Between the years of 1634 and 1637, during the Dutch Golden Age, a well-known phenomenon now known as Tulip Mania spread throughout the Netherlands. During this period, the prices of rare tulip bulbs soared, and speculation was abundant; traders sold bulbs that had not even flowered at exorbitant prices. However, very few bulbs changed hands and prices abruptly collapsed in 1637 due to several factors – such as traders no longer being able to find anyone who would buy their inflated prices, as well as a badly timed outbreak of plague.

Since then, the term “tulip mania” has come to describe any economic situation where the price of the asset deviates significantly from its intrinsic value. Since the first study of this phenomenon was published in Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay, socioeconomic factors and other cultural considerations have been highlighted by other academics and economists, in addition to the fact that it was a very localised issue. For example, some scholars suggest that many of the myths that have emerged from this period were thanks to a religious sect from the time which believed that rampant consumerism was to blame for declining moral standards and societal evils.

In some ways, the division between the Dutch anti-consumerists of the 1600s and the speculative merchants somewhat mirrors the debate between watch collectors and investors, with the former usually being of an older generation who might often see themselves as having a “purer”, more romanticised ideal of the watches they own, and the latter taking a value-driven approach to looking at the craftsmanship of watches.

To some extent, the pandemic has also defined a new generation of watch collectors rather than destroying the market, thanks to online trade. And as we have seen over the past few weeks and months, prices have begun to fall, especially on some of the so-called “hype” watches which have experienced significant growth over the past couple of years. While this can be seen as more of a correction than a bubble bursting, we will be talking more about these latest developments later.

In some of our previous articles exploring whether the watch market is a bubble and the role played by auction houses in the market, we skim over the same unspoken question: can watches be seen as investments? Should we approach them as such? And, if so, what does this mean for the watch-collecting community? Is an institution built on shared passion and appreciation of fine craftsmanship threatened by the introduction of a focus on value and money?

Despite the strict binary that the title suggests, we are more interested in exploring how these groups define themselves, the circumstances that have led to their development, and the financial aspect associated with collecting and investing into watches. Eric Ku, the founder of the online auction house Loupe This and a keen collector himself, notes, “It’s a spectrum. You have those who are completely into investing on one side and those who are just in it for the passion on the other side. The truth is, 99 percent of people fall somewhere in the middle.”

To explore what lies at the heart of the collector’s mindset, we spoke to Dr Helmut Crott, the founder of Dr. Crott Auctioneers and a highly respected veteran of the watch industry. He said: “How you value a watch is a very personal matter and can depend on many factors. Initially, an emotional bond develops, which can be strengthened or reduced by external influences such as market trends and general desirability.”

Here, Dr Crott identifies a connection between the private and the public, highlighting the fact that watch collecting constantly negotiates a relationship between the watchmaker, the watch, the collector, and the community.

In Bill Brown’s Thing Theory, he suggests that our relationship with ‘objects’ and ‘things’ requires a certain level of intrinsic understanding – in this case, of the watches themselves and what they represent to us on a fundamental level as objects and as markers within our social and cultural groups. “As they circulate through our lives, we look through objects (to see what they disclose about history, society, nature, or culture – above all, what they disclose about us),” writes Brown. A watch is also a thing that makes up part of the materiality of a certain lifestyle or aesthetic, with their collective “thing-ness” making up what Brown calls “the magic by which objects become values, fetishes, idols, and totems”.

Watch-collecting as a hobby then takes on a life of its own. In addition to signalling the collector’s taste, knowledge, and appreciation, it also forms part of an identity. Someone who thinks of themselves as a “true” collector places value on knowledge, or on being able to discern and explain why a watch is important to them, even if the watch is a simple vintage piece from a now-defunct brand of the 1940s. Then there are the wearers and collectors of modern pieces, such as the Aquanaut or Royal Oak. Here, the watches represent an object with a value determined by modern society. Most importantly, they signal something about the wearer, representing a totem for someone who has chosen to wear a watch.

No one can put this end of the collector vs investor spectrum in better terms than Dr Thomas Mao, the founder of the popular forum Watch Pro Site, formerly known as PuristSPro. In an interview with the South China Morning Post, he is quoted as saying: “An inside joke among ThePuristS' old-timers goes: how do you tell a true Purist from those who are not? The true Purist most often forgets to even think about asking how much it costs.”

But even within Dr Mao’s statement there is this underlying idea of ‘cost’. Inevitably, we return to the idea of monetary value, which, no matter how passionate you are about a watch, cannot be ignored.

In the secondary market, resale values and speculation are of a greater concern compared to brand-new pieces. Prices for desirable models can double depending on various factors such as model, provenance, rarity, etc. There are a few pieces which get a lot of focus in this market, such as the Rolex Daytona, Patek Philippe Nautilus, and Audemars Piguet Royal Oak, with prices reaching previously unknown heights.

Of course, this raises the question: how far can this really go? Has the market truly reached an equilibrium, or is it a bubble currently bursting? As of June 2022, the results of several auctions over the past few months suggest that there has been a slight softening – or perhaps a stabilisation – of prices on certain models that have enjoyed a sensationalised rise over the past few years. Some examples include Rolex sports models and even the popular Nautilus 5711, one of which did not manage to sell at an Antiquorum auction in May.

Compare this against Chrono24 data. At its peak, a Nautilus 5711 sold for $237,727 in February 2022, while as of June 2022, the price has dipped to $192,802 – and is going even lower in some cases in private exchanges or Whatsapp groups. More recently, during the June 2022 Phillips auction, a 5711/1A-010 sold for just $170,000. Similarly, the Audemars Piguet Royal Oak Jumbo 15202 also reached its peak in February 2022 with $165,440, and has since fallen to $143,853; and the Rolex Daytona 116500LN reached a height of $48,723 in March 2022 but is currently sitting at around $44,573. Crucially, what these watches have in common is an almost exponential rise in price over the last two years, almost doubling or tripling in value. In these kinds of situations, it can feel a bit like a game of musical chairs or a feeding frenzy where one person is inevitably left “holding the bag”, and becomes the loser. The fact that prices are correcting themselves in this manner suggests that prices have far exceeded the intrinsic value of the watches themselves.

But despite this downturn on some of the most prominent pieces, the majority of the market does not seem to be similarly affected. Take, for example, the recent 1967 Cartier London Crash, showcased on LoupeThis, which reached $1.5 million. This was followed closely by the May auctions at Christie’s, where a later example from 1990 made in Paris obtained $819,000 – an impressive total for a relatively recent piece. Here, global factors, such as the Russia-Ukraine conflict, high inflation rates, and the downturn of the financial markets, must be taken into account. In many ways, it signals that the market is still in a period of fluctuation, although exceptional pieces will continue to stand out. The most recent price dips are mostly affecting the so-called “hype-watches” which have enjoyed a popularity fuelled by social media and intense speculation.

Dr Crott points to certain technological advancements enabling this shift in the market. “I see a significantly higher proportion of investors in the market today,” he says. “This is partly due to sales models such as online auctions, in which the potential buyer never had the watch of his desire in his hands, either before or after the purchase. That cannot generate the same emotions and attachment to an object.”

It seems that interest in specific watches and their corresponding prices is shifting because the collectors themselves are shifting, both in terms of taste and through conversations surrounding previously lesser-known watches. New information found online and on social media spotlighting certain brands or pieces also contributes to these changing tastes, while it comes as no surprise that an interesting backstory or historic connection can greatly contribute to a watch’s popularity.

The decline of interest in these hyped-up watches is almost as certain as the growth of interest in other pieces, which ultimately is part of a cyclical and constant change reflected within our own society. This will almost certainly repeat itself – but we are only left to wonder what lucky watch or watches might be chosen next.

The watchmakers themselves have largely been neglected when the topic of value comes up. Mike Shanlikian, a collector better known as @shani.watch on Instagram, notes: “Without collectors, there are no investors. But even before that, we have to go back to the watchmaker. The watchmaker is the one who has the vision, the craft, or the talent to produce a watch, or, you know, a mechanical piece of art. Then come the collectors. The collectors are the ones who develop the enthusiasm and the cult following for the product, and then people want to be part of that. Once that starts to happen, it increases demand, and once demand is increased, in come the investors.”

Social media platforms such as Instagram, where most of the watch community is based, have helped hugely in the development of the market. Before that, there were the forums, websites, and blogs dedicated to sharing passion – and, more importantly, knowledge.

Ku provided us with an excellent example of how a watch can go from obscurity into popularity thanks to the increase of information available online. “The white-gold Cartier Monopoussoir has kind of become legendary, and almost a kind of ‘nerdy’ watch that everyone loves now,” he says. “These were available for the longest time at like $15,000; that was the market price.

“Back then, nobody really took Cartier seriously as a watchmaking brand, and it was mostly seen as a piece of decorative jewellery. But after greater access to educational materials, collectors started taking notice of the watch and now they can reach $40,000 to $60,000 in price. This is a phenomenon led primarily by collectors, especially given the fact that they are being educated about things they might not have known about, seeing the merits of those things, and ultimately giving a higher value to these pieces.”

As a platform dedicated to sharing images, Instagram has made it particularly easy to feel as if you’re missing out on something by not owning a watch. Meanwhile, the sharing functions make it easy for collectors to spread the word about a watch and allow it to reach a wider audience.

Independent watchmaking has also benefited from the growth of the internet and online platforms. Finding out about them is half of the work – and collectors have begun to focus on these independents thanks to their dedication to traditional methods or simply because they go against the grain of pieces being produced by bigger, more commercialised brands. Recently, the value of these pieces has skyrocketed as people have begun to prize their work for what it is, rather than for the names they represent.

These independents didn’t have the advertising power or ability to get their names out there. “There’s always been a cult following for independent watchmaking,” says Shanlikian. “However, they weren’t always that well-known, and they weren’t proven, so a lot of collectors – mainstream collectors who also have an appreciation for watchmaking – buy more mainstream watches because they didn’t want to take a chance on the independents.

“I think, over time, they’ve gained more popularity and validation, and they have proved themselves. That has attracted more collectors, and obviously it’s a question of supply and demand. There’s a low supply and more collectors, [and] more demand … is going to drive up pricing. And as pricing goes up, in come the investors or the commodity buyers. We’ve seen both: more watch collectors get into independent watches, and a lot more investors come in as well.”

It is clear that these pieces tap into an emotional connection. Shanlikian tells us about his experience of commissioning a watch from Roger Smith: “When I ordered my first Roger Smith, the Series Two, I spent a lot of time learning about [his] story; about how he was an apprentice to George Daniels and designed the watch with him. I then flew over to the Isle of Man to visit him in his workshop and to meet his watchmakers. I spent some time with him, and he explained every detail of the watch to me. We spent a whole day going over the watch, so really, a lot of time and emotion is invested in the process.

“But someone buying a piece as an investment [spends] less time understanding the product and more time understanding the market, what makes it rare [and] what’s going to make it more valuable in the future.”

If we only consider investments, we can see that the watch market differs from the financial or even art market by virtue of the fact that it is easier to get an edge – to discover pieces that are truly special and unique – due to its smaller size. This has never been truer than in recent years, especially during the pandemic when newer, part-professional dealers have begun to flood the markets. Looking to flip watches to make a quick fortune, they capitalise on demand from a younger generation that has made their money from crypto-speculation or otherwise.

To be more UK-specific, considering watches as investments is slightly different from other alternative assets. Watches are not subject to capital-gains taxes, as it is expected that they will have a lifespan of less than 50 years and their value won’t hold over that period. Unlike a piece of jewellery or a coin or stamp collection, which does not have the same ‘expiry date’, cars and watches are not approached in the same way. Leaving aside the question of whether or not this is correct, it does make it a more attractive investment prospect.

When it comes to the practicality of investing and how to do it, we reach an interesting problem. Dr Crott says, “I think that if you see this as an investment, you have to have important pieces that you keep on a long-term basis – and that sort of long-term is the hardest to sustain.”

However, this does not exactly mirror the current state of the community. There are an astonishing number of ways to evaluate the market, which is fast-moving and at times unpredictable – especially if you are purely looking to make money from it. Auction houses are one way to gauge what is desirable, and are largely one of the most standardised forms of the market, aside from retail. However, many auction houses usually set an estimate range based on numbers that are out of date, as things move very quickly both publicly and privately.

There are also countless articles online purporting to give advice on the best pieces to invest in. Most of these headlines suggest a kind of urgency that mirrors the fast-paced nature of the market: “What are the best brands to invest in right now?” “How are watches a better investment than stocks?” The language used tends to be speculative (perhaps unsurprisingly, in the case of investments), but there is an emphasis on something that lasts, that holds its value, but crucially, that will only manifest in the future. Additionally, these articles attempt to single out specific watches or models that you could invest in, focusing on the features that make them attractive.

These headlines are certainly attention-grabbing, but they are rarely based in fact, instead attempting to capitalise on current trends. They also reveal the highly subjective nature of the watch industry, as it is nearly impossible to predict which pieces will eventually rise in value. Indeed, most of the online advice covers all bases by warning that not all of these watches can be counted on to increase in value over the years.

“[Collectors] used to ask me to take a look at their collection,” Dr Crott says. “For example, one client took a watch off the shelf and asked, ‘Tell me how much you would give me for this.’ I said, ‘OK, I can give you this much.’ Then he looked in his book and said ‘Oh, I bought this 40 years ago and your prices [have risen]; very good.’

“And then I looked at another watch and said I would give him this much, and he said ‘Oh no, I paid double or triple this price 30 years ago.’ You have to stay in the market over a long period. If you are always in the market, then you have pieces where the price has [probably] gone down, and then you have another piece where [the] market doubled. I think to stay in the market and not jump in and out is very important.”

But as the adage goes, why do it yourself when robots (or in this case, funds), could do it better? Watch funds have become fairly popular over the last few years and pool money invested by several individuals, with a manager who will buy, hold, and sell investments on your behalf. These investments often present more problems than they solve. For many, their very existence also poses the question – why invest in a watch that you are never going to wear?

Ku commented briefly on the practical operation of these watch funds. “As a regulated exchange fund, every quarter you have to have a valuation that states how much the assets are worth,” he says. “In terms of hard assets [such as] watches, you don’t exactly know what they’re worth until you sell them. Ultimately, there are just too many variables, like who is buying the watches, what their interests are, the quality, condition, and other things.”

However, according to Alfredo Paramico, who was previously the manager of the Precious Time fund (a subsidiary fund of the Luxembourg-based Elite Advisers), a watch fund is a good idea, although it can also be somewhat limiting if it functions exactly as a traditional fund would. “Watches cannot be considered just like any other asset class, because when you create a fund, you must raise money, but you also need to provide your investors with a monthly performance,” he says. “[This] means they can sell the shares of the fund every month, [and] the fund should give an estimate of its net asset value every month. You can easily understand that in a month, nothing much changes – you cannot buy a watch now and make money in a month, so the format was not really ideal.

“Unfortunately, the idea of investing in watches, combined with the net asset value evaluations, mounting equity, and the nature of investors is something that does not really go together. I personally felt a bit uncomfortable because I was almost forced to buy very liquid watches. For example, I had almost 70 Daytonas at any one time, which is fine, but I would have personally bought other watches because they would perform better in the long-term.”

This opens up the possibility of new forms of investing – but one that does require the investor to have some prior knowledge or understanding of watches. For example, when asked about his ideal fund, Paramico says: “If I had to set up a fund right now, I would have no more than 20 investors – all private investors, no small banks or institutions – and I would have a lockup period of five years. But most of all … [the] investors [would] know they have to keep the investment for five years. There will be no net asset value for five years – you buy and you hold.

“If you have to give a monthly valuation, it means that you need to create a performance, [and] this does not work for watches. You need to buy when the right watch pops up in the market. While buying is not the problem, you can’t just sell a watch whenever you want to; you need to have people willing to buy your watch as well.”

As an investment, longevity is key for watches, as keeping them for longer means that they will appreciate more in value. But collectors often argue that a watch is something that should primarily be enjoyed as a piece of art in its own right – its value and worth to the owner comes first, before its value in relation to everything else on the market.

How do we determine the value of a watch, and who is involved in that? For those who lean more towards a collector’s mindset, this is challenged by the fact that personal and sentimental value sometimes comes into play. The auction system highlights certain pieces, creating a buzz around some of them while also allowing collectors to determine ultimately what they believe the monetary value of a watch is. Brands and independent watchmakers also set the bar for what they think a fair price should be, taking a more business-minded approach to it. But these entities have to contend with the collector or investor in order to gain a greater share of the market, as it were, leading to an increasingly skewed idea of what value is. This is obscured by marketing jargon as each tries to distinguish themselves from the other.

We have documented the rise of auction houses in some of our previous articles, and their role has been significant in setting the value of pieces and raising a greater awareness of others, allowing for new records to be set. Alongside this is the rise of online auctions, which are fast becoming a popular way to allow collectors and investors to easily bid for their desired pieces from anywhere in the world. At its heart, the auction house provides a centralised, rough overview of what is currently available on the market and the direction it is going in, in addition to changing tastes and interests.

“Before the digital revolution, the auction results were the main relevant reference value,” says Dr Crott. “Today, collectors can use Google and other digital media to get an idea of the price of certain models, but the big international auctions are still the most important trendsetters.”

However, he also noted that while auction houses could provide the facts, interpreting these to gauge the market is a different beast entirely. “The classification of the auction results requires a great deal of specialist knowledge and can also be misleading for the layman, since only minimal differences in the same model can cause enormous price differences,” he says. “In addition, the auction results only represent a snapshot. It is the art of the watch expert or sophisticated collector to make their own assessment that looks into the future.'

When it comes to the role of auction houses, facts and data also become a way for others to value their own watches, adds Ku. “People love data points,” he says. “The best data points come from auctions because it’s a publicly acknowledged sale and ostensibly it means that you have a record of what something sold for.

“I think that’s a very powerful thing and auction results provide – at least right now, in an imperfect world that we operate in – solid data points to base things on. Take Chrono24, for example – it’s not the best arbiter of pricing, even though people love to use it like that, because if something is unsold, it usually means that its price is too high.”

There is one question that almost feels like it has to be whispered, in case it might bring the whole thing crashing down: where will this end? Can prices truly continue to rise, and will demand be able to match that? In terms of sales and auctions, Ku notes: “On LoupeThis, everything we’ve sold so far has been at no reserve. The reason we’ve been able to do that is we feel like the market is in equilibrium, so it will always [reveal] the true value.

“In the past, because the market was so small, it was more easily controlled, with the dealers dictating the direction of the market, especially in terms of pricing. However, now there are so many people that are genuinely interested in watches and collecting that dealers don’t have as much control over the market. In my opinion, it’s really collector-led right now.”

To some extent, this collector-led mindset has also contributed to the rise of hype pieces and the inflated prices of certain watches, complicating our understanding of value. In a conversation with the Robb Report, Dr Mao once again stresses that collecting holds a very different ethos from investing. “True collectors see the intrinsic value of whatever it is they’re collecting, and the market price is just the toll they have to pay to get whatever it is they’re after,” he says. “Collectibles are objects that people seek out nearly always with the goal of monetary appreciation. Collectibles are viewed as repositories of value. ‘If I buy this,’ people say of collectibles, ‘in the future I’ll have something that’s going to be worth 50 percent more or three times more than it is now.’

“The deals are where the widest deltas exist between intrinsic value and market value, the latter of which is usually defined by the punters and speculators. Collectors who know what they’re after can capture that value.”

The simple matter of supply and demand will lead us full circle back to the source – the brands and watchmakers who produce these timepieces. We hear about waiting lists for watches, low production numbers, and most of all, the idea of exclusivity.

Dr Crott says, “Watchmaking is a more than 500-year tradition, as can be admired in the Patek Philippe Museum. One gets the impression that most of the so-called watch collectors of today are only interested in the last 50 years of watchmaking. The object of desire is alienated by the mainstream [and] the marketing departments of the groups flaunting what you have and what others don't have. If something else is in demand tomorrow, then you separate and buy what is now in demand.”

Strikingly, by saying that “the object of desire is alienated by the mainstream”, Dr Crott is describing a fundamental disconnect between the watch as an object and the wearer – when the watch is no longer understood or appreciated for its intrinsic value. He correctly identifies it as an “alienation”: value is still determined by sale price and social capital, rather than a true appreciation of watchmaking and its tradition.

Can and should watches be investments? They most certainly can be, but whether they should be is a different question altogether. Those who do choose to treat their watches as investments must enter the market at their own caution, as it requires a keen eye, good timing, a huge amount of research, and a bit of luck.

But not everything is reduced simply to numbers and figures, as there still remains an irresistible allure that continues to draw new participants in the hobby. As Ku puts it: “The fun about watches is talking with people about it. You’re enthusiastic, sharing them, wearing it, whatever. It’s not about commodifying this into an asset class.”

At its core, and as we have seen in the most recent developments with hype watches, there will still be a separation between those who collect purely for the love of it, and those who are simply jumping on the train hoping to make a quick profit. Ironically, time and steady dedication are still required for a hobby that focuses on the romance of timekeeping instruments.