Preloved Rolex, AP and Patek Supply Doubles. Prices Crashing

According to WatchCharts.com, the supply of pre-owned Rolex, Audemars Piguet and Patek Philippe watches has nearly doubled since the beginning of this year. And what happens when supply catches up with demand? The black diamond ski slope above – charting the market value of 60 watches taken from the top 10 luxury watch brands – tells the tale. So . . . buy, sell or hold?

Before sharing my view on whether it’s time to pick-up a horological “bargain,” offload some of your personal inventory or stand pat, let’s take a quick data dive with WatchCharts’ man Tian.

WatchCharts Overall Secondhand Watch Market Index has declined -23% since its peak in Mar/Apr-22. In 3Q22, the index fell -9% QoQ (see Exhibit 1). Crucially, in-demand watches from the “Big Three” brands led the decline (which accounts for ~71% of total trading value in the secondary watch market). Secondhand watch prices for Rolex and Patek Philippe both dropped by ~-8% QoQ, while Audemars Piguet saw declines of ~-7% QoQ.

WatchCharts.com

Mr. Tian lists the main factors driving down the prices of pre-owned luxury watches: “tightening monetary policy” (the soaring cost of borrowing money), “disruption of consumer sentiment” (the rich are feeling less rich), “the fall in value of stock markets and other asset classes” (the rich are less rich) and speculators cashing out while the cashing-out is good (before the cashing-out is bad). So . . .

Rolex, Audemars Piguet, Patek Philippe – Buy?

Prices of “grail watches” have fallen precipitously in the last few months. But don’t forget they rose precipitously over the past few years. They’re still significantly more expensive secondhand than they are brand new. For example . . .

The price of a pre-loved panda-faced Rolex 116500 Cosmograph Daytona has fallen -26.7% in the last six months. Awesome! Meanwhile, the current average price for a secondhand Cosmo – $32,233 – is still more than double the watch’s $14,550 retail price.

The market vs. retail “room to drop calculation” also holds true for models like the Patek Philippe Nautilus 5711/1A ($123,956 vs. $34,890) and Audemars Piguet Royal Oak 15202ST ($89,110 vs. ~$14,100).

It’s hard to believe that a used Daytona, Nautilus or Royal Oak will ever end-up costing less than a new one. Regardless, gloomy economic news (i.e., rising interest rates and ongoing inflation) indicates the downward trend has yet to run its course.

I reckon the luxury watch business will follow the same path as the high-end collector car market. After a Republican president is elected, collector car prices start to rise. I recommend hanging fire on a grail watch until the start of the 2024 presidential cycle – keeping an eye on watchcharts.com to get a feel for exactly when to jump.

Rolex, Audemars Piguet, Patek Philippe – Sell?

Prices for grail watches will stabilize. In fact, some of watchchart.com’s charts charting the market price for the most sought-after timepieces indicate a slight leveling of downward price pressures (i.e. the curve isn’t quite as steep as it was).

And? The idea that we’ll see another grail watch tulip craze in the next five years is almost as remote as the Voyager space probe. If you want/need money for a desirable watch in your collection, yup, you missed the boat. But today’s prices are still better than tomorrow’s. Unless you’re playing the really long game, join the stampede. Sell.

Rolex, Audemars Piguet, Patek Philippe – Hold?

A Rolex, Audemars Piguet and/or Patek Philippe wristwatch will always retain some value. If you want quick cash – disregarding “fair market value” – a Rolex is welcome at jewelers and pawn shops worldwide. An AP or Patek is a lot harder to quickly convert to cash, but any nice watch is portable barter fodder should the excrement hits the rotating air circulation device.

If you you aren’t prone to post-apocalyptic paranoia and have enough cash flow to go with the flow, hold. Did you buy your nice watch as a financial investment or because you wanted to wear it and maybe pass it on to your genetic progeny? If so, F the market.

That said, fine watches require insurance, servicing and occasional repair. That’s far from cheap – especially when compared to owning a stock, bond, T-bill, crypto or some other “paper” investment. If you’re not prepared to foot the bill, don’t. Sell.