In Greek mythology, Tantalum angered the gods and, as a punishment, was made to stand in a pool of water under a tree with fruit close at hand. When he was thirsty, the water would recede just out of reach. If hunger struck him, the branches of the trees would rise so that he could not reach the fruit.
What’s surprising is that there are more than a few people who pay money for a watch enthusiast’s version of Tantalus’s fate by owning watches they can never touch, wear, or never wear. ride up. They only see photos.
In South Korea, an entrepreneur named Shin beom-jun recently launched a new platform called Room. The value proposition is quite simple, but also potentially transformative for the aftermarket of luxury watches.
Piece identifies collectibles that it will purchase with funds raised from individuals. It’s akin to Kickstarter, but in this case, Piece is asking for funds to purchase collectibles like sneakers and (you guessed it) luxury watches.
After a predetermined period of time, the collectibles are resold in the secondary market and the proceeds are distributed among the investors. Assuming there is a rapid appreciation in the value of collectibles, everyone shares in the profits.
The first fund opened on April 1, 2021 (I guess the April Fools choice was a coincidence). The target: collectible Rolex watches. The funding objective of approximately $ 106,000 was reached in about 30 minutes with 70 people contributing an average sum of about $ 1,500.
This is not the first time that a group of buyers have come together to purchase watches. The Watch Fund created by Dominic Khoo has acquired luxury watches for many years. It is funded by those who can offer a minimum investment of $ 250,000.
Legendary collector Alfredo Paramico created the Precious Time Fund ten years ago. Limited public information suggests that the fund has held (or holds?) A portfolio of watches with seven to eight digits.
The South Korean coin, however, is unique in several ways. First, the barrier to entry is quite low. The number of people who could potentially buy into this fund is significant (although after reviewing the documents, I would recommend that investors have a good understanding of Korean or have access to a good translator).
Second, the fund is remarkably transparent. It will be buy 11 Rolex, including two Oyster Perpetuals (Pink and Coral dials, References 126000 and 124300), one Cosmograph Daytona, two Submariner (one Hulk and one 41mm, References 116610LV and 126000), and a 31mm green-dial Datejust (probably Reference 278240).
The funds I mentioned earlier are mysteries in comparison. From what I can tell, they don’t even have webpages (the above slideshow is hosted on an independent site).
So what should we do with the watch purchase funds?
Although it is complicated, there are many reasons to worry bordering on aversion. Demand for these funds is, by and large, driven by money and not interest in watches (one fund claims to provide access to watches to investors).
The funds almost certainly drive up prices and potentially lengthen waiting lists. It is reasonable to conclude that the surge in prices in recent years would be more modest if these funds did not exist. They also make it more difficult for traditional collectors to acquire and wear timepieces.
There is also the question of “truth in advertising”.
the Piece founder seems to suggestt (based on a computer translation from Korean) that the prices of Rolex watches never go down. I wrote elsewhere that this is simply not true. Piece also estimates a return of 25-27% in six months (or about 50% at an annual rate). This is an extraordinary rate of return. What is less clearly described is the level and source of risk in a watch buying fund.
The case of the Rolex GMT-Master II Batman (Reference 116710BLNR) is illustrative. As of March 2021, sales of this model on eBay were between $ 15,000 and $ 16,000. In large part, this appreciation from a list price of $ 9,000 was motivated by the discontinuation in 2019 of the Oyster bracelet version.
In a surprise move, the model reverted to an Oyster bracelet in April 2021. As a result, secondary prices have stagnated or, compared to March, actually declined. In May, copies were sold on eBay for as little as $ 10,000.
There isn’t enough discussion that the scarcity of modern luxury references is largely artificial.
If Rolex CEO Jean-Frédéric Dufour looks through the realm of discontinued references that are selling well above retail and decides he’s had enough of leaving that money on the table, he can easily take it to speculators by resurrecting a benchmark. If you had the reference he chooses, but you had no intention of selling, it wouldn’t impact your cash flow.
In fact, if brands really don’t like pure speculation, one could easily argue that it is their responsibility to cut the rug from under skyrocketing prices.
Authorized dealers can also react negatively to watch purchase funds; they are an opportunity to surreptitiously earn more than the list price. An authorized dealer can sell desirable coins from the list to the fund manager and place the proceeds in the fund, thereby obtaining a market return not available to collectors.
I was surprised that the Piece fund was so confident in its ability to acquire 11 highly sought after references and wondered if that was the reason. If authorized dealers sell more inventory to watch buying funds, fewer watches become available to true collectors.
Watch purchase funds are not entirely problematic, however. I can appreciate the fact that Piece is democratizing access to the watch market, allowing small investors to take advantage of a potential increase in the prices of luxury watches.
Even for collectors, watch purchase funds can potentially bypass vendor remorse. I have been on more than one Zoom call in which a collector lamented the sale of a watch only to later see it increase in value considerably.
If you simultaneously sell a Rolex Hulk while placing part of the proceeds in a fund like Piece, you will still partially benefit from an appreciation in the value of the reference. In this sense, watch purchase funds can act as a hedge.
It remains to be seen whether watch purchase funds will become a bigger factor in the watch market. As the steady pace of new price records continues, we cannot ignore the possibility that watch bottoms (or perhaps other innovative arrangements) may be a part of it.
While opinions may vary as to whether this is a welcome development, it is undeniably part of the ever-growing interest in luxury watches. From this perspective, watch buying funds are something we should probably adopt with concern.
Brendan Cunningham is Professor of Economics at Eastern Connecticut State University and Founder of www.horolonomics.com.
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