Luxury Swiss Watches

Vintage Watches: Classic investments that can withstand the test of time

Written by admin on September 2, 2010 – 1:20 am -

Anna Lawlor, Investment Advisor, Financial Times

Whether their wrist is adorned with a Casio, Swatch or DKNY, or clothed in a Raymond Weil, Rolex or Cartier, chances are few people look upon their watch as a serious investment.

Yet, as the legacy of the financial crisis sees creeping tax increases across the board, ‘wasting assets’ such as watches and clocks are increasingly being considered as an alternative investment by the more serious investor.

HM Revenue & Customs (HMRC) considers such ‘mechanical’ items as outside of the capital gains tax (CGT) regime because they are deemed to have a lifespan of 50 years or fewer and are generally for personal use.

Of course, VAT is often applied at purchase but the capital gain arising from the liquidation of the asset is tax-free. No inheritance tax is applicable either.

According to Paul Fraser Collectibles, the online site of the former chairman and owner of collecting company Stanley Gibbons: “It has already been a good year for rare, collectible timepieces, with several new world records set for watches at auction – including the most expensive gold wrist watch ever sold at auction”.

Opinion seems to be polarised as to the best way to enter the timepiece market; detached, cool investment focus or starting with a personal item that has sentimental or aesthetic appeal for the investor.

Chris Brown, managing director of Fitzrovia Watches, says: “As with art, there is no point buying an alternative investment unless you actually like it.” He explains as “equity markets are so choppy”, he has seen an increasing number of people look for investments they can ‘“derive pleasure from, as well as a financial return”.

According to Tom Bolt, director of WatchGuru.com, which specialises in Rolex watches and other vintage timepieces, there is a gender divide in terms of collectibles.

Most traders and collectors are men and the mechanical expertise of models tends to be in men’s watches.
“If you think about it,” Mr Bolt says, “it’s much harder to produce a robust, durable watch on one-eighth of the size.”
Mr Bolt, who wears vintage aside from the exclusive Richard Mille modern watches, says: “The idea of people buying a watch to last them a lifetime is complete nonsense. Very quickly it becomes addictive.”

He adds with a chuckle: “[Vintage watch collecting] is the ultimate man’s addiction – that isn’t too damaging.”
Like brand new cars, the value of brand new watches tends to depreciate by approximately 40 per cent the moment a purchaser leaves the shop, further supporting the investment case of vintage models.

Mr Bolt believes depreciation of new watches to be even higher – perhaps even 50 per cent. One of the absurdities of the new watch premium is that a copy of a Patek Philippe classic watch costs £15,000, while the original it is copied from costs £6,000.
Mr Brown advises taking a contrarian view of the watch market, reminding investors a Rolex Cosmograph 6265, which was worth £882 in 1986 and considered “somewhat passé”, now commands £25,000.

“Yesterday’s lack of popularity is today’s rarity,” he adds. This is further buoyed when considering the only apparent recession-proof luxury watches are those that have been discontinued and therefore have collectable status.
Such pieces include the Rolex GMT II and Sea-Dweller, which ceased production in 2008 – although it is worth noting these are both products of the world’s most collected brand.

In addition to making it easier to ‘liquidate’ the investment at a beneficial time for the investor, another argument for remaining detached from any alternative investment such as timepieces is that, as with other collectibles – toys, for example – they command a higher price in mint condition, preferably unopened.

According to the auctioneer Bonhams, a watch could be worth up to 70 per cent more at auction if it is accompanied by its original casing and documentation.

Online consumer resource and Omega watch specialist Chronocentric.com states precious-metal watches and those carrying diamond inlays are sold new at 10-20x premium. At resale, “the values better reflect the market value, not the exclusivity premium,” it says.

The site warns against investing in timepieces with the serial numbers removed, which are heavily discounted, of poor-durability brands or customised, all of which negatively affect resale value. While more akin to antique furniture in some ways, clocks, which also fall under the HMRC’s ‘mechanical’ description, along with barometers and some scientific instruments, share many of the resale and collectible factors of wristwatches.

One additional element for investor consideration is physical storage, depending on the size and nature of the clock.
Although the price of grandfather clocks – known as longcases – has fallen over the past 10 years, some aficionados are viewing this as a buy sign, akin to Mr Brown’s advice to be a contrarian investor in timepieces.

The average grandfather clock is more than 2.1m tall – those less than 2m are considered grandmother clocks, for which there is less resale demand and are therefore riskier long-term investments.

Grandfather clocks with a value of less than £1,000 can be as costly again in terms of renovation, and these factors prove the importance of seeking expert advice and using a respected antiques dealer or clock specialist to either collate this aspect of a diversified alternatives portfolio, or to help purchase a one-off piece for both the home and financial return.

The cost of checking the authenticity of a timepiece is roughly £50.
There is no market index for timepiece prices, so valuations are typically based on a database of prior sales figures for that make and model and combined with the valuation made of that specific piece by an auction house.

If physical ownership of a tangible asset is not important to an investor, another avenue for investing in timepieces is to hold shares in listed producers, such as LVMH, of which Tag Heuer, Chaumet, Zenith and Hubolt are subsidiaries.

However, these watches and jewellery brands are a small percentage of the luxury brands company, and heavyweight brands such as Rolex remain private entities.

For exposure to global luxury brands, an investor might consider a traditional fund, such as Julius Baer Luxury Brands (a retail Oeic) or, for institutional investors, Pictet’s PF Premium Brands.

The latter invests in Compagnie Financière Richemont, which itself oversees subsidiaries such as Cartier, Montblanc and Ralph Lauren Watches.

According to Mr Bolt, there simply aren’t enough ‘investment-grade’ vintage watches available for investment funds to take advantage of the alternative asset class.

He says: “I’ve had funds come to me asking to invest £20m [in watches]. They are a wonderful investment – if you buy right you can return 100 per cent in 3-4 years – but there aren’t enough of them to make it work.”

While investors and advisers may be more familiar with the traditional route into alternatives, it would increase asset class correlation in the portfolio and omit the tax advantages.

The case, once again, for direct exposure to such alternatives – in moderation and with direction from experts – stacks up.
Of course, no adviser will suggest a serious client should switch out of traditional opportunities and opt for speculative, alternate investments such as this.

But in the wake of traditional assets all moving – downward – in tandem and given the higher-tax outlook, considering a small allocation to alternatives that may not only deliver healthy long-term returns but engage investors in their future wealth creation has per-haps never been more timely.

Top five collectable timepieces*
1. Rare 1943 Patek Philippe watch
Sold for £2,675,400 at Christie’s auction in May, the second-highest price for a wrist watch ever, and double its pre-auction estimate. It is the most expensive gold watch ever auctioned, was signed “Patek Philippe & Co” and billed at the auction as “unique and historically important”.

2. Qing Dynasty Chinese table clock
Sold for £2,450,000 at Sotheby’s in June; triple its auction estimate. The imperial tribute enamel table clock was produced by the Guangzhou Workshops of the Chinese Qing Dynasty, 1736-95.

3. Grande & Petite Sonnerie Tourbillon clockwatch
Sold at the Antiquorum of Modern and Vintage Time Pieces in Geneva for £204,500. This rare, 18-carat yellow gold watch dated to 1900 and was made for use in Moscow. The sale to a collector from Taiwan followed an intense bidding war.

4. Piguet and Meylan pocket watch
This musical pocket watch was sold to a Swiss museum for £164,000 in April, New York. Its original estimate was for £25,000-£40,000. Created with the Chinese market in mind, built in 1815, it is made of gold, enamel and pearls.

5. A 1929 Cartier Comet clock
This carriage desk clock, featuring the days of the week, date and alarm, sold for £160,000. It was a highlight of Patrizzi’s New York sale in March, which promised “the most important sale of Cartier time pieces since 1996”. Mounted on 18-carat yellow gold, it was presented with the original Morocco fitted box and Cartier certificate.

*By sales during 2010
Source: Paulfrasercollectibles.com

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