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Should luxury watches be part of your financial portfolio?

Ioana Surdu-Bob

The Rolex Watch Book - @toys.men on Instagram

Image by @toys.men on Instagram

When ready to splurge, you cannot go wrong with a Rolex or Pathek Philippe watch. They are the ultimate accessory to represent social status. Some people may even feel they’ve made it once they can comfortably purchase from one of these brands. But, besides the pleasure coming from owning such unaccessible pieces, are they really worth your euros? The answer is: it depends.

Some people are rich enough that spending tens of thousands of euros on a watch does not even make a dent in their wallet. But let’s be honest, that’s maybe 0.1% of the population. When the average upper middle or upper class customer thinks of buying a luxury watch, they assure themselves it’s not so unsafe for the very reason they can sell the item if in need. It is for the same reason that they may buy items such as gold jewelry. But, just as with gold jewelry, the raw materials cost much less than their retail price. However, we keep hearing about success stories, how can that be?

When do luxury watches appreciate?

The stories of people selling Rolex watches at double the purchase price after only two or three years are true. This happens when the watch is consistently in high demand, while the supply is kept low. The most exclusive brands value craftsmanship, and are not willing to skimp on quality and scale to meet the demand. Moreover, when the demand is met, the satisfaction of owning an inaccessible item disappears. But how can one predict the item will keep being in demand? As with every investment, a thorough investigation of the instrument and general market expertise are vital to achieving healthy returns.

Smart financial diversification without extensive research?

Financial decisions without research comes at a cost: the cost of an asset manager. However, in many cases, this can be scaled and return more than when making decisions independently.

Take index funds as an example. They are known to achieve great profits when using dollar cost averaging. They don’t require any knowledge by the investor as diversification across the market is automatic and risk is further mitigated by entering the market at both low and high prices. However, in order for index funds to work, their managers must understand, follow, and adapt to the market. In the case of the S&P 500, the fund managers must choose the right companies that in the long run are predicted to rise in value. The index fund then charges investors for its analysis work. Unfortunately, this method does not apply to luxury watches. Because in most cases, second hand watches perform poorly. Such analyses could be made on watch companies, but these do not correlate to the items they produce.

When buying a watch, we’d consider it an investment when we can buy it, wear it, and sell it at a profit. Sadly, 99.9% of watches are not investment grade. Even if the retail price of the model bought has gone up in value after several years, this does not guarantee a sale at a profit on the second hand market. On top of that, even with a new, unpackaged item, the third party seller would charge you a fee for finding a customer. When choosing not to use a retailer, finding the right customer will be even more complicated, since selling it requires a time commitment.

Retailers can take up to 50% profit margin on a sale and their distributors another 20-35%, making it practically impossible for customers to make a profit.

There are many factors involved in choosing an investment grade watch. Even when looking at the same model, every watch is unique, with timing and location being a deciding factor as well. The population the watch is available to is also a deciding factor. For example, items sold to walk in customers are less valuable than ones given to VIP’s.

With so many variables in place, it is safe to say the average luxury watch customer would not be able to make a profit. However, Konvi is able to bring customers profits through research and expertise, same as index funds do with other instruments.

Our partner, The Watch Fund, has been created by one of the few successful watch investors. They use their knowledge to hand pick truly valuable timepieces. They make extraordinary returns due to their close affiliation to the luxury watch industry.

But, what type of watches must they choose to get to these results? The Watch Fund buys four different categories of investment grade watches.

  • Queue-cutting watches - they get bought before they hit the market.
  • Extreme limited editions - pieces allocated to VIP’s, which money cannot buy.
  • Provenance pieces - items owned by royalty or famous figures.
  • Price advantageous watches - Purchases that can bring the item at 50% of the retail price.

Unlike the stock market, the real estate market, or the securities market, the watches selected by our partner have never seen negative returns. However, these pieces always cost more than €100,000. Besides their low availability, the price is also not accessible to the majority of the population. Here is where Konvi comes into place. We allow people like you and me to enjoy these amazing returns by crowdfunding watches, and giving each investor partial ownership into the item.

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