Photograph by Gina Binkley

The number of collectors vying for pieces at auction and through other channels has increased substantially in the last decade. Watch auctions today can easily attract 150 active bidders—live and via telephone and the Internet—whereas 10 years ago there would typically be only 20 or 30 bidders. The aftermarket has grown hand in hand with the Swiss luxury watch industry, which, after nearly collapsing under pressure from quartz watches in the 1970s, found new life in the 1980s as a status and lifestyle statement. Collectors’ understandings of fine watches, however, have sharpened more recently. "Prices in wristwatches have increased significantly since 2001, probably because people have come to recognize that a watch can be a real piece of art," offers Geoffrey Ader, watch expert at Antiquorum Auctioneers. Certain watches have shot up astronomically, with increases of 200 percent to 300 percent for certain complicated Patek Philippes. In general, prices are up 30 percent to 40 percent since 2000. "More people are becoming collectors, and it is this increase in people that is really driving the prices."

Big Bids
Many of the new collectors in the auction market possess significant means. "Many of the new clients are coming with large spending budgets of over $1 million," says Daryn Schnipper, director of Sotheby’s watch department. "Clients naturally drop out of the market, but for every large bidder that goes away, we seem to be seeing two ready to take his place."

No one in the auction business guarantees the rapid appreciation of the last few years will continue. But many point to the growth in the numbers of collectors as a sign that prices will continue to climb.

The watch companies themselves represent another breed of large bidder driving auction prices. Many of the top collector brands maintain their own museums. Each insists that its own purchases represent efforts to secure its patrimony rather than attempts to drive up secondary market prices, but the effect is, in the end, the same. "Many of the companies realized that all the historical and cultural value of their brands was tied up in the actual pieces that were produced over time," explains Antiquorum chairman and founder Osvaldo Patrizzi. "They were the best representations of the brands, and slowly the companies began trying at auction to buy back pieces that were missing from their collections. When a manufactory and an important collector start bidding against one another, these pieces can get very expensive indeed. I’ve seen many instances where the collector outbids the watch company."

The dynamic between such powerful bidders probably accounts for most of the truly astounding prices achieved thus far at auction. While spectacular sales like the $4 million Patek Philippe are rare, they nevertheless suggest the growing interest among buyers in the handful of brands, including Patek Philippe, Rolex and Vacheron Constantin, among others, being seriously collected. "What you have is a number of extremely wealthy people who want a particular watch and then hire people to complete the purchase for them," says appraisal expert and author Cooksey Shugart. "I wouldn’t really call it investing, because the price is less important than the watch itself."

The auction houses that earn their keep from these sales are not complaining. "Last year’s world record was an exceptional watch and an exceptional sale," notes Ader, whose auction house handled the record sale. "I would not, however, say that it was an anomaly. It was the result of passion. When three or four people want the same item very much, the price can go up dramatically. There is a small, but still reasonable number of watches that can fetch exceptional prices."

Passion, of course, is a frame of mind auction firms actively promote—and passion investing is marked by a far more complex set of emotions than the traditional pairing of fear and greed. Competition, pride and even hubris make themselves felt in an auction scenario. When the desire to best a rival bidder or gratify an obsession with a certain piece fuels the bids, the final price often more accurately reflects these idiosyncrasies than the presale estimate.

Rational Exuberance
Such circumstances are much more prevalent at the top end of the of the market, in the rare complicated watches likely to fetch mid six-figure prices and upwards. It is one reason the rest of the market, while appreciating, has failed to match the world-record price increases of some watches from the top houses.

Another reason: Collectors have become far more picky about what they buy. "Today’s watch market is maturing," says Schnipper. "In the 1980s, very few people were collecting wristwatches. Now that number has rapidly grown, and we can see shades of nuance in the way watches are valued. Much more information has become available as time has progressed, and the longer the category has functioned as a working market, the more awareness there is about what is truly rare."

"Collectors are becoming much more sophisticated," adds Ader, "and their level of education has increased dramatically. They’ve gotten wiser and now are very interested in the condition of the watch. If there’s something wrong with the dial, for instance, the value can go down tremendously."

"Many of the new clients are coming with large spending budgets of over $1 million," says Daryn Schnipper, of Sotheby’s. "Clients naturally drop out of the market, but for every large bidder that goes away we seem to be seeing two ready to take his place."

Auction houses emphasize the increased transparency in the way presale value estimates are derived. Tools like glossy catalogs and the Internet have made critical information such as provenance and condition estimates more easily available than ever before, and this, say the auction houses, has built collector confidence in auctions as a reliable source for watch purchases. Nevertheless, some collectors maintain that purchases on this scale ought not to depend on information provided by a single source, particularly one with a financial stake in the outcome. Collector groups and communities (many of them Internet-based) and, in some cases, the watch companies themselves, provide alternate, albeit labor intensive, paths of research.

If a curious mixture of rationality and emotion raises the cost threshold for buyers, a similar psychological concoction determines which brands and models attract the greatest attention. Pieces from Geneva manufacturer Patek Philippe garner the top prices. The company’s consistently high level of quality and historic model variety is simply unmatched, earning the brand an almost obsessive degree of collector loyalty. The remaining canon of brands that attract serious investment has always lagged rather far behind, but there are important signs of activity in this group as well. "Vacheron Constantin has always had an awareness among collectors for its great history and periods of very strong design," observes Patrizzi. "Now there is much more interest in the brand, as we’ve seen in the last few auctions. Part of this may be the upcoming 250th anniversary, but I see people looking at the brand as an alternative to Patek Philippe, particularly as the prices for those watches are so high."

But not every complicated model from these brands attracts equal attention. Certain types of complications have come in and out of vogue, adding an element of fashion to the valuation equation. Since the interest in the luxury watches is partly predicated on their capacity to convey prestige, some models have attracted the most attention. "In my opinion, people’s tastes for watches at auction resemble the Chinese market in the 18th and 19th centuries," offers Schnipper. "The pieces then weren’t acquired to tell the time. Rather, they meant to overtly display mechanical sophistication and status with features like automatons." Likewise today, the stopwatch function of the chronograph and the complex, gravity-compensating mechanism of the tourbillon create an interesting appearance in a watch and are preferred over more subtle pieces, such as chiming repeaters, that have the look of an ordinary wristwatch.

Demand is always difficult to predict, especially given the emotional and rather capricious nature of buyers responsible for the current price appreciation. No one in the auction business is willing to guarantee the continuation of such increases. But many point to the growth in the numbers of collectors as one factor that will keep prices climbing. "A new flow of people is the best thing that can happen to any market," says Aurel Bacs, international cohead of the watch department at Christie’s. "Many people in their middle age who’ve made their money are just discovering that watches can show more than the time. When you carefully select your items, you’re outperforming any other investment instrument, including real estate, stocks and currencies. It’s a dramatic statement, but the watch market is also very dramatic, and very lively."

"Maturity" is a term frequently employed by the auctioneers to describe the current state of the watch market. The implication is that the market has acquired a level of stability in which collectors can take confidence. "In 20 or 30 years’ time, the interest will still be there," suggests Ader "because even though it’s new, it’s very much like the collector car market. The interest is stable. We are very confident in the market over the next few years. Obviously there’s been a tremendous increase in prices—there’s no doubt about that. But we have a very healthy number of clients around the world, and there are always different clients involved when prices reach record levels.

Some collectors, however, aren’t so sanguine. While few will openly call it a bubble, some do point to an increased level of speculation in parts of the collecting community as a sign that passion collecting is not the only factor behind current pricing. Speculation may be a natural phenomenon in any market that has seen increases similar to those in fine wristwatches, but it also calls for vigilance. "There was a serious decline in the price of Patek Philippes in the early part of the ’80s,"offers Shugart, "so everything has its ups and downs."

Resources
Antiquorum Auctioneers
www.antiquorum.com

Sotheby’s
212.606.7000
www.sothebys.com

Christie’s
212.636.2000
www.christies.com