The first quarter of hysterical rallies in 2022, followed by nine months of falling prices for the most traded watches from Rolex, Patek Philippe and Audemars Piguet, has followed broadly the same trajectory as other over-inflated assets such as tech stocks and cryptocurrencies .
What a new report from investment bank Morgan Stanley suggests, however, is that Luxury watches have actually been a better bet since early 2021 than other alternative investments because they have risen in value fastest through the first quarter of last year and declined more slowly once the market has turned.
This is important for equity investors advised by Morgan Stanley, because tracking pre-owned watch prices is a good way to monitor the broader desirability of brands, and therefore future pricing power and potential growth trajectory. , says the investment bank in a research note on how the secondary market relative to other asset classes over the past two years.
In particular, it is not feasible to invest in any of the top three most marketable watch brands because they are all privately owned and independent, but the point is because the attractiveness of watches from publicly traded groups – LVMH, Swatch Group and Richemont – can be measured against a privateer competitor.
A word of caution before we get into what the Morgan Stanley report reveals:
Secondary market price data is provided by WatchCharts, which collects and analyzes millions of sales and advertised listings from around the web to provide the most accurate price estimates. By its own admission, this is not a perfect methodology because, for example, the prices asked by retailers are often significantly inflated and may not reflect the actual transaction values when a sale is made.
This was especially true as the market transformed from March to April of last year when transaction volume plummeted but advertised prices were still at an all-time high.
It's very likely that even these price caps were overstated because it was in the dealers' best interest to keep the market as healthy as possible for as long as possible, and they don't necessarily share the final sale price of every transaction on platforms like Chrono24.
By comparison, the trading of S&P 500 and Bitcoin is strictly regulated and all price information is perfectly reliable.
Over a two-year period, prices for the overall secondary watch market have increased by 26%, outperforming the S&P 500 and Bitcoin.
Watch prices increased by an average of 24,4% by the end of the first quarter of 2022, but have declined every quarter since then.
Digging into the Morgan Stanley report, which includes data from WatchCharts through the end of January 2023, the main conclusion is that falling prices for the big three brands – Rolex, Audemars Piguet and Patek Philippe – have continued to fall. And since these three brands they account for about 70% of the value of all trades on the secondary market, give the impression that there is weakness across the board, which is not true.
The most fashionable steel sports watches of the big three are still trading at higher than recommended retail prices, despite the decline since the end of the first quarter of 2022. For this reason we could state that:
- the market was much less volatile.
- the vast majority of watches did not see prices rise in the first months of last year and have not collapsed since.
In addition to the roller coaster of demand, Morgan Stanley records helpfully a concomitant increase in the supply of waiting list watches.
Indeed, the report said the price correction had more to do with supply than demand, suggesting: “In our 3Q22 note, we reported a significant increase in available secondary market inventory since February 22, as a result of watch dealers and individual watch investors dumping their shares. The influx of supplies continued into 4D22. According to data from WatchCharts, supply increased by 19% for Rolex, 8% for Patek Philippe and 5% for Audemars Piguet".
This was a slowdown from previous quarters. Throughout 2022, the supply of Rolex watches on the secondary market has more than doubled for Rolex (+104%) and Patek Philippe (+110%). AP supply increased by 78%.
Vacheron Constantin, which had joined the party for retailers profiting from trading its sports watches Overseas, saw a turnaround in the fourth quarter as people looked to cash in and supply on the secondary market soared (+200% in 2022). Consequentially, Overseas price fell 4,2% in the last three months of last year.
Like stock traders, there seemed to be an increase in demand for watches that looked undervalued towards the end of 2022.
Thus, while the prices of Rolex, AP, Patek Philippe, Audemars Piguet and even Tudor have fallen on the secondary market, there have been notable increases for TAG Heuer, Tissot, Breitling, Bulgari, A. Lange & Sohne, Blancpain, Girard-Perregaux , Jaeger-LeCoultre, Hublot and Zenith.
Watches from all of these brands, and more, contribute just 30% of the value of secondary market trades, so prices can fluctuate more easily, leading some analysts to speculate whether the brands themselves bought enough watches to pass at the secondary market prices in a positive direction. There is certainly a concentration between the LVMH group brands, Richemont and the Swatch Group, all of which comfortably have the financial strength to move the needle in a favorable direction by buying their own watches. As the price correction continued into January of this year, more and more watches from the hottest waiting lists are trading at lower than recommended retail prices with authorized dealers. Vacheron Constantin's steel Overseas is now trading below retail, as are less sought-after Rolex models including the Sea-Dweller and Yacht-Master.
Morgan Stanley and WatchCharts don't make that observation, but a recent conversation with one of the world's leading pre-owned specialists revealed that, when it came to buying watches, they only paid retail for three watches: Audemars Piguet's Royal Oak, Rolex Daytona and Nautilus by Patek Philippe. There is a huge difference (between 25% and 50%) between what inventory holding companies like WatchBox, Bob's Watches, Watchfinder and Crown & Caliber will buy a watch for and what they will advertise it for.
In a declining market, they need to protect margins by anticipating a watch's future value and are extremely cautious with their purchases at this time.
The original article is taken from the WatchPro site: https://www.watchpro.com/rolex-audemars-piguet-and-patek-philippe-outperform-crypto-currencies-and-the-stock-market/