Purchase a timeless investment

When stock market returns wind up being a disappointment, looking for alternatives becomes the need of the hour. And what better alternative than luxury watches, an investment class immune to fashion and economic cycles.

Watch-buying, long a hobby of the super rich, is now generating interest as an investment class with potential to turn a large profit over time.

Last year alone, Christie’s sold more than $115 million worth of luxury watches at six auctions, two apiece in New York, Geneva and Hong Kong, marking the watch department’s strongest year ever.

The auction house’s timepiece sales registered a 5% year-over-year increase in the first half of 2012, says Doug Escribano, head of sales for Christie’s watch department in New York.

Allocation of Hedge Fund Precious Time’s portfolio

• 50% Patek Philippe
• 30% Breguet, Rolex, Audemars Piguet, Vacheron Constantin, Cartier
• 10% Exceptional contemporary watches
• 10% Cash

The fund charges 2.5% MER and 20% of performance exceeding 5%.

Hassle factor

• Market is flooded with fakes
• The more valuable watches are mechanical and require professional service every three years
• They’re not hermetically sealed so dust and small particles can get in
• Few jewellers have the skills to service high-end watches
• Condition reports and service records must be kept to retain value
• High-end watches need to have an insurance appraisal
• Insurance costs may be so high that they prevent an owner from wearing the watch

“We follow the market every day,” he says. “In this slow economy it appears people are putting their money into hard assets like watches, jewellery and fine arts instead of stocks or property.”

Typically, these investors have significant disposable income, and won’t mind spending upwards of $40,000, he adds.

While the Americas and Europe remain the largest international clientele Christie’s sells to, in the last few years it’s witnessed steady growth in the emerging markets.

“As the global economy has blossomed, we can say today that [it’s] an international market,” he says. “With the growing economic strength of Asia, we’re seeing a lot more buyers from China, Malaysia and Thailand.”

Popularity is also a function of affordability. Investors don’t have to be big spenders to get in the game.

“You can certainly come to an auction and get in at as low as $1,000 to $1,500,” Escribano says. “But collectibles, those that are $10,000 and up, are really [for] people who have more disposable income.”

Some of the most favoured collectibles, new and vintage, include Patek Philippe, Rolex, Vacheron Constantin and Audemars Piguet.

Judging by historical trends, these timepieces are almost guaranteed to appreciate over time.

Apart from the maker of the watch, Escribano says, other key factors to look for are rarity, quality, and condition.

“With collectors and passionate watch people, it’s really about the quality overall,” he says. “If it’s a $50,000 watch, and it’s in pristine condition, you can sell it for any price; if it’s not in good condition you may not sell it.”

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Rolex Cosmograph Daytona in everose gold

Photo courtesy of Rolex

Patek Philippe 2012 models

Photo courtesy of Patek Philippe

1943 Patek Philippe, sold for $5.7 million in 2010

Photo courtesy of Patek Philippe

1928 Patek Philippe watch

Photo courtesy of Patek Philippe

Rolex Lady Datejust in Rolesor

Photo courtesy of Rolex

Escribano says Christie’s sold a specific Rolex model last December for $542,500. Similar examples normally fetch $90,000. The price difference was due to the watch’s “pristine condition.”

In most cases, though, Escribano says a 10% return over 10 years is a more realistic expectation. “If it’s a rare, unusual watch, from the 1940s, you could see a potential huge upswing,” he says. “Whereas the watch today that retails for $50,000 [is] not going to get back $50,000 until much later down the line.

“Watches are like cars: when you leave the store, and try to sell it, you just can’t get that dollar value.”

Facts and Figures

Christie’s International recorded $116.3 million in watch sales in 2011, up 28% from 2010

Sales of both watches and jewels have risen steadily throughout the recession, in part because of their appeal as long-term tangible assets that grow in value over time

Of the Top 10 prices ever achieved at Christie’s for watches, five have been hit since the start of the recession in fall 2008

Christie’s holds major watch auctions twice each year in Geneva, Hong Kong and New York. Each sale is enabled for Internet bidding

In the last few years, Asia has emerged as the hottest market for watch collecting

Between 2003 and 2010, the number of Asian collectors participating in Christie’s international watch sales has grown more than 150%

Source: Christie’s

Christie’s top 10 watches, mostly timepieces from the 1930s and 40s, were often held by the same families for generations.

Watch investing can also fall victim to whims of style. Times change.

“You could have a certain model of watch or style that is the hottest thing today, so people are spending a lot more and five years down the road all of a sudden that is not in vogue,” says Escribano, who recommends collectors buy something they would wear.

“If I knew five years down the road that a certain watch was going to be worth a lot more money, I’d be working on Wall Street,” he says.

“[The investment may] work out in the long run, but otherwise be happy that you have a watch you really like.”

If that’s too much of a gamble, there’s a simpler, less expensive way to play the watch market: buying into hedge funds that invest in collectible stem winders.

One of them, Switzerland-based Precious Time, purchases, holds and sells rare collectors’ chronometers (see “Allocation of Precious Time’s portfolio”.

World’s most expensive watches

• Albert Einstein's 1930 Longines $596,000
• Eric Clapton’s Patek Philippe 2499$3.6 million
• Mahatma GandHi’s Zenith Watch $2.1 million
• Patek Philippe J.B. Champion Plati-num Observatory Chronometer $4 million
• 1943 Patek Philippe $5.7 million