on 02/04/19 09:00
Following our article about the characteristics of watches as investment. Let's learn how to invest in watches.
There are currently two distinct approaches you can use to invest in watches – directly as a private investor or via an investment/hedge fund.
There are three main ways to invest in watches and then, when the time is right, turn your investment back into cash:
- Internet exchanges
- Auction houses
There are hundreds of dealers, many high street based, who will buy and sell luxury watches (either new or pre-owned). Their selection may be limited if you’re looking to purchase and the chances are that all the new watches will be sold at or very close to the recommended price set by the manufacturer even though, in many countries now, such practices are deemed anti-competitive and they may be illegal.
There are also dozens of internet exchanges where, for a fee probably smaller than the discount you’d sell to a dealer at, you can advertise your watch or watches for sale with a set price or in an auction format. To see an example of this type of sale format, click here for Invaluable’s men’s watches section.
If you’re purchasing watches sight unseen over the internet, take extra precautions especially
if the image used of the watch is from the manufacturer’s website. Look back over their previous auctions or offers for sale to see how many of them were for watches – if there are a lot of them, the person may be selling fake or grey market watches. You should also make sure that it’s a condition of your purchase that the watch is genuine otherwise, if you discover that it’s not, you have the right to return it for a full refund.
You can also buy and sell through auction houses. Sellers are likely to pay a 15-20% auction fee on the successful sale of their watch while buyers are likely to face a 10% charge. Similar auction fees may be charged if you arrange a private sale or purchase through an auction house. The companies with the likeliest highest number of potential watch buyers and sellers will be at Sotheby’s, Christie’s, Monaco Legend, Antiquorum, and Wannenes.
The bigger of the two watch investment funds available, at time of writing, is “The Watch Fund”, based in Singapore, Hong Kong, and Geneva.
To invest, you need $250,000 and, for that investment, you receive:
- A guaranteed net annual return of 10% or a variable return of 20-30%
Three or four watches with a retail price of between $500,000 and $750,000. You can wear the watches but you can’t sell them.
Within a short space of time, the fund will call you to make an offer on one of your watches. You’re free to turn the offer down but any further offers you turn down will result in a 10% penalty on the purchase price of the watch. At the end of a year, all your watches are sold and, at this point, you can leave the fund or re-invest back into it.
According to the National Business website, the worst return the fund has produced in its four years of trading was 11 per cent. Its best was 216 per cent. The fund has 60 investors who hold around $40m in assets.
- Buy watches before they become publicly available,
- Jump the queue on special or extreme limited edition watches,
- Negotiate discounts of up to 70% below retailer or distributor cost from the manufacturer, or
- to purchase watches previously owned by famous people, including royalty.
Mr Khoo believes that the best people to invest in his fund are not people who are interested in watches, only in a financial return. However his investment fund is almost certainly unique among passion investment funds in that you, as the investor, get the opportunity to derive enjoyment out of your investment instead of it being locked away in a secure storage facility in an unknown location to you.
The fund only makes money on its transaction fees when they sell at a profit. There are no annual fees in addition to the minimum investment.
The only real investment fund with any presence in the luxury watch market is Elite Advisors with their Precious Time fund. Their aim is to build a 400-strong collection of watches – both unique collectors’ items and limited edition contemporary watches. They are choosing to allocate half their fund to Patek Phillipe, 30% to a mixture of Breguet, Rolex, Audemars Piguet, Vacheron Constatin, and Cartier, 10% to “exceptional contemporary watches”, and 10% in cash.
Missed one of our series? Find them here: Passion Investing.
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