Bubble or not bubble?

To fall or not to fall?

What about questions that are emerging about speculation in watch prices? Many individual investors are wondering about a possible market reversal.

Decoding.

When talking about investments, it is important to differentiate between two concepts : speculative bubbles and market developments.

The mother of all speculative bubbles

Market phenomenon well known to investors, speculative bubbles can be as profitable as they are destructive to individual portfolios.

This notion of a “bubble” originated in the Netherlands in 1635 with the “tulip mania” when the wealthiest people snapped up future tulip bulbs (thus creating the world’s first futures market).

Speculative bubbles are characterized by a clear pattern:

• Prices increase excessively and continuously or almost continuously for a longer or shorter period. These are known as?euphoric phases.
• The market value of the asset is too far away from its real value and nobody wants to be the “last buyer” anymore. This is known as a?capitulation phase.

Speculative bubbles are often misinterpreted as a negative, but they often reset the scales by realigning market value with real value.

They do not necessarily lead to the disappearance of the underlying assets or the destruction of the market: tulips still exist, as does the internet and its digital economy.

Market developments

The watch market is an increasingly dynamic market thanks to the massive arrival of two buyer profiles :

• A new international clientele, mainly from the Persian Gulf countries and Asia.
• Millennials who are adding a new dimension to watchmaking : value over time. This generation combines a passion for beautiful objects with the value / non-discounting of the asset. A watch is no longer a simple accessory, it is now a passionate investment.

These thirty-somethings are not mistaken, educated by a singular line:

“If you don’t have a Rolex by the time you’re 50, you’ve failed in life.”(1)

Alongside these new buyers, watches are increasingly acting as safe havens, especially during periods of economic uncertainty(2).

While gold remains the best-known safe haven and has many advantages, it has one major disadvantage compared to watches : a lower return.

To fall or not to fall then?

While it is impossible to visualise the future, it is possible to try to predict it.

With the second-hand market growing by 8% per year until 2025(3), and a new wave of passionate buyers, it is difficult to imagine the watchmaking sector collapsing as it did during the arrival of quartz movements in the 1970s and 1980s.

However, the decrease in the price of certain pieces suggests the end of the speculative bubble that began several years ago.

Models whose value is considered overvalued by buyers will see their price decrease for several months before finding a balance between supply and demand.

Hence the need for the particularly careful selection work that we are prepared to do for and with you.

(1)?Quote of Jacques Séguela, famous french celebrity

(2)?Iceland during the 2008 subprime crisis is probably the best example to illustrate

(3)?Boston Consulting Group “The Secondhand opportunity in hard luxury”, 30th?september 2020