On Tony Traina’s Post on the Watch Market and Mindsets

Recently,

Tony Traina

, the author of many classic articles such as the Cartier and Movado reference guides made a concise and thoughtful post on the current state of the watch market. If you have not already, I encourage you to read it on Rescapement, which is in my Recommendations list, along with many other excellent Substacks.

I am a big fan of all the watch/jewelry/luxury writers on Substack (and other media such as Hodinkee) who diligently research and write about topics in our industry. It’s motivating for older people like me to see young people hustle not only in the actual trade but also in writing about it. Deals are forgotten, but writing remains.

I generally agree with Tony’s overall market assessment, and it inspired me to write this unsolicited post, as a complement to his summary. You will notice that my views are naturally quite supply-side biased, but I hope to generate discussion so we can all better understand our market.

Unfortunately, as is the nature of our industry, comprehensive data (not just retail prices) collection processes are lacking to be able to quantify and back up many of my claims. Please also note that I just got back from a watch and jewelry-free summer vacation and my brain is not acclimated yet to writing (or even thinking for that matter) - sorry in advance for long-windedness or any logical/grammatical errors.

1. Over the past 20 years, watches both modern and vintage have made tremendous progress as an investable asset class. We went from nostalgic flea markets, hobbyist forums, pawn shops and bargain auctions to dedicated watch auction houses/divisions, professional social media videos, and data collaborations with Bloomberg. Although specialized watch auctions and sales platforms existed prior to 20 years ago, the breadth, number and variety of brands and models considered investable has increased significantly. And whereas in 2008, very few new watches traded above MSRP on the secondary market, until recently at least, many formerly considered pedestrian did. Auctioneers today organize auctions with a variety of themes, some of which were previously the domain of only hardcore enthusiasts. Rarer watches are catching up in cultural status with fine art, classic cars and fine jewelry.

2. The evolution from consumer/enthusiast to the addition of an investment mindset was imperative to this progress (my claim, many would beg to differ). It encouraged more supply to come to market, more liquidity, more professional research and data analysis, more innovative auction platforms, more transactions, more investment in and innovative use of social/online media, and most importantly, attracted a diverse group of active participants with different mindsets. Would we have WatchCharts, WatchAnalytics or Bloomberg-Subdial if watches were the exclusive domain of hobbyist enthusiasts or consumers? The decline of an investment mindset would portend a deceleration of that progress.

3. Central to how we view watches (and many other assets) is the dichotomy of the consumer durable vs investment mindset (I prefer the term ‘art’, as I wrote in my previous post, but most people prefer ‘investment’ so I will use that for this post). If watches are consumer durables, like housing, we should cheer when prices stay flat or fall - it should lead to more availability and affordability. However if we view them as an investment, like equities, we should root for prices to go up. Instead, many of us conflate the two and seem to think of a watch as existing in a quantum superposition between a present-day necessity and a future asset.¹ This is similar to how we view housing in the US and many other parts of the world. For a lot of people, wealth is the value of their home, and this is socially accepted and expected.

4. It is also in contrast to how we view modern cars, the abundant supply of which is salient (swathes of new and used car lots along the freeway), the depreciation and obsolescence rate of which we feel is rapid, and which can be substituted with other forms of transportation. While classic cars could be investments due to their attrited supply, usually we view most new or pre-owned modern cars as consumer durables only, and rarely as investments. “Lose money after driven off the lot” is a phrase that originated in the car industry.

5. An example of the dichotomy is the comparison of metrics related to consumer durables (FHS export statistics for abundant new watch production) with investment (auction prices for rare vintage Pateks). A large portion of the former is waging a losing battle against the Apple Watch and fakes, while the latter is developing to become an investable asset class on par with fine art due to its limited supply. This conflation combined with easy money seems to be one cause of a lot of the vilified speculation and multiplying prices in the first place. To be clear, I’m not saying Tony is conflating them, but many people did and still do.

6. Furthermore, the investment mindset itself isn’t clear cut, nor quantifiable. Having an investment (or profit-seeking) mindset isn’t necessarily mutually exclusive with appreciation of watches as cultural objects.  As I wrote in this post, it’s hard to define who is a speculator vs collector. Many decided to risk their capital in our playing field out of a myriad of investment opportunities because they actually, well, kind of liked watches. I would also like to remind you that many collectors and dealers (including yours truly) benefited greatly from the higher price levels, volatility and liquidity injected by said participants with investment mindsets.

7. Thankfully, the watch market is blessed with different risk tranches for diverse mindsets; if you can’t stomach price volatility, then Datejusts, OPDs, and vintage IWC for example continue to be great stable options.

8. Between 2012-2019, social media forced a structural change in how watches were marketed, discussed and traded - this led to a jagged but steady upward increase in prices, backed by historically low interest rates. With it, entered new participants and mindsets, even new business models. We started to believe that demand would always be inelastic, ie. net demand would remain stable regardless of an increase in prices. Because incomes were also rising steadily for so long, we forgot about income elasticity.

9. It wasn’t always smooth sailing though. The overall upward price trajectory was susceptible to the vagaries of trends, especially in the riskier tranches with shallower pools of demand and/or larger supply bases. Vintage Heuers skyrocketed and then crashed. Royal Oaks always seemed to be on the verge of collapse. And in addition to trends, sellers encountered resistance as new price levels were tested. Most may not know or remember, but we did experience price resistance and small corrections in early-2018 and mid-2019, even for popular models such as the Daytona and Nautilus. But demand kept roaring back, culminating during the easy money COVID years with fluke prices.

10. Then somewhere in early 2022, that formerly rock solid demand curve suddenly shifted horizontally for various reasons we don’t fully understand. Due to extreme global market fragmentation, everyone (myself included) has a different story to tell. But no dealer can give you the full picture.

11. Fundamentally, real disposable personal incomes have returned to their steady upward trajectory since early 2023, yet general consumer spending on non-essential luxury goods is still in a trough. As Tony points out, watch prices still haven’t found their footing. If the income elasticity of watches is high (like most luxury goods), we should have already seen some improvement. Whether this weakness is just lag or a more long term fundamental shift where most watches are less Veblen and overwhelmingly regarded as common consumer durables similar to cars is difficult to determine.

12. In response to this, the smart, robustly successful high end brands such as Hermes have doubled down on their ultra high-end clientele and actually increased prices for new products. We see this even for watches; I didn’t have time to gather/analyze data, but I think the new Olympic Omegas start at $10k, Cartier YG Tank Normale $45K, the new Piaget Polo was $75k?, and there is now interest in super-expensive baguette adorned watches. Luxury is exclusive again. This may also be one of the reasons why luxury fashion brands such as LV and Chanel (see this excellent summary by

    kingflum
    ) are investing in the watch market - they are taking advantage of the inability of traditional watch brands to build (or fit in) a super-luxury brand universe² to amplify exclusivity. But wasn’t exclusivity exactly the problem caused by the investment mindset?

13. Theoretically, more participants considering watches as consumer durables and less as investments would lead to more availability and affordability of watches, to be enjoyed by consumers and real enthusiasts. But is that really the case? If the market value of the Rolex Daytona dropped by half and was readily available at any Rolex AD, would all those formerly Daytona-deprived enthusiasts buy them? Higher end watches are Veblen goods, and based on past history, I have my doubts³. It’s almost as if, in the conflicting dichotomy of consumer durable and investment, what we secretly want is exclusivity, and in its absence, the market will manufacture it somewhere where there is capital.

I love the orange Zodiac that Tony highlighted in his post. The contrast of the orange bezel with the glossy black inner dial makes the watch really pop on the wrist. Bonus points if it’s tropical. And it’s great news that Hodinkee has brought back Bring a Loupe.

1. I stole this sentence from this Atlantic article, originally written by the excellent Derek Thompson and adapted it for watches. Obviously watches are not necessities on par with housing or food, but empirically, a large number of people spend a similar amount of time and sometimes money on watches and other non-essential luxury goods.

2. I learned the concept of brand universe from

SOTA

.

3. Post-Lehman, approximately 2009-10, in Japan at least, where I was at the time, secondary retail prices for 116520’s (the latest Daytona ref at the time and arguably the most popular watch on the planet, and the only reference to trade above MSRP) dropped 30%, slightly below MSRP. That’s a nominal figure, and Japan was in a deflationary spiral so in real terms the drop was worse. Wholesale was even tougher obviously. As my concentration is on vintage, I didn’t deal in enough 116520s, but if I recall correctly prices didn’t recover until 2015 or 6-ish? because they were fairly common (at least in the earlier down years) and hence not considered very exclusive. That’s half a decade. (I haven’t had time to ask around about numbers in the US or European markets, which presumably were healthier). Officially, 4 digit Daytonas in 2009/2010 in Tokyo were priced at retail at about a 20% discount from pre-Lehman, however behind the scenes, I remember anecdotes of 60-70 cents on the dollar trades. Note the problem of aftermarket dials and dishonest dealers was also an issue that came up a lot then. But being in limited supply, they recovered faster than expected, I think 2013ish. Interestingly, many other vintage references (many which are coveted today but not then) performed much, much worse, with discounts of 40-50 cents on the dollar for non-Rolex if you were lucky enough to find a buyer. Other modern watches at the time were also discounted quite heavily and started attracting foreign vulture buyers looking for distressed sales. It was quite brutal and many dealers went out of business or closed shop and switched exclusively to wholesale. Note also that the trade in Japan wasn’t as globalized as it is now so that may also have driven some of the discounts. Overall, however, things started to pick up steadily from approximately 2013ish like all other asset classes, buoyed by low interest rates and Japanese dealers adjusting their businesses for export to Hong Kong, Bangkok, then later the US. Today the discounts are milder, obviously depending on watch and where you play. So we’ve come a long way. Post-Lehman is an interesting topic very relevant today, but good data is scarce or unavailable, and I will leave it for a different, dedicated post. Again, due to extreme market fragmentation, different people have different data and anecdata, but this is what I recall off the top of my head right now, I may update/correct this footnote later as I jog my memory and ask old dealer friends.