We are constantly looking at a few asset classes – equity, of course, along with real estate as Croats hold the majority of their wealth in real estate. Today, we decided to look at another alternative asset class – luxury watches, from an investment perspective.
Watches, as an asset class, could be considered as an alternative investment. Today, we decided to look at this asset class from a market perspective and observe its market movement during these times of high uncertainties. Also, we will compare the historical movement of the representative index for this asset class with equity.
Demand shrinks
We decided to look at the SUBDIAL50 index, as a representative of this market. The index tracks the top 50 most traded second-hand luxury watches on the pre-owned market. Those top 50 most traded models on the pre-owned market together account for over 20% of total money spent globally on this market, while the weighting in the index is based on relative sales values. For a general sense, watches included in this index are Nautilus from Patek Phillipe, Royal Oaks from Audemars Piguet and the remaining majority is composed of Rolex models.
Source: Subdial, InterCapital Research
This market is slightly different compared to other asset classes, characterized by a relatively fixed and stable supply. Consequently, one could conclude that changes in prices is primarily driven by a shift in demand. In the past 6 months, the index decreased by 19%. According to Bloomberg, prices „has fallen to levels not seen since before an unprecedented boom in 2021 and early 2022“.
During these times of uncertainty, it should not surprise that demand for this kind of asset shrinks, resulting in a lower price of the assets themselves. The decline shows that the top Swiss brands were unable to maintain those ATH prices. If we were to look at this information from an investment point of view, this should not surprise us. Watches, as an asset class, noted a decline in prices just like equity did, along with bonds.
However, if we were to look at the performance of equity representatives, noted performance in the previous 6 months is relatively better with NASDAQ, S&P500and MSCI World Index reporting a decrease of „only“ 9.1%, 5.3% and 5.1%, respectively. However, it should not surprise that the decline in the watch market is larger compared to the equity, due to mentioned unprecedented boom in 2021 and early 2022. Also, we note that the 6M decline period should be overall representative for comparison as global uncertainties took time to spill over other markets – like the retail watch market.
Finally, we want to emphasize a quote from the man that needs no introduction, Warren Buffett. “I would rather own all the farmland in the US than all the gold in the world.”. He appealed to the readers that one must own productive assets that actually produce something, like equity, rather than non-producing assets represented by shiny gold. He further explains that the holder of gold has received no income return on his capital and has instead, on contrary, incurred some annual expense for storage.
Performance of equity indices compared to SUBDIAL50 Index (%)
Source: Subdial, Bloomberg, InterCapital Research
