Nine Things To Know About Watch Investing

Watches

Nine Things To Know About Watch Investing

Singapore's watch afficionado Dominic Khoo joins the WEALTH column team, and in his first post imparts his wisdom on the top nine things to know about investing in watches.

Published on 15 July 2016

Buyer beware: Do not be fooled if someone tries to sell you an “investment-grade” timepiece.

Last month, a timepiece went under the hammer for US$2,537,964, making it the highest amount paid for a wristwatch at an auction in Asia. But before you leap into the nearest boutique to get one, there are a few things that you should look out for.

So cautions Dominic Khoo, a watch expert and collector, and now investor, who has been familiar with the industry for the past 17 years. The 38-year-old is also behind The Watch Fund, which launched in February 2013, and has seven other partners.

To date, it has US$40 million in assets under its management, the highest among any watch investment vehicle. The Watch Fund has also reported returns of between 20 and 30 per cent nett annually.

“An investment-grade watch, by our definition, is one which you buy with cash at a certain price, and later sell at a price higher than what you bought it at. In return, you get cash. We do not talk about paper value,” emphasises Khoo.

01.

Start with a clean slate

Erase all bias, pre-conceptions and sweeping statements. Throw out what your buddies have been bragging to you about their “most successful purchase”; do your own research. It is dangerous to listen to hearsay, or not find out the caveats behind watch investing.

02.

There is no such thing as an investment-grade brand, model, series or limited edition

According to Khoo, there are only two types of watches that are considered “investment-grade”. The first is a watch that money cannot buy. The second is when you buy a piece at an unbeatably low price – so that when it is time to sell, the price will definitely be higher.

03.

Do not confuse investing with collecting or shopping

This is a common misconception. A true investor will not use the watch, but keep it tucked in a safe. Buying a timepiece as a collector usually means you will use the watch and potentially expose it to damage. “Collectors and investors are mutually exclusive,” points out Khoo.

04.

What is the condition of the watch

If the watch has not been used, but kept in storage, it will be worth more. It will also prevent it from dinks and kinks that can seriously undermine its value. Likewise, if it has undergone a few overhauls, the price might be compromised. That is not to say that it should not be maintained.

05.

Be mindful of the timeline

“When did you buy it?” asks Khoo. That is a very important question to ask. For instance, Ulysse Nardin created the Genghis Khan in 2002. There were only 30 pieces made and the price tag was S$800,000. Naturally, it sold out in no time, despite the delivery of six years. “If you were 30th in the queue, by the time you got the piece, it could have lost its novelty because the brand might have come up with an even more exciting piece.”

06.

It’s a numbers game

If you are Chinese, and your watch has the serial number four, you will not want it, because it is a homophone of the word “death”. If you operate in the Chines market, numbers one and eight have more value. On the other hand, an “inauspicious” serial number will result in a lowered price, and might make good financial sense to buy.

07.

Who were the former owners?

If the timepiece once belonged to George Clooney, its price will obviously be more than if it were owned by a high-net-worth investor whom nobody has heard of. The provenance of the watch is important.

08.

Foreign exchange can be your bff or worst enemy

With the majority of watch manufactures based in Switzerland, a strong Swiss Franc and weak home currency can work against your investment. Be sure to time your purchase so that you are exposed as minimally as possible to foreign exchange risk. Find a middleman who can help remove this risk by buying and selling in the same currency.

09.

Upkeep can be costly

If you are investing in watches for the long-term, issues like wear-and-tear are inevitable. Servicing a minute repeater can easily set you back $20,000 and last six months. All these investment hurdles need to be factored into the price.

Key Takeaways

If you are wondering about the downside, Khoo paints out a scenario: Even if there is a zombie apocalypse, banks close down, and the value of equities drop to zero, the worse that could happen is you keep the watch and wait for the world to recover. He says, “Watch collectors will never go extinct. You’ll just be forced to hold the timepieces for a longer time before you can sell.”

At WEALTH we think watches play an important role in a diversified investment portfolio of a high net worth investor. But like all investments take professional advice before investing, as Dominic explains above it can be a mine-field for the inexperienced investor!

Click here to request a consultation with Dominic about watch investing.

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