Is buying a watch a good investment?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 366.6 million views in recent years.

In the answers below I focused on the following topics and issues:

  • Is buying a luxury watch a good investment?
  • Is there a correlation between reading loads of books and wealth?
  • How can start ups survive a recession?

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Some of the links and videos referred to might only be available on the original answers. 

Source for all answers – Adam Fayed’s Quora page.

Is buying a watch a good investment?

They have certainly got people’s attention, as some watches have beaten the S&P500 recently, as per the information above.

With that being said, people should never be fooled by short-term performance.

Many investments which haven’t done well ultra long-term, like commodities, have a great decade here and there.

In the traditional sense of the word, they aren’t an investment because they don’t produce cash flow.

A stock produces dividends. Real estate, or land, has a yield or rental income. Even government bonds pay a coupon.

Watches don’t have any of that, just like other forms of collectables. So, you are only dependent on what somebody else will pay for it – supply and demand – and can’t fall back on cash flow if the price falls.

In addition to that, you either need to pay for insurance or take the risk of somebody stealing the watch, or losing it.

This has put off many investors. Most professional investors aren’t keen on such collectables unless they have an interest/passion in the area, are merely trying to diversify or have specialist knowledge.

The latter point is also key. Whilst the average luxury watch hasn’t beaten the stock market, some watches have, in the same way, that some individual stocks have beaten the S&P500 hands down.

Yet picking that special watch that outperforms the stock market is as difficult as finding the next Amazon or Apple unless you have specialist knowledge.

The same is true for art. As per the information below, art hasn’t done that well, adjusted for inflation.

2% per year after inflation vs 5% for global equities, and 6.7% for US equities, but some pieces of art have vastly outperformed.

So, I would stay away from collectables unless you are just trying to diversify a small percentage of your funds, or have specialist knowledge in the area.

What’s the correlation between reading books and generating wealth?

The quote above has been repeated on many occasions, by many different people.

There is a great deal of truth to it as well. Well-educated people, and those who are well-read, tend to earn more over their lifetime.

However, the quote doesn’t take account of the fact that:

  • Wealth and income aren’t always linked. Of course, they are to an extent. A very high-income person, who has reasonable investing and spending habits, will get wealthy. Yet the high-income person who invests in super high-risk start-ups and/or has awful spending habits might not become wealthy. Most retired professional athletes are broke – even the ones who made millions – as are many second or third-generation rich.
  • Reading a lot is pointless if you don’t implement what you learn
  • It depends on how useful the books you are reading are
  • From every 100 books, you read, maybe 1–2 will be the ones that have the real value
  • What stage of life you are in. If you are doing well, and have some free time, you are more likely to implement what you learn compared to if you are struggling and are time poor due to having another kid.
  • It can sometimes take a long time to monetize what you learn, even if what you learned is useful. So many people give up just before success is achieved. I almost did, and it is an easy mistake to make, especially in your 20s.
  • Many of the books people read aren’t focused on wealth management and are instead focused on generating income, which can be an issue.
  • The skill you are learning is demanded by the market. For instance, you can be the best-read person in the ancient Chinese language, it doesn’t mean it is as useful as learning modern-day languages and skills.
  • Wealth is something that compounds, unlike income. It is much easier to be a high-income 20-something than a wealthy 29-year-old. Therefore, generating wealth takes long-term behavior.

In general, then, reading is very useful long-term, provided what is learned is irrelevant and implemented.

How can a startup survive a recession?

You don’t need a PHD in history to work out that you need to surf various waves if you own your own business.

Look at the past two decades

  • The Nasdaq falls in 2000–2001, which affect technology the most. This event came 3–4 years after the East Asian financial crisis.
  • 9/11, which especially affected the airline industry.
  • The global financial crisis of 2008. This event affected almost every industry
  • Covid-19 and lockdown, which shut down many hospitality businesses and airlines.

And yet, with each event, came opportunity. Look at 2008.

Financial technology firms like Revolut and TransferWise/Wise have only become big due to the mistrust towards traditional banks.

Or look at 2020–2021. Almost every digital provider did well, and not just the big boys.

There are certain steps that startups can take to increase their chances of success including

  1. Having no/low debt and good cash flow going into the recession. This decreases the risk from rising interest rates. Of course, if you are desperate, taking out debt can help the business survive until a better time comes, but it isn’t sustainable forever.
  2. Providing services that people always need. Certain things aren’t priorities during a recession. Eating, funeral services, legal and financial services including insurance, healthcare, and education are just some of the examples of products people always want.
  3. Having experience in the domain. This is always important. In a tough market, it is even more vital.
  4. Expand internationally. If the recession is local or even regional, you won’t be affected as much if you sell globally on an online platform, unless the whole world is in a recession Look at 2009–2010. The developed world struggled to come out of the recession. Emerging markets had a v-shaped recovery. Past-covid is the opposite. The US and some other developed markets have had V-shaped recessions and emerging markets have struggled.
  5. If the start-up is actually helping solve a problem that the recession has highlighted, it can be an opportunity, as per the Wise and Revolut example.
  6. Get rid of as many “nice to have’s” as possible when it comes to costs, so you can run a lean ship.

Pained by financial indecision? Want to invest with Adam?

Financial Planner - Adam Fayed

Adam is an internationally recognised author on financial matters, with over 544.4 million answers views on Quora.com and a widely sold book on Amazon and a contributor on Forbes.

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