Diary of a Patek Philippe collector – “Bubble Trouble” (26th January 2020)

“Bubble, bubble, toil and trouble.” Sorry for the misquote! But has the hype for the Nautilus and Aquanaut finally reached a tipping point? Has the bubble burst?

Six months ago, I walked around the Mayfair area of London and visited four of the most reputable pre-owned watch dealers. I was looking to see how many “hot” Nautilus and Aquanaut I could find. I found one Ref. 5167R. The dealer had received the watch the day before and he reassured me that if I didn’t buy the watch, it would be sold to another within the day. I returned later in the afternoon and sure enough it was gone. 20% over list.

Six months ago, not a 5167A to be found

On that previous trip to London, I saw no sign of a Ref. 5711 or Ref. 5712 and not a single Aquanaut other than the 5167R. Last week I visited London and did the same survey. Something has most definitely changed.

In total, I found a handful of 5712s and a handful of 5711s. I found two 5167A and two 5165A. I also saw a Ref. 3700 and a Ref. 3800. If I had been looking to buy, I had a nice selection of steel watches from which to compare. I spent an hour or so chatting with a couple of dealers. One told me that the price of the Ref. 5711A had dropped by about 30% from the high a few months earlier. He also told me that he believed dealers had a lot of inventory of these “hot” watches. One dealer recently showed a client an inventory of over 100 steel Nautilus. Yes, the ingredients are most definitely in place to see a correction in prices.

But now, I can readily find a handful from which to pick

5711A and 5712A are now turning up for sale

I think there is a very good chance that the weakness will continue. It seems to me that there have emerged quite a few Patek Philippe watch “collectors” who only seem interested in buying the “hot” steel Pateks. The same “collectors” also seem to have only very recently (maybe three years) been such avid collectors of Patek Philippe. And I also suspect that these “collectors” see it as quite normal to never actually wear a watch – preferring instead to sell it quite quickly only to replace it with exactly the same reference. And repeat. Yes, all the ingredients of a correction seem to be in place.

This got me thinking about how this might affect other areas of the Patek Philippe watch market. I know of three collectors who are currently trying to sell watches that I own myself. For example the Ref. 5575G or the Ref. 5131G. Now, I would say that both references are watches that had previously sold at hefty premiums to the retail price. Yet, even for watches like these that are no longer in production, that 30% off the top also seems to apply. Thanks to @Patekonomics for providing great information on recent auction prices. A really good service on Instagram from him.

And the softness has spread into other “hot” references too

The softness in the market seems to have moved beyond just the steel hyped watches. One of the sellers that I mentioned above called a dealer to ask what price he would pay. So shocked was he by the 20% discount to secondary prices that the dealer built into his price that he called another dealer. The second dealer placed a 25% discount to the secondary price. Not only can these watches be quite illiquid, but the bid-offer spread between buying and selling to a dealer is staggeringly wide.

For me, I find this development to be a really healthy process. Don’t get me wrong, I spend my working day speculating on assets. I have nothing intrinsically against speculation. But I have three rules that I use for asset speculation.

Rule No.1: Only speculate in highly liquid assets.
Rule No.2: Only speculate in assets where my analysis gives me an edge.
Rule No.3: Recognise that fear and greed are two very strong human emotions but that when push comes to shove, fear is significantly more powerful. Know how to gauge each.

For me, all three of these rules make watches a no-go area for speculation.

I think it is a good thing that watch “collectors” see that prices can move both upwards and downwards. Anything that moves in a consistent upward direction will start to attract speculators rather than collectors. There is now quite clear evidence that speculating on watches like the Nautilus and Aquanaut may not be quite such an easy game as initially believed. I think it is also very likely that many dealers have accumulated a lot of Nautilus and Aquanaut inventory to catalyse price increases. Lets be clear, neither Nautilus nor Aquanaut are rare watches. They have been in production for a long time. There are plenty of them around and they will appear more and more now that prices appear to have cracked lower.

What positives can come from a bigger decline in prices? Actually there are many. For a start, the reminder that prices can also fall will dissuade “speculators” who masquerade as “collectors.” Further, many collectors who want to buy specific watches to wear and enjoy have been prevented from doing so by the escalation in prices. As prices continue to fall, then hopefully more collectors will be encouraged back into the hunt. For new-to-the-game dealers who have been too greedy, then maybe this will be a painful experience?

I also suspect that as the prices continue to fall, there will be a refocusing on the dislocations that have occurred.

By this, I mean that amidst all the hype that has surrounded the steel sports watches, some truly fabulous watches have been ignored. This week, I was messaged by someone who was considering swapping their Nautilus plus a little bit of cash for a Ref. 3448 (Series 4). Wow. How about a Ref. 5575G for the same price as a Ref. 5711A? Yes, I think relative values have become out of kilter and if the bubble has truly burst for the steel hypers, then I suspect a re-focus on what has traditionally been Patek Philippe’s prime strength may emerge – complications.