Rolex Daytona - Why does it defy logic?
Why the Rolex Daytona is the equivalent of 'the watch market in a nutshell'
I shared a recent post by @watchanalytics on Instagram, asking people about their opinion on the Rolex Daytona, and whether its price performance was justified. Needless to say, this led to several interesting conversations, and I’d like to share some thoughts on the topic here.
The focus behind this model always remains strong with constant growth. Both versions for the whole 2020 remained within the €20k range, exceeding €30k in 2021. Between the two, the white version has grown the most, today is close to €40k, while the black dial variant is around €35k.
The Rolex brand transcends wealth and income levels when it comes to brand awareness. I could visit a township in South Africa and I’m pretty sure that people who may struggle to put food on their dinner table each day, would know what a Rolex is. To many, it signifies something; Achievement, success, status and so on. That isn’t a fluke, and Rolex has spent a long time cultivating this brand image.
With this reputation, comes a certain level of expectation. Most Rolex owners will agree that Rolex watches are reliable and robust; They just work well, are well-made, and serve their purpose with aplomb. They do not make the best-finished movements, they aren’t usually the best ‘bang for buck’ with regards to complications or designs, and they come with a lot of ‘baggage’ regarding the image of the wearer… but love them or hate them, they seem to hit a sweet spot in the luxury watch segment…with a perfect blend of brand power, and quality of execution.
The history and rise of the Rolex Daytona
If you’re reading this, there is probably no need to go into too much detail about when the brand was founded, and how the Cosmograph came to be. If you want to read more about the history of the Daytona, a quick google search will probably suffice. For ease, I will link a few articles here and here, along with a ‘week on the wrist’ feature written by Jack Forster here.
The short history is fairly straightforward… in the 60’s and 70’s the Daytona was the ugly duckling of the brand’s catalogue. Around the late 80’s / early 90’s, according to Davide Parmegiani, a small group of American and Italian dealers coined the nickname “Paul Newman” for the exotic-dial watch worn by the famous actor.
What was initially a $1500 watch in the late 80’s rose to become a $10k watch in the early 90’s, hit triple digits in the early 2000s and finally broke the $1m mark with the 6263/6239 Paul Newman in the Rolex Daytona Lesson One auction in 2013. Of course, this story culminates with Paul Newman’s own Daytona fetching a final price of $17,752,500 in 2017.
There was no real logic behind this watch fetching such an outrageous sum of money, but it sets the tone for the entire premise of this post; The Daytona defying logic.
After sharing the question about the Daytona on Instagram, the overwhelming consensus was that the watch is probably a decent buy at retail, but its definitely not worth the price on the grey market. Go figure. The problem with this outcome is that it suffers from selection bias. I’d say 99% of the respondents are part of the small niche of ‘watch geeks’ and therefore, they have a lot more awareness of the watches available at various price points. Watch geeks tend to spend an irrational amount of time comparing watches, often with the intention of purchasing them. In doing this purchase scouting, they inevitably weigh up pros and cons, take into account how much ‘watchmaking’ they are getting for their money, and tend to own many watches so are trying to buy pieces with a focus on how it would fit into a collection. Rolex makes over 800,000 watches a year, and I would argue that the majority of their customers are NOT buying a watch for any of the main reasons a watch geek would. It is therefore no surprise that watch geeks think a Daytona at grey market prices is a ‘bad deal’ – they’re considering alternatives like a Lange 1 or 1815 chronograph, with amazing finishing and an immense ‘watchmaking’ credibility, with much lower production and hence ‘rarity’ etc.
The retail price is rather irrelevant in my opinion. Back to our favourite reference, supply and demand; The market price isn’t picked out of thin air, and these watches are selling at these extreme prices – so clearly it is ‘worth it’ to some people. To me, this comes down to branding, and the implied status of someone wearing the watch. If you have enough money, and you want (arguably) the most desired watch in the world, why would you care how much the retail price is? You see the grey market sticker price, you have the money, you buy it. For a watch geek to compare this thought process to their own ‘considered’ approach, and overlay the usual process of weighing up alternatives, is simply not appropriate.
Others also argue that it is nonsensical to be paying grey market prices for a steel Daytona when you can, for a similar price, buy a precious metal (PM) model instead. Again, I think this is a pointless comparison. These are different watches, in particular the weight, but also the aesthetics across the different models with dials exclusive to certain metals. It makes more sense to view the final product as a standalone item, not as a sum of its parts. Rolex differentiates the PM versions from the steel ones both aesthetically, and by price – but the market values the steel one higher – that’s the reality of the situation, and so, the argument that the PM versions are ‘better value’ is nothing more than an opinion… and the consensus (price) says otherwise.
How is the hype justified?
Following from the previous paragraph, the data suggests it is. However, that isn’t the full story. One of my recent posts about social status covers this in more detail, but the gist of it is would suggest that a Daytona confers some form of status on the wearer – intended, or not. The problem for any purchaser of a Daytona today, is that it is one of those watches which cannot possibly be viewed on its merits ‘as a watch’ alone. Sure, I know people who were buying Daytonas long before the modern hype cycles began – but even back then, the Daytona was a ‘waitlisted watch’. The point is, unlike almost any other watch, it is difficult to conclusively know that you like this watch entirely independent of the ‘status’ that comes with wearing it.
It’s impossible to wear a modern steel Daytona and not feel the weight (figuratively speaking) of its history and of the enormous social statement you’re making. It seems to be one of those pieces that is instantly recognizable even outside watch enthusiast circles. Perhaps no other Rolex has a better chance of making an impression on someone who is not a watch enthusiast per se, with the possible exception of a 36mm yellow-gold Day-Date.
Jack Forster, Hodinkee
To add to all of this, the popularity of watches is now more ‘mainstream’, fuelling a new wave of ‘investors’ buying watches. Recent articles from Bloomberg and FT can attest to this. According to the FT, Chinese property investors are buying watches as a store of value in the face of slowing economic growth and President Xi Jinping’s intensifying campaign against housing speculation. Bloomberg reckons that interest in watches has exploded over the past two years because lockdowns led people to funnel money that would have gone to vacations and fine dining into luxury goods instead. Record stock market performance and rampant cryptocurrency gains have not only brought wealth, but also driven a broader interest towards investing in alternative asset classes, from non-fungible tokens to timepieces.
So consider the backdrop of this supply/demand equation skewing even further in favour of greater demand, and with no signs of this situation reversing any time soon. The popularity of the Daytona and its undeniably ‘iconic’ status among watches in general would seem to justify the grey market prices. There are about 500 of these for sale on Chrono24 (roughly 50:50 split between black and white dials) as I write this, but for a mass-produced watch this doesn’t seem like that many. As I said before, ‘watch geeks’ will say this is not justified, and there are far better watches available at this (grey) price point – but my argument is that the target audience for this watch is far beyond the avid watch enthusiast – this is a global phenomenon of a watch, and the demand comes from every angle… from casual watch-curious people, to serious investors looking to park wealth in alternative assets. They don’t care that a Lange is immaculately finished and more horologically significant, and they don’t care that the retail price is a third of the grey market price. They see it as a 30k asset which has the potential to hit 50k next year. Now you may not agree with that or see it that way, and that’s ok… but that’s basically the situation we’re dealing with.
I think the hype is justified. As a watch geek myself, I also think that it isn’t ‘enough watch for the money’ when buying at grey market prices, but this only applies because I am buying it with the intention of using it and enjoying it.
The one thing that dawned on me after thinking about what to write for this post, is that retail prices are one of the biggest red herrings for genuine ‘watch geek’ collectors. The fact that supply and demand are so drastically mismatched across the board, means that many collectors’ journeys will inevitably hit a brick wall when it comes to watches they genuinely like, but have no access to. This means that when we create our watch collector’s matrix and we find ourselves placing a Daytona in the upper-right quadrant, we simply need to evaluate our options at grey market prices.
The problem is, what happens when you cant get ANY watches at retail? I asked myself this question, and I’d like to believe I’d simply find a way to be content with what I have and stop buying. That would be ideal, but if that doesn’t work, then that just means the hobby will be a lot more expensive as we continue fuelling our habit at grey market prices. We will look back on these days with a deep longing and regret – which is funny, because if you look back 10 years, we do that already.
If you consider that we’re now in a world where demand keeps rising as watches become more mainstream, and production/supply remains flat… the Daytona is just the poster child for the market dynamics at play. It doesn’t defy logic at all – in fact, its completely logical, and the only ones in denial are the avid watch enthusiasts (myself included!) who are constantly hung up on the notion of retail prices. If you can buy it at retail, that’s a bonus – but if you can’t, and you actually like the watch (for whatever reason), then you should. Many people already do this, and the market price proves it. I suspect many people actually buy it at grey market prices and never admit it, and that is for the status that comes with being perceived as being able to buy at retail… a topic we’ve already discussed before.
To conclude, I stand by my statement in a previous article – Watches arean asset class, whether collectors and enthusiasts like it or not. I think the Daytona is the equivalent of ‘the watch market in a nutshell’. Popularity of a brand, coupled with popularity of a particular model, leads to insatiable demand which supply will never be able to meet. This leads to seemingly extortionate grey market prices, and this in turn causes ‘enthusiasts’ to turn away and seek ‘better value for money’. Since enthusiasts are actually a tiny fraction of the watch-buying public, the price rises are unlikely to reverse and enthusiasts are left with a choice: seek alternatives to the hype-pieces of the day, or buy into the hype and pay the market price.. None of these are wrong or right, and your choice will probably depend on your finances more than anything else. When it comes to pieces like the Daytona, I think the rising demand helps to ensure that even if you’re buying at grey market prices, you’re at least unlikely to lose anything, if at all – so you can enjoy it for as long as you need to, and then exit with no inflation-adjusted loss.
Playing the game with retailers, especially if you’re starting from scratch, is pretty foolish. This is because it’ll inevitably involve buying watches you don’t really want, in order to access watches you do want – these ‘sunk costs’ add up, not to mention the time you waste waiting for the one you really want.
All that being said, I am still reminded of all the previous posts I have shared on the topic of ‘investment’ versus ‘happiness’ etc; While there is huge growth in the ‘investor class’ of watch buyers, I still think there will always be sleeper watches, or attractive alternatives to hyped watches… if you can get happiness from buying and wearing those, as a collector you don’t need much more. Don’t get drawn into the hype cycles and lose the enjoyment of watch collecting as a hobby, just because you’re too preoccupied with appreciation and depreciation.
Originally published at http://screwdowncrown.com on December 28, 2021.