PBD Podcast Episode 507: "The Luxury Watch Bubble" Featuring Roman Sharf

Host: Patrick Bet-David
Guest: Roman Sharf, Founder and CEO of Roman Watches
Duration: Approximately 101 minutes
Release Date: [Assumed based on knowledge cutoff]

1. Introduction

In Episode 507 of the PBD Podcast, host Patrick Bet-David engages in an in-depth conversation with Roman Sharf, a seasoned expert in the luxury watch industry. The episode, titled "The Luxury Watch Bubble," delves into the intricacies of the high-end watch market, exploring topics such as market dynamics, authenticity issues, investment potential, and consumer behavior.

2. Roman Sharf’s Journey into the Watch Business

Background and Early Career

Roman Sharf shares his diverse background that led him to the luxury watch industry. A refugee from the USSR, Roman moved to Austria and Italy before settling in Brooklyn, New York. His early career included selling newspapers, serving in the U.S. Army, obtaining an electrical engineering degree from Penn State, and eventually venturing into the watch business.

Transition from Banking to Watches

[02:28] Patrick Bet-David: "But, you know what? I'm here. I'm making the same amount of money as the bank is bringing me. I can support my family. I'm going to go full time."

Roman recounts his pivotal decision to leave his stable banking job post-9/11, recognizing the potential of his burgeoning watch side business to surpass his corporate income. This bold move laid the foundation for his current enterprise, which boasts a 25,000 square foot facility, 30 employees, and annual revenues of $130 million.

3. The Current State of the Luxury Watch Market

Market Dynamics and Fraud Concerns

Roman asserts that the luxury watch industry is facing a significant "bubble," exacerbated by widespread fraud and misinformation. He emphasizes the prevalence of counterfeit watches and deceptive practices within the market.

[00:00] Roman: "And this is an inside job. A big inside job. They're not telling you the whole truth here because they're embarrassed."

Consumer Trust Issues

Patrick echoes Roman's skepticism towards watch salesmen, highlighting a general distrust among consumers.

[00:04] Patrick Bet-David: "That's why. I don't trust watch salesmen."

Roman elaborates on the extent of fraud, sharing anecdotal evidence of extravagant counterfeit watches being sold at exorbitant prices.

[00:06] Roman: "You have no idea how much fraud is in the watch space. I can tell you stories for days. That's a $1.6 million watch."

4. Profiles of Watch Buyers

Diverse Consumer Segments

Roman categorizes watch buyers into distinct segments based on their motivations:

1. Flex Seekers: Driven by the desire to showcase wealth and status.
2. Horological Enthusiasts: Interested in mechanical complexities and craftsmanship.
3. Investors: Viewing watches as financial assets, albeit Roman cautions against this perspective.
4. Impulse Buyers: Reacting to trends and immediate gratification, often leading to frequent trading.
5. Seasoned Collectors: Building a portfolio of watches, sometimes detached from the 'flex' culture.

[08:13] Roman: "The number one reason a person buys a watch today is flex."

5. Authenticity and Fraud Prevention

Buying from Reputable Dealers

Roman stresses the importance of purchasing from trustworthy dealers rather than focusing solely on the watch itself. His mantra is "buy the dealer, not the watch," emphasizing due diligence and relationship-building within the industry.

[19:15] Roman: "You buy the dealer, not the watch. And I've been saying this for 20 years."

Inspection and Verification Processes

Every watch Roman acquires undergoes rigorous inspection by certified watchmakers to ensure authenticity and functionality. This multi-tiered verification process includes:

1. Service Center Checks: Professional watchmakers examine each timepiece inside and out.
2. Sales Floor Review: A final inspection by the head buyer to assess paperwork and physical attributes.
3. Transaction Agreements: Comprehensive contracts and profit identification to deter fraudulent activities.

[27:54] Roman: "When it comes to buying B2B, I only deal with dealers with whom I have recourse."

6. Grading Services and Their Limitations

Comparison with Other Collectibles

Roman draws parallels between the watch market and other collectibles like comic books, highlighting the absence of standardized grading services in the watch industry.

[28:34] Roman: "You create your own rapport within the industry. And there's not that many of us that have the type of rapport where I was just talking to one of you guys before we started."

Challenges in Establishing a Grading System

Attempts to establish centralized grading systems for watches have faltered due to logistical challenges and privacy concerns. Roman mentions eBay's failed authentication program as an example of these difficulties.

[29:52] Roman: "It's been tried. There's a multitude of companies out there that are really concentrated on something."

7. Investment vs. Collecting: Roman’s Perspective

Caution Against Viewing Watches as Investments

Roman advises against perceiving watches purely as financial investments, labeling them as "expensive toys." He urges buyers to focus on personal enjoyment and heritage rather than speculative gains.

[08:50] Roman: "While I tell people watches are not an investment, they're an expensive toy first and foremost."

Long-Term Value and Provenance

He acknowledges that certain vintage watches with unique provenance can appreciate significantly over time, especially those with historical significance or limited production runs.

[14:44] Roman: "There's only 12 of these known in the world. There's six of these. There's also a white gold version that we sold."

8. Celebrity Influences and Iconic Watches

Impact of Celebrities on Watch Trends

Roman discusses how celebrities like Jay-Z and Kanye West influence watch trends, particularly with limited editions and unique designs. These endorsements can substantially increase a watch's desirability and market value.

[12:57] Roman: "Kanye put on the Cartier Crash, seemingly a woman's watch. That started the craze for smaller collectible Cartier watches."

Examples of Iconic Watches

Roman highlights specific watches worn by celebrities that have set market trends, such as the Rolex Daytona and Patek Philippe’s Nautilus.

[13:00] Roman: "This watch originally sold for Daniel. Let's see this watch over here. This watch originally sold for around $3,200 back in the early 80s. Last auction result on this particular piece was a million and a quarter."

9. Unique and Limited Edition Timepieces

One-Off Creations and Their Prestige

Limited edition watches, often produced in extremely small quantities, command premium prices due to their rarity and unique features. Roman showcases examples like the Patek Philippe Grandmaster Chime and specialized Richard Mille models.

[35:00] Roman: "This watch is going to cost like 380."

[35:03] Patrick Bet-David: "That’s the watch. Wow. That was the second watch he's ever made."

Challenges in Acquiring Unique Watches

Acquiring these exclusive pieces often requires impeccable reputation, substantial purchasing history, and sometimes inside connections within watch companies.

[34:25] Roman: "There's one difference... This is an addictive slippery slope."

10. Relationships with High-End Brands

Navigating Brand Exclusivity

Roman explains the stringent application processes of prestigious brands like Patek Philippe and Rolex, which limit sales to established customers with extensive purchase histories. This exclusivity drives secondary market demand.

[42:08] Roman: "It's a volume as well as. As you going up in complications."

Limited Editions and Brand Ambassadors

Collaborations with celebrities as brand ambassadors lead to limited runs of specific models, further enhancing their appeal and market value.

[42:34] Roman: "They make limited editions for them, right? Jay Z was an ambassador for AP."

11. Industry Challenges: Lack of Transparency and Centralized Systems

Absence of a Watch Grading Authority

Unlike other collectibles, the watch industry lacks a centralized authority for grading and authentication, making it difficult to verify the legitimacy of high-end timepieces.

[28:33] Patrick Bet-David: "And now we're kind of looking at the... It's like, hey, man, you have a salvage course, not a salvage car. This is a salvage car."

Fraud and Stolen Watches

Roman highlights the risks of fraud and the circulation of stolen watches due to the lack of a centralized database, complicating the verification process.

[30:53] Roman: "You never know the watch could be stolen."

12. Notable Watch Stories

Historical and Controversial Timepieces

Roman shares intriguing stories of iconic watches, including Adolf Hitler's Jaeger-LeCoultre Reverso and Patek Philippe's Grandmaster Chime, discussing their provenance and market implications.

[89:34] Patrick Bet-David: "Hitler's Watch sells for $1.1 million at controversial auction."

[90:00] Roman: "This was done by people that worked for a mega in their museum that were verifying all this stuff."

Implications of Owning Controversial Pieces

He expresses personal discomfort and ethical concerns regarding the sale of watches associated with controversial figures, emphasizing the importance of provenance and personal values in watch collecting.

[91:45] Roman: "I have a nephew whom I got added at the minute that the war started, and I visited him numerous times and he was doing extremely well."

13. Conclusion

Final Thoughts on the Luxury Watch Market

Roman underscores the importance of authenticity, informed purchasing decisions, and building trustworthy relationships within the watch industry. He advocates for sourcing watches from reputable dealers, engaging in thorough inspections, and valuing watches for their craftsmanship and personal significance rather than mere financial investment.

[101:01] Patrick Bet-David: "If you're thinking about buying a watch, you can manect Roman and ask him a question about a watch."

Supporting Ethical Collecting Practices

Both Roman and Patrick emphasize the need for ethical practices in watch collecting, discouraging the purchase of fakes and advocating for responsible ownership that honors the history and artistry of luxury timepieces.

Notable Quotes:

• [00:00] Roman: "And this is an inside job. A big inside job. They're not telling you the whole truth here because they're embarrassed."

• [08:13] Roman: "The number one reason a person buys a watch today is flex."

• [19:15] Roman: "You buy the dealer, not the watch."

• [28:34] Roman: "You create your own rapport within the industry."

• [42:34] Roman: "They make limited editions for them, right? Jay Z was an ambassador for AP."

• [95:53] Roman: "I have respect for those that innovated over the last few hundred years."

Key Takeaways:

1. Authenticity is Paramount: Always prioritize purchasing through reputable dealers and ensure thorough verification to avoid counterfeit watches.

2. Understand Buyer Profiles: Recognizing different motivations for purchasing luxury watches can inform both buying and selling strategies.

3. Investment Cautions: While certain vintage watches may appreciate, general investment in luxury watches is risky and should be approached with caution.

4. Celebrity Influence: Endorsements and limited editions driven by celebrities can significantly impact watch trends and values.

5. Industry Transparency Needs Improvement: The lack of standardized grading and centralized databases poses challenges in ensuring trust and authenticity within the watch market.

6. Ethical Collecting: Collectors should consider the provenance and ethical implications of their acquisitions, avoiding controversial or tainted timepieces.

For those interested in delving deeper into the luxury watch market or seeking expert advice, Roman Sharf can be contacted via Manect for consultations and inquiries.