It feels like we are finally looking at potentially putting most of the restrictions of covid19 behind us. One great example is that baseball stadiums are getting filled….
Over the covid19 period and now, I have had a lot of time to kill and that led to pondering about random things. When a guy has a lot of time to think about, the thoughts often land on watches and cars. My interest in watches and cars have come and gone in recent years – nice to have, but never followed in detail.
THIS CHANGED WITH A SINGLE VISIT TO A ROLEX AUTHORIZED DEALER
For personal reasons, I wanted to get a new nice watch – something around $10K. For that price, the go-to brand is Rolex and I went to a Rolex store and told the salesperson that I would like to see a Rolex GMT Master-II – a very cool looking watch that is priced around $10K for a stainless steel version. It looks like below –
He said they don’t carry it on store, but politely told me that they have one that is used and I can try it on if I would like. I said yes and he brought it out. When I tried it, it had a price tag of $17K. So I asked him – why is a used watch close to 2x of the retail price? He said because they are impossible to get a new one. People are willing to pay up for the stainless steel version – because they know they will retain value or appreciate longer term.
Upon research, I have come to learn that there are many Rolex watches that actually are priced at premium in the used market to the retail price because the demand simply outstrips the supply.
So you might ask – Rolex is not the only watch brand that makes gorgeous watches – get Cartier, IWC, or JLC. You are right – I could get them instead, BUT I NO LONGER WANTED NON-ROLEX WATCHES – THE KNOWLEDGE THAT ROLEX WATCHES NOT ONLY HOLD VALUE OVER TIME, BUT ALSO APPRECIATE VALUE WHILE OTHER BRANDS WILL LOSE 50-80% OF VALUE MADE ME ONLY FOCUSED ON GETTING ROLEX. This is coming from someone who has reputation as a very frugal person in his friend group.
While there are other watch brands that have more expensive watches than Rolex, they do not have the BRAND VALUE that Rolex does and most of them do not provide the assurance to its buyers that they would be able to sell it at low discount / at parity / at premium to their purchase price. Rolex’s manufacturing capacity is also capped – therefore the supply is largely constrained as well.
PORSCHE IS THE SAME
Porsche is essentially the Rolex of sports cars – it has pristine reputation with great history. It also has enormous BRAND VALUE – 911 is a car that everyone has dreamed of having. Its distinct design that has largely remained consistent throughout its history – except for 996 (shown below) which had different headlights from other 911.
Normal porsches have more circular headlights. Porsche reverted back to the headlights that we see today because fans really did not like those headlights.
What is also fascinating about Porsche 911 is its value retention backed its almost cult-like following. There are many porsche clubs around the globe – in America, there is Porsche Club of America where Porsche owners get together and discuss their cars / sell / buy cars from each other.
And perhaps due to its brand appeal and value retention, used Porsche 911 (particularly the air-cooled porsche 911) values have gone up during covid19! Even European bank told its clients that buying classic cars could be a great hedge against inflation in 2018.
The article from motor authority from 2018 shows that vintage (i.e. used Porsche 911) have gained 683% over its original value over the past 13 years, and many indicate that their values have skyrocketed during covid19.
on Youtube, you can see many people in their 20s / 30s who are buying classic / modern Porsche 911 from late 1980s through 2000s and sharing their experience of driving them. Those Porsches are NOT cheap and they could get non-porsche cars with more safety features and higher performance with lower price, but they opt for Porsche because they want to experience 911, but also they know that when the time comes, they will be able to sell it back with small discount to or even at premium to their acquisition cost!
ANYWAYS.. SO WHY DID THIS HAPPEN?
I think it is because we are seeing higher LOWS – which is leading to higher average, but ironically making premium assets even more attractive because there is now so little differentiation due to high level of convergence. What do I mean? Due to technological advancement, the product quality curve is no longer a bell curve it is more like one sided curve with most of the players now in the middle.
I think automotive industry really set a great example. 10-20 years ago, there is clear differences in car performances in terms of torque or horsepower among high tier, mid-tier, and low tier manufacturers. Today, Hyundai’s cars can pump out 250hp easily in its ~$30-40K cars. The rise of low tier players is making the “mid-field” extremely competitive and traditionally high-tier players that have successfully maintained its market positioning are now commanding significant premium because there are fewer number of differentiated players – far fewer than those who want those assets.
WHAT DOES THIS MEAN FOR INVESTING?
For me, this means that I should always focus on having the BEST PREMIUM asset at all times – even if it means I am paying up for it. We could be in the bubble territory. However, this lesson remains so true in stock market – when you are buying a stock, you must make sure there is an event that would make other people want to buy the stock at a later point – buying below its intrinsic value is just one of the ways to maximize the potential that there will be people willing to buy at a higher price than your cost at a later point in time.
On TV, everyone says that capital is scarce – capital is definitely scarce, but we must never forget premium assets are even more scarce.
Call me a sucker, but I hope to have my own Rolex collection one day.
What are attractive scarce assets for you? Please leave in the comment below!
*not investment advice
