Investing in a Rolex

So, me being a watch enthusiast, love to occasionally splurge on an elegant mechanical timepiece. Every time this happens, I am always excited to share the updates with my friends- a conversation which usually goes like this:

“me: I just got this wonderful new timepiece!
friend: ooh! Is it a Rolex?
me: Nevermind!”

A scintillating Rolex Sea Dweller (Blue Dial)

Rolex as a brand needs no introduction. Founded in 1905 in London, United Kingdom and headquartered in Geneva, Switzerland, Rolex SA is a privately held company with a production output of 751,285 COSC movements i.e. almost mass produced. This led me to wonder whether a Rolex was indeed a good "investment" - as numerous collectors/ experts/ enthusiasts would put it and me being a person of data science, I had to validate this.

DATA ACQUISITION

I have utilized the Rolex watch "Buy" prices available from minus4plus6, the "Sell" prices represent the market vendor rates from today i.e. January 1, 2018, and have used SPY data from yahoo finance. My final dataset had 45 Rolex models which retailed between 1957 and 2012.

TRENDS

The first question on my mind was that once a timepiece is bought, how long does it take for it to become an investment i.e. the value appreciation initiates. I found this to happen at roughly the 10-year mark as can be seen in the plot.

Rolex ROI by age(in percentage)

Well, this simply meant that upon buying a Rolex watch, selling before a decade can set you back some cash. What is also spectacular is that if a timepiece is properly taken care of, you can not expect the retail value to fall by more than 40%. Further, a maximum decline rate was found to be about 6.8% per year for the YACHTMASTER II(116689).

Now since we are talking about annual returns, I wanted to compare investing in a Rolex vs investing in stocks.

Rolex vs SPY

As we know SPY(SPDR S&P 500 Trust ETF) is the indices that represent the US stock market as a whole pretty decently. So, what could I have expected had I invested the money into the stock market (SPY) instead of buying a Rolex. For this analysis, we take into account the minimum price offered for a model and it's corresponding year. An intriguing fact I learned was that periodically, Rolex does revise the prices of its watches through the introduction of variants and so for the sake of our study, we are using the cheapest available variant of a model.

1. Short-term: For the 16 models available between 2008 and 2012 in our research dataset, the mean Purchase price would be $19,137 and the mean current selling price for them would be $11,968. However, the SPY for the same investment would yield $39,885 today which is a difference of $27,916 in lost potential revenue.
2. Mid-term: For the 7 models available between 1986 and 2006 in our research dataset, the mean Purchase price would be $11,446 and the mean current selling price for them would be $9,200. However, the SPY for the same investment would yield $18,565 today which is a difference of $9,365 in lost potential revenue.
3. Long-term: For the 22 models available between 1957 and 1975 in our research dataset, the mean Purchase price would be $628 and the mean current selling price for them would be $7,422. However, the SPY for the same investment would yield $15,581 today which is a difference of $8,159 in lost potential revenue.

Rolex Ownership Cost

The above comparison is however deemed irrelevant by the fact that a timepiece is a physical asset which can adorn one's personality. So, without taking into account the ~$650 towards the recommended service every 7 years or so, the ownership cost can be put to:

1. Short-term: 4.5% a year.
2. Mid-term: 0.6% a year.
3. Long-term: -36% a year(Bazingaa!!!).

The above was calculated using the simple formula: (1 - (Sell Price/ Buy Price)/ years).mean()

Best Current Models

So based on the above, I'd say getting a Rolex is surely worth it but only if you're looking at it as a long-term nonliquid investment. Upon further analysis based upon a simple mean to the stddev ratio of annualized returns shows us the best current models to invest in:

1. Explorer (Risk score: 0.219838)
2. Submariner (Risk score:0.266134)
3. Explorer II (Risk score:0.278579)
4. Datejust (Risk score:0.278768)
5. Sea Dweller (Risk score:0.281536)
6. Milgauss (Risk score:0.295114)
7. GMT Master II (Risk score:0.313253)

A risk score of 0.31 vs 0.22 can be interpreted as a is a 9% higher risk in investing in the GMT Master Ii then in the Explorer.

Here, a lower risk score is a better investment. Please do note the above is based on the current market values which may change with time.

Conclusions

A Rolex timepiece is a good timepiece to invest in provided it is a hobby and you do appreciate the finer things in life. For the ones looking to simply invest, the stock markets will almost always give you better returns. It may come as no surprise that the best returns on a Rolex timepiece are when you keep it long enough (decades to start with) and if you care about well made iconic timepieces. The value of a timepiece will always be affected by the market demand/ supply at a point in time, the condition of a piece( including services) and the papers. If done right, owning a Rolex may not be as expensive as one may hope. As James Nesbitt has said: "Spoilt is a euphemism for loved" and a Rolex is to be loved and no surprises for it shall reciprocate.

Disclaimer: All opinions here are my own and based on a limited dataset research. I have no affiliation with Rolex SA or Rolex USA and was not paid to endorse either SPY or Rolex timepieces. Feel free to email me or to leave a comment if you have any ideas of what could be a good analysis to supplement this or even if you disagree.