With the confirmation of a new Rolex Explorer 2 release on April 7, 2021, one would think the predominant focus would be on the watch itself. What size would it wear? Would it sport a ceramic instead of a steel bezel? Would any hint of green be incorporated in any part of the watch to commemorate its 50th anniversary? Plus whatever other questions detail-obsessed watch collectors can think of. However, along with these valid questions one cannot help but ask the commensurate questions: Will the price of the old Explorer 2 skyrocket? And along that vein, an even more relevant question in our minds is, when will the stainless steel watch bubble burst or will it burst at all?

The answers are unknown to all of us, but to give us a better idea of how to answer those questions we need to look into history.

The definition of a economic market bubble by Investopedia “refers to a situation where the price for something—an individual stock, a financial asset, or even an entire sector, market, or asset class—exceeds its fundamental value by a large margin.”

Clearly and undisputedly, some models in the Rolex, Patek and AP market are in the midst of a hot bubble when their grey market prices are selling for more than double retail.

It seems that market bubbles, whether they be real estate, the stock market, or tulips have all burst in the past but only recognized retrospectively after a big crash. Therefore it will be impossible to predict whether the watch bubble will burst until it actually does pop.

Forbes describes the five stages of a market bubble from beginning to crash. I will not attempt to re-explain these stages because Forbes does a better job than I would. So to paraphrase here they are:

1. Displacement: A displacement occurs when investors get enamored by a new paradigm, such as an innovative new technology or interest rates that are historically low. A classic example of displacement is the decline in the federal funds rate from 6.5% in May 2000 to 1% in June 2003. Over this three-year period, the interest rate on 30-year fixed-rate mortgages fell by 2.5 percentage points to a historic lows of 5.21%, sowing the seeds for the housing bubble.

2. Boom: Prices rise slowly at first, following a displacement, but then gain momentum as more and more participants enter the market, setting the stage for the boom phase. During this phase, the asset in question attracts widespread media coverage. Fear of missing out on what could be an once-in-a-lifetime opportunity spurs more speculation, drawing an increasing number of participants into the fold.

3. Euphoria: During this phase,caution is thrown to the wind, as asset prices skyrocket. The “greater fool” theory plays out everywhere.

Valuations reach extreme levels during this phase. For example, at the peak of the Japanese real estate bubble in 1989, land in Tokyo sold for as much as $139,000 per square foot, or more than 350-times the value of Manhattan property. After the bubble burst, real estate lost approximately 80% of its inflated value, while stock prices declined by 70%. Similarly, at the height of the Internet bubble in March 2000, the combined value of all technology stocks on the Nasdaq was higher than the GDP of most nations.

During the euphoric phase, new valuation measures and metrics are touted to justify the relentless rise in asset prices.

4. Profit Taking: By this time, the smart money–heeding the warning signs–is generally selling out positions and taking profits. But estimating the exact time when a bubble is due to collapse can be a difficult exercise and extremely hazardous to one’s financial health, because, as John Maynard Keynes put it, “the markets can stay irrational longer than you can stay solvent.”

Note that it only takes a relatively minor event to prick a bubble, but once it is pricked, the bubble cannot “inflate” again. In August 2007, for example, French bank BNP Paribas halted withdrawals from three investment funds with substantial exposure to U.S. subprime mortgages because it could not value their holdings. While this development initially rattled financial markets, it was brushed aside over the next couple months, as global equity markets reached new highs. In retrospect, this relatively minor event was indeed a warning sign of the turbulent times to come.

5. Panic: In the panic stage, asset prices reverse course and descend as rapidly as they had ascended. Investors and speculators, faced with margin calls and plunging values of their holdings, now want to liquidate them at any price. As supply overwhelms demand, asset prices slide sharply.

One of the most vivid examples of global panic in financial markets occurred in October 2008, weeks after Lehman Brothers declared bankruptcy and Fannie Mae, Freddie Mac and AIG almost collapsed. The S&P 500 plunged almost 17% that month, its ninth-worst monthly performance. In that single month, global equity markets lost a staggering $9.3 trillion of 22% of their combined market capitalization.


Stage 1 began as early as 3-4 years ago when luxury watches suddenly became popular and people started hoarding and reselling like they were an investment grade asset class. The pandemic could also qualify heavily as a displacement event.

CurrentIy, I think we have clearly reached stage 3, the Euphoric stage where prices for certain models have reached exorbitant prices and pandemonium reigns. We no longer measure the value of a watch by its MSRP but rather what it will fetch on the grey market which keeps rising especially during the pandemic.


Depending on how we classify watches, my short answer is NO and I will explain. If we classify watches as a true investment vehicle like the stock market then the answer is YES. The stock markets have crashed precipitously before to the ruin of many people, which is well known historically. If we equate watches to real estate, then historically and recently, that market has also crashed to the ruin of many people. How about tulips? I’d rather not venture there.

But do watches fall into any of those categories? I would think not. They should fall into the category of artwork. There are limited pieces produced and there are only a few finite amount of artists in the world that can produce them. Artwork has been steadily appreciating about 3% per annum overall and some pieces from certain artists appreciate much more. The same applies to watches. Watches are tangible and physical objects like real estate. But unlike real estate, they can be considered works of art or artisanal products. The value placed on these objects is much like art and is based not on financial value but of demand and how the general public perceives their worth. There is no financial metric that can measure the human psychological perception of worth or appreciation. Watches have long been been auctioned and categorized much the same way as works of art, sometimes at the same sitting.

The public views certain watches, not all of them, as works of art and if the maisons treat them as such by limiting their quantities and upping their quality, I don’t see any reason why these “works of art” should depreciate in any crashing manner. Many works of art are priceless now after centuries of collecting, analysis and curating. Watches are no different, provided that they are maintained and heavily protected from natural elements and humans.

What happened recently 4-5 years ago changed the whole face of watch perception forever. No one knows the inciting event but watches suddenly and unprecedentedly became valuable and popular much like paintings. Once the mass of people equated timepieces with this type of “asset class”, the bull market had begun and shows no signs of slowing. The maisons certainly will not allow the slowing and for them it is very easy to make their pieces desirable by manipulating human nature and psychology. They simply need to decrease production and the mass will shark feed in a frenzy without even having to raise their prices. That is a very predictable outcome and the maisons know this very well.

If, and only if, some watch models are considered artwork, then the bubble will likely never burst. The market may correct itself just like art, but masterpieces will always remain in a museum at an infinite and unobtainable price for people to view and never purchase.


When I see generic pictures like these, I cannot help but think that these Rolex models cannot, out of principle, be considered true works of art and thus for most of these pieces the bubble will burst.

They share more similarity to mass-produced commodities, like orange juice (my feeble Trading Places reference), to drive a business or to make a profit. Therefore, I simply cannot define any of these stainless steel Rolexes as works of art if they are to be displayed and treated like cattle in sub-par and undignified plastic wrappings. Oh what a sad state the watch world has become now that watches have ceased to exist as watches but as money-making vehicles! The only conceivable method to prevent such a ghastly sight is to drastically limit the production of these so-called grail watches. This all means that we all will have even less access to these works of art, but that’s perfectly fine by me because since when will I ever be able to purchase an impressionist masterpiece anyways? Thierry Stern has publicly admitted to supporting this strategy going forward and I think Francois-Henri Benhamias has acknowledged this as well. I hope Rolex does the same, but somehow I think they will tend to veer in the opposite direction. Pity. I am in total agreement with true works of art commanding such hammer prices at auctions, but when the products being sold number in the tens of thousands and they are all identical, how can one possibly consider them works of art?

And that’s how I want to purchase watches from now on. If my tastes consider them functional and useful works of art, I will lay down my hard earned cash so they may be viewed in my home for their beauty.

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