The Watch Fund: timepieces as a form of alternative investment
Investment in watches has gained quite a following over the years. Some people would even view building a watch portfolio to be just like building a portfolio of stocks.
There are various sites and ‘watch experts’ out there that believe in the ability of watches to provide a good ROI as an alternative investment asset class.
However, according to the Founder and resident Watch Expert of The Watch Fund, Dominic Khoo, 99.9% of watches in the market will not sell for a profit after purchase.
Much like cars that depreciate in value (sometimes significantly) over time, most watches will realistically not be able to generate returns.
Even if the retail price of the watch you bought somehow increases after a few years, selling it for a profit would still be challenging since you would still have to incur sizeable costs and fees to middlemen to do so.
So when can a watch be a worthy investment?
The first thing you should know is that there is no such thing as a brand of watch that is suitable to be considered as an investment.
Khoo states that there are only four ways (which sometimes overlap) whereby a watch will end up becoming an investment-grade piece.
1. First access
When you manage to obtain a watch before it even hits the market. This usually involves having the right network or loopholes to get them in the first place.
2. Price arbitrage
Being able to buy a watch below the retailers’ or distributors’ cost. Again this involves having the right connections and relationships to get them at a cheaper rate than what is available to other people.
Another possible way you could get the price down to very favorable terms is having the scale and resources to buy in large quantities.
3. Extreme limited editions
These pieces are usually reserved for VVIPs or those with exclusive access in the industry. Most of these watches are pieces that ‘money cannot buy’, whereby most of the time, the people who have them will not want or even need to sell.
4. Provenance pieces
Timepieces previously owned or worn by royalty, historical figures and other famous people.
So does that mean I should forget about investing in watches?
That’s the million dollar question. Unfortunately, most of us will not have access to these kinds of timepieces in the first place, even if we had the money to invest.
But The Watch Fund can be your way in. Its founders have access to these special types of watches due to their scale, shareholdings, vast experience and network in the industry that has been developed over many years.
How does it work?
The Watch Fund has a large proprietary database of more than 9,000 buyers and collectors who are frequently looking to acquire exquisite timepieces.
Due to the network and reputation of the fund’s founders, these end-customers know that, via the fund, they would be able to obtain watches that are either hard for them to find on their own or perhaps get them at a cheaper price than what a retailer would normally sell them for.
This is where you, as the investor, comes into the picture.
With a minimum investment of US$250,000, The Watch Fund will select an investment-grade watch (or watches) on your behalf for you to invest in, giving you physical possession of watches worth double the retail price of S$500,000 or more, for example.
If you happen to wonder why the fund is the one selecting the timepiece instead of you, the answer is simple: They are the experts who know which watches are in demand by the clients in their database and thus virtually ensuring that the product can be sold within a year for you to realise your investment.
What is even better is that during the investment period, you actually get to hold onto the watch. For some investors, having a tangible asset in their hands as a form of 'double collateral' makes them more comfortable with the whole investment process.
To provide further peace of mind, you can even ascertain the retail price or authenticity of the watch by bringing it to any retailer or expert to get a second opinion.
Once assured of the quality of the product, you will then keep the watch until the fund notifies you that an investor is willing to take it off your hands for a given profit margin.
How much can I profit from these watches?
On average, you should be able to see a 20% to 30% net yearly return on your timepiece.
It should be noted that the figure is a net amount since the Watch Fund does not require you to pay annual fees or management fees and there is no lock-down period on the investments.
Anything I should bear in mind?
An important thing to note as a watch investor, or any sort of investor for that matter, is that you should not hold any sentimental value towards your investment.
When the time comes to sell, you have to do it. Or else, it ceases to be an investment, but rather, a liability.
The Watch Fund investment agreement even reinforces this principle by giving you 2 chances to sell the watch once an investor submits an offer.
If you decide to reject the first one, either due to the offer not being good enough or perhaps you want to hold on to the watch for a bit longer, that is acceptable. However, you have to accept the next offer that comes along or else you will have to pay a close-out fee equivalent to 10% of the purchase price of the timepiece.
It should also be noted that aside from paying the 10% fee, the fund will also most likely not deal with you again in the future since you have technically broken the agreement to sell when required.
It’s about time
From a dollars-and-cents perspective, the returns from The Watch Fund can be an attractive proposition.
The fact that it has a ready pool of end-buyers increases the probability of realising those investment returns. As we all know, an investment is only as good as the likelihood of its liquidity event.
In addition, the 'double collateral' feature means that you actually have a tangible asset to hold onto during that intervening period.
While it is true that the minimum investment amount might be beyond the reach or appetite of many people, then again, this applies to practically all forms of credible alternative investments.
Whether you are just curious to try out The Watch Fund or simply want to invest in watches, bear in mind that investing in watches is different from most financial pursuits. The idea is not to end up being tempted to cling on to a watch that strikes your fancy, but rather to make those returns.
Ultimately, the aim of the game for any investor is to make money, and in this sense, The Watch Fund's objective is definitely in sync.