Welcome to the Watch Quant podcast, where we discuss watch markets backed by numbers.
This podcast is here to help you make smarter decisions about your watches and your watch portfolio.
Because we see your timepieces not just as accessories, but as crucial pieces of your portfolio.
And so this isn't the Hodinkee podcast as much as we do love Hodinkee.
We are not here to wax poetic about the aesthetics or the feeling of wearing a watch, although those things do count.
Instead, we are here to dive deep into the watch markets, covering popular, surprisingly undervalued, overpriced, and volatile watches.
While we focus on markets and the specifics behind them, we'll analyze trends, we will spot hidden gems,
and we will understand market drivers behind the price movements that you see.
Join us as we explore the exciting world of the watch markets, uncovering their secrets and the opportunities at hand.
Remember, we are not here as investment advisors, and so anything you hear on this podcast is not meant to be investment advice.
Always do your own research and, of course, consult with your registered investment advisor before making any investment decisions.
All right, so as a quick recap on the last episode, our inaugural episode, we discussed the watch to watch of the week.
We discussed the top 19 movers of the week as well, and it was important for us to discuss the purpose of this podcast.
Now, I will always reiterate that purpose in the intro, as we've just done.
We do not ever plan on discussing what's prettier or what's cooler,
but we will discuss the market dynamics of what's pretty and what's cool because that is all part of the watch market.
The watch markets are unique because they're not just accessories.
They're also not simple financial instruments, which are generally paper or digitized.
Watches are tangible. They're style. They are accessories, but they're also investment.
They have material value made of gold and platinum and palladium and all sorts of beautiful craftsmanship.
Their art, just like art, has no necessarily intrinsic value.
It's paint on a canvas, but art is valuable because of the beauty of it, and watches are in a very similar boat.
So we're going to be covering today a very special piece of analysis that we've put together on WatchQuant.
We put this together a few weeks back, and I mentioned it yesterday on one of our social media posts.
Interestingly, I've had a couple of people reach out to me and say, you know what? I don't really get it.
Will you explain what this is? What is this saying?
And that's exactly what I'm going to do here on this podcast.
So let's get into what we call the value yield curve.
So when you hear the words yield curve, you probably think, oh, like bonds, right? Well, sort of.
The reason why we call the value yield curve a yield curve is because with watches, while they don't give a return necessarily like a bond will,
they do provide some sort of return, positive or negative, when you buy something at MSRP.
So if you go to the store today to a Rolex boutique or if you've gotten called by your AD, you go to the Rolex boutique,
and they offer you a Rolex Cosmograph Daytona.
And we're going to be talking about Daytonas today because specifically Daytonas are the really the best example of where this yield curve is kind of interesting to look at.
If you look at a Daytona and you go to the boutique and they offer you a 116500, that's the most basic model.
It's a beautiful watch, stainless steel, the Cerachrom bezel, and it's probably the most demanded watch in the world, even now.
If you look at that watch on a graph, it trades for 25 times its intrinsic value beyond MSRP.
And therefore, the yield is 25 units of intrinsic value.
What do I mean by intrinsic value? When I say intrinsic value for a watch, I mean essentially melt plus a little bit of value for the craftsmanship, right?
Because yes, watches are pieces of art, but they're not unique.
So they're not one of one. Therefore, the intrinsic value has to be capped somewhere.
For a solid gold watch, it'll be basically what is the melt value of that solid gold plus a little bit.
For a stainless steel watch, it'll be what is the value of that stainless steel plus say a couple hundred bucks for the amazing labor that went into it.
And that's about that. So what we usually measure for a Rolex Daytona is about $500 of intrinsic value.
Not because the steel is actually worth that. 904L steel is beautiful steel. It's excellent, but it's not worth $500 for five ounces of steel.
No, it is worth probably $50 for five ounces of steel, maybe less. But we at least give the benefit of the doubt to Rolex and say, hey, you know what?
500 bucks. So if that is and we're being pretty conservative here when we put this curve together.
And by the way, you can take a look at this curve anytime you'd like by going to our watch to watch and then clicking on the collection Daytona button.
It's at the top of that watch to watch list. And it's there because the Daytona is perhaps the most interesting piece of the watch market to take a look at, to understand what's happening for watches, period.
Now, of course, as I've said before, and I'll say it again, we do not cover every watch here. We will not be covering Hamilton. We won't be covering most brands.
In fact, we're going to be covering, we're covering Oris, even though they have some cool watches this year, right?
We're going to be covering the top five to six brands. Our website is basically indicative of what we cover.
Rolex is probably the biggest brand in definitely the biggest brand in the world. We also definitely cover the other the others of the top two.
After that, AP and Patek. We don't cover Richard Mille because they are not liquid enough to be to really be worth studying in this kind of way.
And also as much as they are hyped and as cool as they look, they do look a little bit like the ones you got out of the vending machine.
Sorry, guys. I just being honest, like this is what they look like to me. I know that they're epic. I know there's amazing horology going on there, but we're not going to this isn't hoedinkie.
We're talking about markets and let's talk about something that we can actually look at as a market.
So the Daytona, the family Daytonas, modern Daytonas, that is the six digits are really interesting case study in this market value yield curve because, as I said before, the steel models trade at 25 times their intrinsic value beyond MSRP.
So you take MSRP out of the picture. If you go to the boutique, you buy the watch for $15,000. Now you have spent $15,000. You take that out. You have $30,000 watch. You still have $15,000 left over.
If you multiply the approximate intrinsic value and what you end up left up with is a factor of 26 times or actually 30 times at 30,000. But the price has gone down slightly since then.
So we see on our chart, if you again follow along with me and you had to watch quant.com backslash DL backslash Rolex dash Daytona, or if you just go to the watch to watch tab and click on the collection Daytona button, you'll see the case study right at the very top.
It's a two line graph. So that's it's a line graph and it goes above 40 and below 40. I'm sorry, above zero and below zero up to 40 at the top and down to negative 60 at the bottom. So this is a it's possible for you for something to have a negative intrinsic value and also the other line, which represents a negative or positive hype factor.
And that word probably sounds a little bit strange to some of you, but the word hype is simply representative of different from demand of the amount of media coverage that a given white watch gets.
So we measure that we have hundreds of data points that go into that simple measure. And it's really important because if you don't understand the hype behind a watch, then you can't understand why a watch is trading in certain aspects.
You can't or at certain prices. There are multiple aspects. In fact, in fact, I've written emails about this. If you check your emails a couple of weeks back, we wrote a five piece article about what makes up the watch price and hype is one of them.
There's demand, there's hype, there's intrinsic value, there's the extrinsic value, the brand, basically the value of the brand or the model. And then there is, of course, the artistic value, the productivity you get from being able to start conversations, this kind of intangible value beyond hype and beyond all the rest.
Beyond all that, if you put them all together, then you get a macro view of, hey, is this thing made of gold? Is it safer than gold? Is it cooler than gold? And so there's actually kind of a sixth ghost that takes over all of them.
We're not here to talk about the entire macro view. We're just talking about intrinsic value and hype today, but let's go over this chart. So on the green line on this chart, you're seeing our 26 times on the 116500.
If you go back one more, it's the 116520, that is the stainless steel with the black dial. This one is trading at 19.3 times intrinsic value. So huge yield. In other words, if you were basically the higher this number is, the more money you make by buying this watch at MSRP and selling it at secondary.
Now, of course, that sounds great, doesn't it? Except most people aren't able to get this watch from their authorized dealer at MSRP, and therefore we don't necessarily want to see this all that high because we see this at 20 times that it means that it's going to be a very expensive watch on the secondary market.
Probably something that most people won't want to spend their money on, but it's, you know, definitely a popular watch. So what you may or may not think is obvious is that the other line on the same graph called hype factor is actually quite correlative with this with this measurement.
So you're seeing a lot of hype for these for these steel Daytonas. The 500 black dial, the 520 with and the 500 regular all have approximately 202225 times market yield or market value yield.
And then that drops off a cliff once you get to the two tone. And actually right now today's pricing the two tones at a negative point eight nine, which means it's trading below MSRP and the hype value.
The hype factor goes below zero as well. Why did it go below zero because a zero is kind of a par for the course. It's a moving goalpost because as Rolex becomes popular or less popular, you have to have a dynamic zero. So zero moves and up and below that above and below that zero is where the watches will exist.
So right now the two tone five to three is a beautiful watch. Don't be wrong. And the five zero three also beautiful watch slightly positive moment MSRP. That's because it has a different movement, a more advanced movement.
But both of those watches are very close to zero and both hype and in value factor beyond the MSRP. So what do we learn from this graph? Well, first of all, I would consider this to be an inverted yield curve, similar to what you would see in the
yield curve, similar to what you would see in a dangerous or correction territory bond market, which we actually do have today. And so is it possible that there's a correlation between the long term and short term yield curve and the steel to gold watch curve?
Sure. By the way, I don't know if I explained this. I don't think I did on the left of this graph, meaning all the way to the left, you will have your steel in the middle of this graph. You will have your two tones and then to the right and beyond. You will have your gold solid gold and platinum watches.
OK, basically the more expensive, the more intrinsically valuable watches. OK, now it's natural to see a curve, by the way, for almost every watch brand out there and for almost every watch model out there that is slightly negative for steel models and gets positive as gold starts being added to the watch.
So you have your two tones just slightly above zero. You have your gold watches just about a one or one one point five. And this is very popular. Like if we were in a normal popular kind of market without too much hype, you would see this kind of curve. This is probably what the curve looked like back in 2015.
For example, 2017, where, you know, gold watches took a little bit more of the hype, a little bit more of the market share because people knew that there was intrinsic value there. The steel watches MSRP wise were probably too expensive. I mean, let's be honest is is a steel Daytona really worth even fifteen thousand?
Considering there was only about five hundred dollars put into that watch. Probably not. And it's just saying that if you own one of these cool. But this curve is very important to discuss because if you put this curve out for any model family that has steel and gold watches and maybe two tones in between or maybe a gold case with a leather strap in between something in the between.
And you put it on a graph like this, you will switch which we do for you, by the way, and you'll be able to see all of all sorts of this good stuff over the course of time as we improve and increase the amount of coverage we do.
You'll generally notice a normal yield curve from lower to higher. But when you see it in vert and you see it in vert, like very much so like this, where you have your yield curves for the steel watches up up above 20 X and your even with your hype super high. But when your yield gets up that high and then you have your MSRP yield on the gold watches at zero or negative.
When you get into the five one nine, the one six five one nine, that's at point four seven at five nine eight. That's a solid gold watch. It's actually gone negative now. That's your solid gold Daytona that's actually gone negative now.
And so five eight nine, that's just negative as well five nine nine that's negative. So there's a whole bunch of these Daytonas that are negative the white dial, black dial is positive. Black dial that's black dial yellow gold positive champagne dial yellow gold is positive Paul Newman dials quite positive it's at two.
And by the way, this this range that I mentioned before with 40 or 50 up top above zero and 60 at the bottom below zero is kind of crazy you don't really necessarily want to see this big of a range generally you'll see ranges but like I said between plus five and negative five and therefore if you see the Paul Newman dial solid gold with Paul Newman dial at two point one five that's pretty high.
You see your green dial your John Mayer at five point seven three. That's really where these watches should be should be topping out and you know that because the John Mayer dial super hyped. It's at a forty six point three nine percent hype score.
And that's because it's mentioned all the time. People talk about it in newspapers and magazines articles and it's all over the place.
Even now but especially since it's been discontinued it's got only gone up and the price is one hundred thousand dollars for a solid gold Daytona. Don't get me wrong. It's a beautiful watch but it's not worth eighty nine or ninety or one hundred thousand dollars necessarily.
Right. So that's why we have that big number five point seven three. If it were zero it would be trading in MSRP. So this is basically how far above MSRP are we are we trading here.
All right. And then as you keep going you see essentially this curve is completely inverted where you have the right side even the platinum here all the way at the end is trading at blue dials trading at basically zero which is insane.
You see your platinum and your blue dial white gold trading at zero and negative something negative something or other and the and the hype score for them are extremely low below zero.
It's unusual. And so this is why we called a correction coming in the steel market. We call the correction in some words or another in our emails a couple of weeks back and said this yield curve is indicative of a correction to come of a recession of sorts in steel watches
because the hype cannot last hype is mean reverting just like fear is mean reverting people that people don't stay scared forever and they don't stay hyped up forever. And so hype will go to another watch or it will calm down at some point.
And when it does stainless steel watches will come back down to their MSRP and at least this is what we believe. And the gold watches will probably stay where they're at which is just above MSRP because Rolex is a highly wonderful beautiful amazing
brand and if anything goes below MSRP the curve should still stay this way where the gold watches are like stable trading slightly above where the steel watches are in relative terms relative to the MSRP and the intrinsic value because everybody knows that gold's worth more than steel.
So the market would disagree at this point and say that not everybody knows that and that's certainly actually probably the case. The graph right below this is called market value underlying melt value per reference.
So the exact same references from steel on the left two tones in the middle and then gold and platinum Daytona's on the right. You see it stair step up from almost zero we have a $500 intrinsic value up to 1250 up to 4500.
The oyster flexes and then you finally get up to an eight thousand and a ten thousand eighty five hundred dollar prices. When I say prices I mean intrinsic value. So this is what the gold is worth or what the materials are worth inside of the watches that yield curve or that curve is extremely positive from left to right.
Whereas the curve we see up top is extremely negative from left to right. And this is another way to see kind of the same thing when we see intrinsic value going well up. But you see the intrinsic value of over yield or over MSRP going well down.
That is a conflicting graph and this is why it's an important graph. You can see essentially where the white space exists here and that if you could. This is not the stock market so you can't. There are no shorts in the stock market.
But if I were to like let's say I had a stainless steel Daytona today if I could sell it at thirty thousand dollars and a hundred times I would. And if I could buy a white gold Daytona with a blue dial at a negative yield a hundred times I would do that too.
Now do I have a hedge fund that will do that. No I don't. But anybody else out there who does might decide to take that kind of that kind of spread trade. Now this is a markets podcast so I talk about spread trades I talk about technical things I'm not telling you what to do or I'm telling you what's a good idea I'm saying it could be a good idea.
And this this type of type of data and these types of graphs here are highly indicative of real underlying information that you can take to heart because we don't BS when it comes to data this data is coming from real sources so on this page below that you can click into any of the collection pieces that we cover.
And you'll be able to see the market ranges for them. And of course you'll be able to dig further into any of these if you just go to our regular explore section. I did want to I did want to do a quick episode on this particular part because this value yield curve you'll notice we've just done it for the Daytona for now we're going to be doing it for the Daytona but we're going to be doing this value yield curve so we can see what's inverted what might be up for correction and what might be completely undervalued or overvalued.
In this case we think that steals come still overpriced even though we've actually seen a route in steel.
We haven't done this yet for a P. We haven't done it for almost everything so we're going to be doing this kind of collection page for every single popular collection, the stainless steel a piece versus the gold a piece of the same model.
I would love to see that because if we could see that and we could trend that you would see that the stainless steel a piece have really taken a dive they've gone from their absolute peaks in 2022 all the way down to we saw 50 percent drop yesterday in one in one version and we saw another 28 percent drop in another version in titanium version.
I don't want to misquote that we saw the 262326237 ST stainless steel down 53 percent last week. That's not on average that is the low right so that's the lowest price it traded for and that was a good that was boxing papers we never cover watches that are bad condition or anything like that.
And then we saw the 2629 oh I oh this is the Grand Prix titanium down 28 percent and this is one of the cooler looking in more interesting dials on an AP used to be highly in demand.
Now it's down 28 percent in one week and trading well below MSRP so interesting stuff. Let me know what you guys think and and if you think I'm just out of my mind that and that the steel watchers actually going to bounce back up and keep going up as the markets are in fear of a bank run or do you think that we're probably right here and that the fears driving people into gold watches and this may continue or maybe something else.
Feel free to let us know and I hope you all enjoyed that this podcast. Please do come subscribe or for your friends we have a refer page if you refer you will keep track of how many folks you've referred for each and every person you refer if they decide to utilize our cost here service service to find them watch which by the way is one of the things we do then you will get 50 percent of what we make on every single one of those orders for the first year that they remember.
So that's what our invite a friend functionality is for feel free to do it. It's very very lucrative for you if you have friends who actually like to buy watches. If not you just want to listen in. Please do come back next time for our watch on podcast. Thanks so much and have a good one.