Watches: Don't Trust the Auctions

Of all the weird alternative asset classes to be invested in, could watches have been one of the best? A 1963 Patek Philippe just sold at Christie's in Geneva for $800,000 -- a record for a yellow-gold watch. But as Joe Wiesenthal notes, the Christie's auction came on the heels of a disappointing Sotheby's watch auction. And in any case, you should never use auction results as a guide to the health of the watch market.

The key thing to realize when you're looking at what dealers insist on calling timepieces is that the primary market is orders of magnitude larger than the secondary market. Indeed, media and sponsorship budgets alone in the primary market dwarf the sums of money being spent on collectible second-hand watches. In that kind of an atmosphere, watch auctions become only partly a means of exchange and price discovery, and are equally useful to manufacturers as a marketing device.

I'm not saying that Patek Philippe bought that watch at Christie's -- but it wouldn't surprise me in the slightest if they did. If your dealers can point to record prices being spent in the middle of a massive recession, that makes their job a lot easier -- which means that spending $800,000 on a watch is probably a much better use of funds than spending a similar sum on glossy magazine ads.

In general, it's silly to assume that a new watch is an asset which will in any way retain its value. If you buy a second-hand watch, you're probably in a better position. But if you don't much like the idea of doing that, then ask yourself why. The fact is that demand for new watches always outstrips demand for second-hand watches -- and as a result, the chances of your new watch doing anything but declining precipitously in value are thinner than any Patek Philippe.