer pool becomes too small and dealers want to move product faster, prices will incrementally drop until demand re-emerges. @clubpatek’s insightful conversations with London dealers speak to these conditions – prices are moving for psychological reasons, not by cataclysm.

Regardless of whether it is a bubble with a looming burst of some unknown technical origin or this is the “new era” ebb and flow of the market, we can and should collectively work to shift things in the direction of less price speculation – the majority perception of watches should not be financially-driven. Merely sitting and waiting for a “black swan” or a market correction to resolve these behaviors is unlikely. There has to be more that we can do besides sitting, waiting, hoping…