Over at Horolonomics, Economics Professor Brendan Cunningham offers perspectives on the watch industry that only an economics professor could. This time, he’s taken on the “watch safety net,” proceeding to answer the question of why so many of the rich and famous (especially those engaged in dubious affairs) seem drawn to parking significant sums of money in luxury timepieces.
Take Vladimir Putin (a collection worth 6x his salary), former Vietnamese emperor Bao Dai (link to his unique Reference 6062 Rolex moonphase which hammered for $5.1 million in 2017), and Sepp Blatter (poor guy just wants his watches back!), the disgraced former FIFA president as examples: All had famous (or infamous) watches or watch collections. But why watches, specifically?
Professor Cunningham’s explanation? The need for liquidity. He writes:
If your profession involves a great deal of risk then you want to be able to act quickly when the barbarians are at the gate, whether those barbarians are an illness which doesn't allow you to play on a field or whether they are an angry mob who have overthrown your government. And luxury watches check that box almost perfectly.
In short, watches have a great deal of “moneyness.” They’re very liquid. Sure, they’d don’t sell right away (we’ve all had that watch that sits on the forums for ages, no matter the amount of “bumps” you give it). But, most watches (especially the Rolexes, Pateks, and Audemars Piguets the rich and famous tend to fancy) can be moved in a couple months.
Watches have a great deal of what economists call "moneyness." They are very liquid. They're not as liquid as currency, itself, but almost. Data from watchpricetrend.com shows that, on average, it takes 45 days for a wide range of Swiss watch brands to sell. Watches can also serve as easy collateral for short term loans (pawning, etc).
This also contributes to the demand for watches with extremely high prices. Professor Cunningham again:
But if you use a watch as a source of emergency liquidity then the higher its price the more liquidity it provides to you on short notice. Therefore, the motivation to buy a watch actually strengthens as its price increases.
After all, if you’re a dictator and need cash quick, there’s always another up-and-coming dictator that’ll happily buy your watch from you.
For Brendan’s entire theory on the “Watch Safety Net,” head to Horolonomics.