The debate about the merits (or lack thereof) of investing in luxury watches has raged on since man discovered fire.
Even though this article is by no means a scientific study on the subject (yawn), it does show that some watches can retain or gain value over time despite what many think.
What we did is analyze the most recent 50-year period (48 years to be exact) based on some data that we just happened to come across while researching a completely different topic online.
Yes, you heard correctly. This is all one big coincidence!
We seriously did not set out to research whether or not vintage watches had outperformed the S&P500 (a.k.a., the stock market) in the last half-century or how correlated their prices were with a diversified long-term bond portfolio. Honestly!
Stocks vs. Watches – the Last 50 Years
It all started with the black and white picture below, a 1966 Rolex ad in The New Yorker.
The ad (which was initially eye-candy for our Google+ page) portrays the Rolex Explorer Reference 1016, now considered a vintage watch – but was designed back in the days for the adventurous type, inspired by the first successful summit climb of Mount Everest in 1953 (see Watches for Adventurers – Pick your Favorite).
We discovered something pretty interesting while glancing over the fine print…a price!
Quoting from the 50-year-old ad…
“The explorer sells for $180 (with authentic Rolex bracelet, $195) at fine jewelry shops.”
“What?!? And I paid 7,000 bucks for mine!!!” Hold your horses.
The $195 price was 1966 news. We’re in 2014, almost 50 years later.
When we saw the price above, the investment light bulb went off in our heads (remember that our company motto is, “Make your next watch purchase an investment?”). We just had to calculate the return!
So we brought in our secret mathematician/investment wiz to run the numbers.
The only piece of information we needed to calculate the yearly percentage gain on the watch from 1966 to 2014 was the current market price.
A quick search on the web indicated that this vintage Rolex could now fetch between $5,000 and $18,000 depending on the exact model in question and some other factors. Nevertheless, we ran the math on the two extremes.
We also did something pretty interesting. We calculated what the US stock market had returned per year during the same time period in question – just to give you investment gurus a point of reference.
Here are the numbers:
Rolex Explorer (example 1)
Starting Price: $195
Current Price: $5,000
Term: 48 years
Return per year: 7.0%
Rolex Explorer (example 2)
Starting Price: $195
Current Price: $18,000
Term: 48 years
Return per year: 9.9%
Stock Market (S&P500)
Term: 48 years
Return per year: 9.6%*
* S&P500 Return Calculator from DQYDJ.net was used for the calculation. Results from January 1966 to January 2014, assuming reinvestment of dividends. Without dividends reinvested, the return would have been 6.4% a year.
So Which is the Better Investment Then?
To summarize the above numbers…from 1966 to 2014, the Rolex Explorer Reference 1016 went up from around 7% to 9.9% annually, while the stock market appreciated 9.6% a year, assuming all of the stock dividends were reinvested (otherwise, the return would have been only 6.4%).
So which is better?
Even though “better” is a strong word, the watch investment did give stocks a run for their money!
Nevertheless, stock investors might argue that the S&P return was a tad bit higher than the lower-end figure for the watch, so stocks are better.
But when you consider the fact that most vehicles that people use to invest in stocks (like mutual funds, 401(k) plans, etc.) do worse than the stock market averages over time, the Rolex performance begins to look even more attractive.
Furthermore, the $195 price was likely a 1966-retail figure. But since educated clients can get better prices than retail most of the times, their return on the vintage model could have easily been higher.
Is this analysis perfect? No, by no means.
We only used one particular watch to do it. For the study to be more statistically significant, we would need to use more data – additional models, other brands, etc. But remember that we didn’t set out to purposely write a scientific paper here. This article was written by chance, so it is not complicated.
Some might also attempt to refute our findings and say that money can only be made if the right watches are purchased and that hindsight is 20/20.
While it is true that not just any watch will appreciate in value over time, certain models tend to retain their value better relative to others and can even appreciate in value. Consequently, if a knowledgeable buyer would choose carefully (which is something we always try to teach our clients how to do), his investment would likely be sound.
Regardless on which side of the good-or-bad investment fence you’re on, one thing is for sure…
We will always make luxury watches a portion of our diversified investment portfolio.
How about you?
See a list of Rolex models and prices here.