Buying Time: How to Invest in Watches

Watches

Buying Time: How to Invest in Watches

Dominic Khoo, founder and watch expert at The Watch Fund speaks to us on how to invest in watches and what you should look out for.

Published on 14 July 2015

In one of the first sales jobs I had, my boss’s advice was “Don’t buy expensive shoes. Important clients never look down. Buy an expensive watch, because that’s something they’ll see.”

That was my first brush with Singapore’s growing watch fetish. An “investment grade” timepiece is more than a way to tell the time – like a car or a bungalow, a $250,000 watch is a sign of success.

And in every way, a watch is the epitome of the fake-it-till-you-make-it approach; because there’s a lucrative market for investment grade watches, reaching from the overwrought skyscrapers of Dubai to innocuous pawnshops in Hong Kong. Get the right watch and you’ll not only look rich – it will make you rich.

No one knows it better than Dominic Khoo, Singapore’s leading watch expert. He’s one of the founders of The Watch Fund: By buying and selling timepieces, his company generates an average return of 20%, over the course of a year (minimum investment: USD $250,000)

Meeting Dominic Khoo

Dominic’s  gallery is on 6 Kay Siang Road. From the outside, it’s low profile: a simple signpost points to a driveway obscured by foliage.

Walk further in, and you’ll see colonial era bungalow (the sort still built on columns), and a door with a biometric scanner. Half open windows give you a peek of contemporary art pieces inside, which adorn the walls from the ground floor to each of the upper rooms.

After some fiddling with the buzzer, his assistant Grace, opens the door and lets us in. The place is big enough that she didn’t hear us. She tells us Dominic will be late, which is funny considering the man collects watches. In all fairness though, Dominic’s kind enough to keep our appointment despite running a fever.

In a few minutes we hear him pull up in his Ferrari (the longer people are willing to wait for you, the faster your car tends to be).

Dominic comes up the stairs fast and quiet, and gives me and my colleague fist bumps instead of a handshake. He doesn’t want to spread the fever. The man radiates enthusiasm, and he has the same quality you find in truly passionate people: an inability to teach the subject. People like Dominic don’t lecture, they share.

Getting started: How to make a fortune in watches

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“When I was 21,” Dominic says, “I wanted a watch but I had no money. So after seeing all my richer Singaporean, Indonesian and Hong Kong classmates with their nice cars and watches, I asked my father if I could buy a watch too.

And he said ‘Of course you can buy a watch. I don’t know where you’re going to get the money from, it’s not from me, but let me know where you get the money from.’

So the realisation dawned that he wasn’t going to buy me a watch, and the only way I could get one was to buy a ‘free watch’”.

Which to most of us, would mean a Rolexx dropped by a dubious salesman in a Geylang lorong. But Dominic was talking about watches as an investment:

“A free watch is a watch that makes you money when you sell it, taking into consideration factors like inflation. Today I believe the term is ‘investment grade’.

To put it simply, if you spend $50 on a cheap watch you’re never going to get that $50 back. But if you buy a $20,000 watch, and you can sell it for more than $20,000, it becomes a free watch.”

To find a watch like that I did a lot of research. I visited auction houses, pawn shops, stores, and I talked to a lot of people who dealt in watches. It took me around two years to find the right watch.

After I found it I had it for three months, and then I sold it and made $40,000.”

It was a whole new world. Dominic continued to trade watches, making a healthy profit, for another 10 years.

“After that time I started to find myself buying multiples of the same watch. I’d buy it in rose gold, white gold, platinum, and so on. And it doesn’t make sense to have that many versions, so I reached out to friends and I told them ‘Hey guys, can you buy these watches?’

And they all knew I’d been doing this for a while, and they trusted me. So they bought the watches and they followed my lead, and they all made money.”

This was one of the starting points of The Watch Fund, 14 years later. Dominic’s company continues the same practice, sourcing investment grade time pieces for investors (for more information, contact Dominic Khoo).

Spotting a “Free watch”

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Now comes the bad news: $40,000 in three months may seem like fast, easy money.

But remember it also took two years of hard work to find the right watch. And it would have been easier than the present – today the watch market is bombarded by new models every week, and choked with pricey “collectibles” that hold value like cereal box toys.

“99.9% of watches of will never make you money,” Dominic says, “But we’re lucky for that 0.1% that are investment grade. I think for cars 99.99% will never make you money, for clothes 99.999% won’t!

And that 0.1% is not a particular brand, it is not a particular make. It is that specific watch.”

One of the reasons is that high end watches don’t have a fixed price point. It’s possible that, between two versions of the same watch, one will make you more money than the other simply because it was sold for less.

“If 10 customers buy a limited edition series of watches”, Dominic explains, “You could be looking at 10 different price points.

A VIP customer might get the watch at 30% discount (watch companies might sell it at a discount to celebrities, for example, so their products can be seen on famous wrists). Another customer might buy it at full retail. Yet another customer, who’s put on a queue for the watch, might be willing to pay a premium to cut the queue.

Then there’s other considerations like the serial number. Number one in the series might be worth more than number four. And also the person wearing the watch – if a famous actor was wearing the watch, it might be worth more when it’s sold.

So the watch that is serial number one, which was bought by an actor at 30% discount, might be investment grade. But the watch that was bought by no one famous, at full retail price, might not be investment grade. Even though they’re both the same watch.

So there is no particular brand or make that is automatically investment grade, it depends on the specific watch. It’s much more complicated.”

And at this point, I’d request the angry watch lovers reading this pause with their hate mail. No one’s questioned the superior craftsmanship of your favourite brand – it’s just that prices and demand may not always reflect it.

It’s also worth noting that watch lovers (let’s call them collectors) may not be in the ideal position to invest.

Watch investors versus watch collectors

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“I think we need to distinguish between investing and just shopping,” Dominic says, “If you are someone who just loves watches, I would advise you to just forget about the dollar value.”

One simple reason is resale: in order to realise a profit on your watch, you must be willing to sell it when you get the right price.

“In an ideal world everyone would have a lot of money, and we should all buy whatever watches we like, and be able to keep them and never have to sell them.

But for an investor, if someone offers the right price, they’re ready to sell. No emotional attachments. But most people can’t do that.”

Hence the reason collectors outnumber investors. In fact there wouldn’t be much of a market if investors were the majority – profits are made because collectors are willing to buy at a premium.

Some collectors, however, may be in denial (as would you be, when the price of your collection can bail out a third world nation.)

“Most collectors have lost money on their collections”, Dominic says, “They may have made money on one or two pieces, but if you take into consideration the entire portfolio that they bought, they’re all still down.

Unfortunately, some of these people lie to themselves. Because it’s a lot of money, it’s so easy to think of shopping as investment – but most collectors will not make money.”

How to find and sell an investment grade watch

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“There are three things you need to consider.

Number one: How much are you buying the piece for?

Number two: Which piece are you buying and why?

Number three: How are you going to sell it?”

The first consideration, the purchase price, is somewhat similar to hunting undervalued stocks. The simplest way to recognise a profit is to get – through connections, deals, or mind control powers – a watch for significantly below its average retail price.

Remember what we said earlier, about how price points are different for everyone? You want to be one of the people who get the discount.

So the first step is to become famous, or to find someone who can find watches at unusually low prices (i.e. the man talking to us in this article).

The second step, picking the piece, involves finding “a watch that money cannot buy.” It might be a watch with historical value (e.g. used in a James Bond movie, inscribed by a famous politician), or a make that no longer exists on the market.

Whatever the reasons, someone who wants the watch is forced to give you a profit for it.

These two first steps constitute the most important part of watch investing: (1) getting a watch at a price that no one else can, and (2) getting a watch that money cannot buy. That still doesn’t guarantee a profit, but it means you have a good chance.

The third consideration is selling the watch. One of the difficulties with watches, much like gold or property, is illiquidity. You can’t stand on a street corner and sell a $150,000 watch.

“You have to find someone who trusts you enough to buy the watch from you,” Dominic says, “You must have a reputation. Even if you want to sell on E-Bay, you need to have a long history before collectors trust you. You can’t just go from selling Hello Kitty sweets to selling investment grade watches.

If you want to go to an auction house, well, they take 20% on the buy and 25% on the sell. If you make 20% return, your profit might come to nothing after the fees.

If you want to go to a store, you will probably put it there on consignment. The store will seldom buy it from you, and if they do their price will be so low that you will lose money.

But when you leave it on consignment, you are dependent on them to push it for you. If they feel they’re not getting enough out of it, they won’t be inclined to do that.”

Then there’s the final resort, which is leaving an ad in the classifieds. Which is ridiculous, because that’s like the E-Bay option except you also pay for ad space (and how many people do you know who buy $150,000+ watches from the classifieds?)

If it’s not apparent by now, investing in watches is a specialised field that requires active research, a network of contacts, and years of experience. If you’re not reaching out experts like The Watch Fund, at least get a qualified wealth manager to do the legwork for you.

(We can put you in touch with one for free, just take our quick questionnaire).

But it’s still a great investment

You just need to be clear whether you’re a collector or investor. It’s even possible to be both, provided you clearly divide your collection from your portfolio (Dominic has watches that are just for resale, and watches that he just likes).

Collectors should focus on just enjoying their watches. They can take comfort in knowing that, even if it’s not a big money maker for them, their collections do help a bit by hedging against inflation.

Investors can stand to make a lot of money, but it’s advisable not use a DIY approach. Unless you have anything close to Dominic’s 14 years in the watch industry, chances are you’ll have a tough time making consistent returns.

Stay with us, and we’ll follow up soon with more on taking care of your watches, authenticating them, etc. Just like us on Facebook for the updates.

Planning on buying a watch in the near future? Contact a FWM Wealth Expert to let us know your thoughts here. Or find out more on alternative investments by visiting our Wealth Strategy section for the latest!

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