# The Collapse of The Luxury Watch Market - Why Have Secondary Market Prices Fallen So Much?

An episode of [Patrick Boyle On Finance](https://invisiblenetwork.ai/podcast/1547740313), 7 Oct 2024, 30 min.

Audio: https://traffic.megaphone.fm/APO6633799952.mp3

Send us a textPrices for the most in-demand luxury watches have been in freefall on the secondary market since March 2022 as a pandemic-era rally fizzled. Are luxury watches a good investment, how do watch prices perform in the long run?Patrick's BooksStatistics For The Trading Floor: https://amzn.to/3eerLA0Derivatives For The Trading Floor: https://amzn.to/3cjsyPFCorporate Finance: https://amzn.to/3fn3rvCSupport The ChannelPatreon Page: https://www.patreon.com/PatrickBoyleO...

## Transcript

[0:00] Hello and welcome. You are listening to Patrick
[0:03] Boyle on Finance, a podcast exploring ideas from
[0:06] quantitative finance, examining events occurring in markets
[0:10] right now and financial history to see what lessons can be taken
[0:14] away, including interviews with some of the most interesting
[0:17] people in the world of finance. To learn more about the podcast,
[0:20] visit on finance.org. Over the last few years, we've
[0:29] seen a number of assets spike in value, only to decline once
[0:33] interest rates rose at peak prices.
[0:35] There were all sorts of claims, both in the media and by people
[0:39] in the business of buying and selling them, that these were
[0:42] new asset classes and that everyone should consider
[0:45] investing in them. The spike in luxury watch prices
[0:48] is maybe a little bit more interesting than some other
[0:51] asset prices that rose rapidly in value in the pandemic years
[0:55] as watch prices started rising well before the pandemic.
[1:00] And while the pandemic era stimulus added fuel to the fire,
[1:04] there were a few other factors at play.
[1:07] At the peak, certain hype watches like the ceramic bezel
[1:10] Rolex Daytona, the Patek Philippe 5711 and the AP Royal
[1:16] Oak 50 IN202 were trading at multiples of their new prices on
[1:21] the used market. At the peak, Rolex boutiques
[1:25] were open with no watches available in the store and dummy
[1:29] watches on display in the window.
[1:31] A rather bizarre situation. It makes you wonder what the
[1:35] store employees did all day with the huge price spikes.
[1:39] An idea began to spread that what are mostly mass produced
[1:43] watches were now investments that you could buy, put in a
[1:47] safe, and maybe retire on one day.
[1:50] Collecting watches was no longer a hobby for wealthy
[1:53] connoisseurs, it was now pitched as a way for regular people with
[1:57] good taste to grow their wealth. To be clear, luxury watch prices
[2:02] have always seemed high. A high price is a basic
[2:06] requirement of being a luxury good, and the high price is
[2:09] frankly a part of their appeal. We've discussed the concept of
[2:13] Veblen goods in prior videos. These are goods that seem to
[2:16] contradict the basic economic laws of supply and demand, as
[2:20] demand for them increases as their price goes up.
[2:24] The term Veblen goods comes from the economist Torsten Veblen,
[2:28] who is best known for introducing the term conspicuous
[2:32] consumption. A difference between luxury
[2:35] watches and other luxury goods is that they tend to be more
[2:38] durable, both in terms of not wearing out quickly like
[2:42] clothing, cars, expensive foods or holidays.
[2:45] But many also appear to have stayed in fashion for decades.
[2:49] The hype watches of the last few years have designs that
[2:53] originated in the 50s, sixties and 70s.
[2:57] Swiss neutrality during the Second World War meant that
[3:00] while the major industrial nations were focused on military
[3:04] production, Switzerland could add a Corkscrew to its official
[3:08] army knife and continue making consumer focused goods.
[3:12] By the end of the war, the Swiss watch industry had a near
[3:16] monopoly on precision watches. By the 1970s, they controlled
[3:20] half of the world's watch market.
[3:23] The first quartz watch to be awarded certified status as a
[3:27] marine chronometer was introduced by the Swiss watch
[3:31] company Omega in 1974. But the Swiss were slow to
[3:35] embrace this new technology, and by the late 1970s, cheap quartz
[3:40] movements from Japan flooded the market, causing a significant
[3:44] decline in mechanical watch sales.
[3:46] Quartz watches were cheaper, more reliable and more accurate,
[3:50] meaning that watch production quickly shifted from Switzerland
[3:54] to Japanese brands like Seiko, Citizen and Casio.
[3:58] This was known around the world as the Quartz Revolution, as
[4:02] regular people could now easily afford a reliable and accurate
[4:06] watch, but in Switzerland it was called the Quartz Crisis.
[4:10] By 1983, the Swiss watch industry, which had 1600
[4:15] different brands in 1970, had declined to 600 in just thirteen
[4:21] years. That year, 1980, three the two
[4:24] biggest Swiss watch manufacturers combined to form
[4:28] SMH, which was renamed Swatch in 1986.
[4:33] The fashionable but disposable quartz Swatch watches are
[4:37] credited with saving the Swiss watch industry.
[4:40] But Swatch also consolidated some of the classic mechanical
[4:44] watchmaking brands and refocused them on the high end, reigniting
[4:49] the mechanical watch industry by no longer competing on price or
[4:54] accuracy, but instead on artistic merit and high end
[4:58] style. Much like the way Savile Row in
[5:00] London sold bespoke suits to the global elite, high end Swiss
[5:05] watch brands sold watches that competed on handwork and
[5:09] quality, not price. The modern luxury watch industry
[5:13] was born. I've worked in the finance
[5:16] industry for my whole career, and finance guys have always
[5:20] tended to wear nice watches. They're often the only jewelry a
[5:24] man wears, and they look good with a suit.
[5:27] There was a bit of a feeling back in the late 2000s that
[5:30] mechanical watches might go the way of the pocket watch.
[5:33] They were quite expensive, and young people had stopped wearing
[5:37] watches altogether. Offices had become more casual,
[5:41] and smartphones were replacing a lot of the consumer electronics
[5:45] people had bought in the past. Most of the people I knew who
[5:49] bought nice watches were not buying them as an investment,
[5:53] they were buying them as a consumption.
[5:54] Good watch prices had risen over time, but in a slow and stable
[5:59] manner. Back then, when someone thought
[6:01] of a watch as an investment, they expected it to dip in value
[6:05] once you'd paid retail for it, and then hoped that it would
[6:08] rise back to that value over time, maybe going up at the rate
[6:12] of inflation. Certain watches, like the
[6:15] stainless steel Daytona, which always had a long waiting list,
[6:19] traded at a premium in the second hand market as people
[6:22] would pay up to avoid the waiting list.
[6:25] But discounts could be negotiated on most other new
[6:28] watches, especially in the wake of the credit crunch.
[6:32] A few things changed in the 20 tens to kick start prices.
[6:37] The first was the rise of China in London.
[6:40] You can usually tell where in the world wealth is being
[6:43] generated by walking down Bond Street.
[6:46] The high end stores on Bond Street know where the shoppers
[6:49] are coming from and cater to their needs.
[6:52] When oil first hit $100 a barrel in 2011, shop windows were
[6:56] filled with goods catering to Middle Eastern buyers.
[6:59] When they started decorating Bond Street with red lanterns
[7:03] for Chinese New Year in the 20 tens, you knew that a new
[7:06] customer base had arrived. Rolex began selling watches in
[7:11] mainland China through one authorized dealer in 199525.
[7:17] Years later there were 160 stores.
[7:20] According to Morgan Stanley, 1/3 of luxury watches are bought by
[7:24] Chinese customers. This huge new customer base
[7:28] meant that demand was outstripping supply and prices
[7:32] started to rise. The next market moving event was
[7:36] the 2017 auction of Paul Newman's Rolex Daytona.
[7:40] It was a rare watch with a great back story and an iconic owner.
[7:44] It's $17.75 million auction price at Phillips Auction House
[7:49] in New York made headlines all around the world.
[7:53] In the same way that an NFT by an unknown artist selling for
[7:58] just under $70 million in 2021 drew attention to that market.
[8:04] A Rolex granted one owned by an A List celebrity, selling for
[8:08] such a high price attracted interest from people who might
[8:12] not normally have cared at all about watches.
[8:15] Watches were now no longer seen as consumption.
[8:18] They were an investment, and one that could rapidly appreciate in
[8:22] value. Watch forums were suddenly
[8:24] flooded with new members wanting to learn the details of watch
[8:28] collecting and what made one watch more special than another.
[8:32] As interest in expensive watches grew around the world, they had
[8:36] additional utility in many parts of the world where they were
[8:39] seen as a good store of value that could be easily transported
[8:43] across borders, and they could also be used to pay bribes.
[8:48] When the pandemic hit in 2020, there was a panic in the watch
[8:52] market as stores were being closed, people were losing their
[8:55] jobs, and businesses looked like they could go bankrupt.
[8:59] As the stock market tanked in early 2020, no one was rushing
[9:03] out to buy an expensive watch, and dealers rushed to liquidate
[9:07] their inventory as quickly as they could.
[9:10] The extraordinary measures taken by governments and central banks
[9:13] around the world quickly calmed the market, and as stock
[9:17] markets, crypto and everything else soared in value, the watch
[9:21] market took off too. Supply chain disruptions during
[9:25] the pandemic meant that certain watch parts, like main springs,
[9:29] were in short supply. Watch manufacturing, which
[9:32] involves specialized workers working closely together, was
[9:36] very difficult to arrange during a time of social distancing.
[9:39] This meant that as demand was ramping, there was a big drop in
[9:43] production. Morgan Stanley data shows that
[9:46] Swiss watch exports fell by 7 million units in 2020, a 33%
[9:53] drop. Watch prices really took off
[9:56] when lockdown ended in most parts of the world in 2021.
[10:00] In Western economies, there was a real wealth effect as people
[10:04] had stayed at home during the pandemic, their jobs had been
[10:08] secure, and they had saved money by being unable to take
[10:11] holidays, eating at home and not buying new clothes or cars.
[10:15] Some had even started investing, and the stock market had soared,
[10:19] in particular the stocks favored by retail investors some had
[10:24] knew well. Due to soaring crypto markets,
[10:26] luxury goods, especially watches, saw unprecedented
[10:30] demand. A quick glance at this chart of
[10:34] used Rolex prices from watchcharts.com tells you all
[10:38] you need to know. Celebrities and influencers
[10:41] jumped on the watch trend too. Many had spent the pandemic
[10:45] scamming their audiences with crypto rug pulls, fake charities
[10:49] and luring them into gambling on illegal websites.
[10:52] They jumped on the watch trend, making videos of their lavish
[10:56] purchases. Some bought fake watches and the
[10:58] watch dealer Nico Leonard grew huge on YouTube calling them
[11:03] out. He would have gotten much bigger
[11:05] if international viewers could only understand an Irish accent
[11:09] which isn't actually actually an accent.
[11:11] It's well known that Irish people speak perfect English and
[11:14] people in other countries have strange accents that no one can
[11:17] understand. I shall.
[11:19] Judge whether it is nice to meet you.
[11:21] This is bud field by your actions, not your uppity words.
[11:28] We'll be back after a quick break.
[11:30] It's like our brains have a mind of their own when it comes to
[11:32] money, right? Yeah.
[11:33] It's crazy. We're diving into that today,
[11:36] how our brains really deal with money.
[11:39] We're going deep on this one, looking at money and how we
[11:41] decide behavioral research. This stuff is like eye opening.
[11:46] Seriously, it turns out our brains aren't always rational,
[11:49] especially with money. No kidding.
[11:51] So what's the deal with that? Why are we so bad at making, you
[11:54] know, sensible financial decisions?
[11:56] Well, our brains are kind of lazy in a way.
[11:58] They love taking shortcuts. When stores reopened after
[12:05] lockdown, social distancing meant that retailers could only
[12:09] let a few people in the stores at a time.
[12:12] Long lines of people standing 6 feet apart and velvet ropes
[12:17] quickly appeared outside luxury watch stores.
[12:20] Marketing experts will tell you that the appearance of demand
[12:24] can create it's own demand. People tend to want things
[12:27] simply because other people want them.
[12:30] A friend who works in the luxury watch industry tells me that
[12:34] there were always watch flippers who would join waiting lists for
[12:37] in demand pieces, knowing that they could flip them to a
[12:40] secondary market dealer at a profit.
[12:43] That group exploded when in demand watches could be sold A2
[12:47] to five times their recommended retail price.
[12:50] She told me that Co workers would stab each other in the
[12:53] back to give an in demand watch to one of their clients, even if
[12:57] it had been reserved for someone else's customer.
[13:00] At Rolex stores, certain watches had always been hard to get, but
[13:05] in 2022 all Rolex sports watches were allocation pieces and the
[13:10] store windows only had dummy watches on display which had no
[13:14] movements in them. AP watches, which had a few
[13:18] years earlier been sold with a discount, now had long waiting
[13:21] lists. The luxury watch market peaked
[13:25] in September 2022, and when prices began to decline, dealers
[13:30] who had been hoarding watches started to sell.
[13:33] They didn't want to be left holding the bag.
[13:35] Flippers left the market when used prices were roughly 20%
[13:39] above RRPA. Dealer explained to me that used
[13:43] watch dealers want at least a 20% margin on sales.
[13:48] So when a watch is trading on the secondary market market at
[13:51] 20% above recommended retail price, they can only buy it from
[13:56] a flipper at RRP, meaning that there's no profit in the deal
[14:00] for the flipper. This meant that waiting lists
[14:03] evaporated. You can see in a chart of luxury
[14:06] watch prices that the price decline began in March 2022,
[14:11] which was exactly when the US Federal Reserve started hiking
[14:15] interest rates. Higher interest rates will have
[14:18] had a few effects. Firstly, the reason interest
[14:22] rates were being hiked to begin with is that inflation was
[14:25] biting all over the world, and inflation in essential goods
[14:29] like food and fuel meant that buyers have less money to spend
[14:33] on luxuries. Second, watch dealers usually
[14:36] borrow money to pay for their stock.
[14:39] When rates go up, it becomes more expensive for them to hold
[14:43] that stock, so they mark down watches to sell them.
[14:47] Thirdly, in many countries 30 year fixed rate mortgages are
[14:51] not available. An interest rate hike meant that
[14:54] consumers around the world had higher monthly mortgage payments
[14:58] and less money to spend on things like watches.
[15:02] Interest rates were not the only thing hitting watch prices.
[15:05] While the rest of the world had unlocked after the pandemic,
[15:09] China had extreme restrictions in place for much longer.
[15:13] Property prices in China had collapsed, and property is the
[15:17] main investment vehicle in China.
[15:20] Crackdowns on corruption also meant that wealthy Chinese
[15:23] business people were no longer flaunting their wealth.
[15:27] Rushir Sharma wrote an interesting piece in the FT last
[15:31] week called It's no Longer Glorious to get rich in China.
[15:35] It's dangerous. He described how last month
[15:38] Colin Huang attracted headlines when he rose to become Chinas
[15:42] richest man. Shortly after the headlines
[15:45] appeared, he surprised investors in his company with a downbeat
[15:50] profit forecast, tanking the stock.
[15:53] His net worth fell by $14 billion overnight and Zhang Shan
[15:57] Shan was now China's wealthiest man.
[16:00] Within 24 hours, Shan Shan's business Nong Fu Spring issued
[16:05] its own profit warning and he too fell from first place on the
[16:09] rich list. Sharma explains that under XI,
[16:12] nobody wants to be the richest man in China, so the huge demand
[16:16] that had come from China a decade or more ago was
[16:19] evaporating. In the rest of the world,
[16:22] pandemic stimulus and the wealth effect it had caused was gone.
[16:26] On top of that, when expensive watches, which had once been
[16:30] steltwelled, were being flaunted by influencers online, other
[16:34] people started to notice how valuable they were.
[16:37] According to USA TODAY, watch crime, which had once been a
[16:41] niche problem, went to being front page news as violent St.
[16:46] robberies exploded. The number of watch thefts
[16:49] tripled in 2020, too. The Watch Register reported that
[16:54] watches had become a currency for criminals and owners were
[16:58] becoming afraid to wear their timepieces in public.
[17:02] For most people, if you can't wear a watch, there's no point
[17:06] in owning it. To top it all off, the huge
[17:09] demand that watch brands had seen meant that if they didn't
[17:13] either increase production or increase prices, they were just
[17:17] leaving money on the table. My watch dealer friend described
[17:20] to me how allocating a hard to get watch to a customer was like
[17:24] handing them between 10 and $50,000 as a gift as that
[17:28] customer could just walk around the corner and flip the watch at
[17:32] a huge profit. Watch brands pushed up their
[17:35] prices but also, once COVID lockdowns had ended, started
[17:39] increasing production. Rolex announced that they're
[17:43] opening 3 temporary factories next year, which will be
[17:47] replaced with a permanent facility in 2029.
[17:51] To give you an idea of how much production has grown over the
[17:54] years, Rolex, who has never previously published production
[17:58] numbers, recently released the official Submariner book.
[18:02] The book only gives production numbers on the diving watches,
[18:06] but if we look at the black bezel stainless steel
[18:09] submariners in the 1950s and 60s, they sold around 10,000
[18:14] units per year. They doubled production to
[18:17] around 20,000 a year in the 1970s.
[18:20] From the the 1980s through to the 20 tens, they sold 35,000
[18:25] units per year on average. With the introduction of the
[18:28] ceramic bezel model in 2010, production increased to around
[18:33] 60,000 units per year. This is just for the black Bezel
[18:38] Stainless steel Submariner, only a small part of their overall
[18:42] business. In 1954, the first year of
[18:46] production, a Rolex Submariner cost $150.00, which inflation
[18:51] adjusted is $1750 in today's money.
[18:56] Today, a Rolex Submariner costs a bit over $10,000, which is
[19:00] almost six times the original price.
[19:03] As we just saw, they're making six times as many too.
[19:07] All of this in a shrinking market for mechanical watches,
[19:11] making it all the more impressive.
[19:14] It's estimated that across all of their models, Rolex produces
[19:18] 1 and a quarter million watches per year.
[19:21] So despite what people tell you, these things aren't exactly
[19:25] rare. For context, Toyota built one
[19:28] and a half million Corollas per year, and cars are usually
[19:31] scrapped after around 13 years. While these watches can last
[19:36] forever, many are stored carefully in Winder boxes in
[19:40] perfect like new condition. My watch dealer friend tells me
[19:43] that despite what you might think seeing all of the young
[19:46] influencers talking about watches online, the typical
[19:49] buyer is still businessman over the age of 40.
[19:53] That's who can afford them and that's who finds them
[19:55] interesting. I'm told that young people
[19:58] aren't really interested in watches at all, other than some
[20:01] whose father buys them a watch as a graduation present and gets
[20:05] them hooked young. One change in the watch market
[20:08] is that women have become much more interested in mechanical
[20:12] watches. They're often.
[20:13] Knowledgeable about complications and more watches
[20:16] are being designed for them than were in the past.
[20:19] A Rolex dealer recently told me that as the hype came to an end,
[20:24] gold watches were the first to fall below retail price on the
[20:28] used market, as these watches are the most expensive to buy,
[20:31] meaning that there's a smaller market for them and and they're
[20:35] expensive for used dealers to keep in stock if they can't be
[20:38] sold quickly. Amusingly, I was told that
[20:42] buyers were at first frustrated to see the display only dummy
[20:46] watches in store windows back when there were shortages, often
[20:50] feeling that they were being lied to.
[20:52] Now that authorized dealers have real watches back in stock and
[20:56] on display, they find themselves having to explain to potential
[21:00] customers that they can actually be bought a new problem.
[21:04] A similar dynamic seems to be working itself out in the
[21:08] classic car market. A classic car dealer described
[21:11] the recent Pebble Beach classic car auction to me as a
[21:14] bloodbath, with the most expensive cars doing the worst.
[21:18] Apparently, cars from the 1950s and 60s that were priced above
[21:23] the $1,000,000 mark either didn't sell or sold below the
[21:27] low end of their price estimates.
[21:29] A 1938 Alfa Romeo 8C, which had been stolen and recovered, sold
[21:35] for $12.7 million. The insurance company AIG was
[21:39] selling it after paying out $23 million when it was stolen two
[21:44] years ago. When it was recovered, it
[21:46] belonged to the insurance company and they lost a bid over
[21:50] $10 million on the sale. Newer classics from the 1990s
[21:55] and 2000s did quite well at Pebble Beach.
[21:59] These are usually cheaper cars and of interest to a much
[22:02] younger demographic. One sale which would not be
[22:05] considered a bloodbath for the seller was a Ferrari F50 which
[22:09] sold at a new record price. Some of the dip in blue chip
[22:14] classic car prices from the 50s and 60s is being blamed on
[22:18] boomers selling their collections, and the younger
[22:21] buyers either being less able to afford the high prices that they
[22:24] previously traded at, are just less interested in cars of that
[22:29] era. This is of course one of the
[22:32] risks of collectibles. Sports or diving Watches grew
[22:35] hugely in value over the last 70 years, partially driven by
[22:39] trends like the casualisation of menswear, something which would
[22:44] have been difficult to predict in 1954 when the Submariner was
[22:47] introduced. James Bond wearing a diving
[22:51] watch with a suit in 1962 would have seemed unusual at the time,
[22:56] but it started a trend that's lasted until today.
[23:00] In the way that young buyers are less interested in the cars that
[23:03] boomers collect, we can't be sure that wrist watches don't go
[23:07] the way of the pocket watch, which, while still collectible,
[23:10] are of interest to a much smaller group than wrist
[23:13] watches. We have to wonder how relevant
[23:16] the Paul Newman Rolex Daytona will be to collectors in 50
[23:20] years time, when many people under the age of 30 just think
[23:24] of Paul Newman as the man who invented salad dressing.
[23:28] If watch collecting were to become more of a niche hobby,
[23:31] the most mass produced watches might see demand dry up,
[23:35] especially when there are safes full of perfect examples
[23:38] complete with boxes and papers which have hardly ever been
[23:42] worn. Fashions can change quite a bit
[23:45] too. Everyone likes to think that the
[23:47] things that they like will stay in style forever, but there are
[23:51] lots of older watches that just look really dated today and
[23:55] never ran up in value, even ones that were associated with an A
[23:59] list celebrity. We usually value investment
[24:02] assets by looking at the cash flows they'll generate or by
[24:06] looking at the prices comparable products trade at.
[24:10] I've talked quite a lot in the past about the Global Investment
[24:13] Returns Yearbook by Dimson, Marsh and Staunton, who have
[24:16] built the best time series of financial returns in existence
[24:20] with data going back to 1900. Each year they update the
[24:24] yearbook and publish some new research.
[24:27] In 2018 they added a time series of collectibles as wealthy
[24:32] individuals often have substantial holdings of non
[24:36] financial assets. Things like luxury homes,
[24:39] artworks, jewelry, fine wine, classic cars, musical
[24:42] instruments, rare books and more.
[24:46] The blue bars on the charts show the percentage of wealth held in
[24:50] non financial assets broken down by country.
[24:53] At the low end of the scale we have the Netherlands where
[24:56] people have 17% of their net worth in non financial assets.
[25:01] At the other extreme we have Russia where people keep 89% of
[25:06] their net wealth in non financial assets.
[25:09] Americans keep about 23% of their wealth in non financial
[25:14] assets. People own these assets for a
[25:16] long list of reasons, many of which are non financial, but
[25:20] they usually do want them to at least hold their value.
[25:24] They're usually purchased because their owner views them
[25:27] as beautiful, culturally important, and they express some
[25:30] of the personality of the owner. This chart shows that around 6%
[25:35] of ultra high net worth individuals assets are held in
[25:39] collectibles. When we look at the financial
[25:42] returns of investing in collectibles over 117 years, we
[25:47] can see that they all significantly underperformed the
[25:50] stock market. A dollar invested in high grade
[25:53] collectibles in 1900 was worth $30 by 2017, while a dollar
[25:59] invested in global equities was worth 387, $7.00, a significant
[26:05] difference. The best performing collector
[26:07] assets were collector cars and wine, with rare books and art
[26:12] being the worst. Jewellery came in right around
[26:15] the middle. The analysis didn't include
[26:18] luxury watches, so jewellery was possibly the closest thing to
[26:22] watches on the list. The researchers only included
[26:25] assets for which they could build a reliable, high quality
[26:29] time series. The professors warned that while
[26:32] collector cars did generate the best returns of the collectible
[26:36] studied, that doesn't mean that they'll do the best going
[26:39] forward. Some of the reason cars did so
[26:42] well is that they wouldn't have been considered collectibles
[26:45] early on, and a lot were scrapped.
[26:48] The professors advise against extrapolating rare automobile
[26:52] prices into the future. Whenever thinking about
[26:56] investments, one of the first questions we have to ask
[26:59] ourselves is how the broad asset class performs and what the
[27:03] drivers of returns in that asset class are.
[27:06] This allows us to step away from seeing a recent spike in returns
[27:10] and deciding that the old rules no longer apply.
[27:14] The reason stocks outperform bonds in the long run is not
[27:18] just because they have in the past, but because investing in a
[27:21] stock is the same as owning a small part of a business, and
[27:25] you can expect your stock market investments to grow at the rate
[27:29] of earnings growth in the long run.
[27:32] Owning bonds is lending money to a business and your return is
[27:35] the interest rate on that loan adjusted for how likely the loan
[27:40] is to be repaid. The return on collectibles will
[27:43] be driven by inflation, scarcity, and the changing
[27:47] cultural importance of that collectible over time.
[27:51] In certain cases that can favor you, and in other cases it can
[27:55] harm you. When people talk about the
[27:58] market in luxury watches collapsing, we have to ask if
[28:02] prices are really collapsing or just returning to something a
[28:06] bit more normal. Just because prices are cheaper
[28:09] today than they were in 2022 doesn't mean that there are
[28:13] great bargains out there to be picked up.
[28:15] A lot of bubbles formed over the pandemic years, driven by low
[28:20] interest rates and huge sums of money being pumped into
[28:23] economies around the world. There's still plenty of fraud in
[28:27] risk assets today, as can be seen by meme stock prices and
[28:31] the recovery of crypto prices, both of which can probably be
[28:35] used as a metric for investor complacency and the willingness
[28:39] to take financial risk. The best advice I can come up
[28:43] with for buying collectibles is that if you can't afford them,
[28:47] it's totally reasonable to buy the things you love.
[28:50] If you're not a dealer, there's a good chance that you'll buy
[28:53] these assets and never sell them, and so the financial
[28:56] return shouldn't matter too much to you.
[28:59] You don't need to lie to yourself and pretend that all of
[29:02] your purchases are investments. Dealers will want you to feel
[29:08] that way, as obviously no one wants to lose a lot of money by
[29:11] overpaying for something. But if you want a nice watch and
[29:15] you can't afford it, buy it and wear it.
[29:18] And if you want a nice car, buy it and drive it.
[29:21] If it falls in value, at least you'll have enjoyed the
[29:24] ownership experience. Thanks for tuning into this
[29:27] week's podcast, with special thanks to our supporters on
[29:30] Patreon who make all of this possible.
[29:33] Have a great week and talk to you again soon.
[29:36] Bye. If you enjoyed this episode, be
[29:39] sure to subscribe so you're notified when a new episode is
[29:42] posted. Thank you to everyone who is
[29:44] supporting this content on Patreon.
[29:47] If you enjoyed this content, you can find more like it on
[29:50] YouTube, on the Patrick Boyle on Finance channel, or follow us on
[29:54] Twitter at Patrick E Boyle. Thanks for listening.
[29:58] Bye.

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