Greater fool theory

[Rollieo]

“In finance and economics, the greater fool theory states that the price of an asset is determined by whether you can sell it for a higher price, at a later point in time. On assets where the theory applies, it is implied that the asset's intrinsic value is less important than the increase in demand, however irrational it might be. Any person buying the asset might be a fool, but a person buying the overpriced asset later on, for a higher price, is deemed the greater fool.”

When does it stop? When there’s no greater fools.

I feel mixed about this post. Mainly because I genuinely like watches, and don’t see it as some kind of investment game. I only buy watches to wear, I don’t plan to ever sell or trade any piece I buy. I’ve also been lucky to have a number a good watches and not had to buy anything grey. Principally I’m against buying grey, I’m not against those that do.

Paying 2x, 3x, 4x retail? The idea is that prices will always go up I guess? Not sure the endgame, but the music has to stop at some point.

[RolexSimon]

It will be interesting to see - maybe some time yet before we can see what will transpire......

[seabreeze60]

It’s a fool’s conversation. Just walk away

[Laszlo]

There’s a lot of other watches to be had and enjoyed that aren’t inflated.

[enjoythemusic]

Originally Posted by Rollieo

“In finance and economics, the greater fool theory states that the price of an asset is determined by whether you can sell it for a higher price, at a later point in time....”

When does it stop? When there’s no greater fools....

Paying 2x, 3x, 4x retail? The idea is that prices will always go up I guess? Not sure the endgame, but the music has to stop at some point.

We do indeed live in interesting times.

When you mention a form of payment, the first rule-ish is that there needs to be something of 'perceived value' on both sides of the transaction so each party is a willing participant.

As for the 'perceived value' of each item used within the trade, that is where CONfidence may come into play.

It may be best if i humbly leave it to you to figure out what is a CONfidence game, and what has intrinsic value. Ask yourself, what is the actual 'cost' in labor/resources/skill/etc to produce 'A' versus 'B'?

[Blansky]

And also, say, $20,000 is a lot of money to some people and pocket change to someone else who just buys whatever they want.

So the cost is meaningless, if it's an item they want.

While some people are sitting around figuring out 'value" and cost benefit ratios, and resale values, others just spent irrelevant cash on something that they bought on a whim.

[Chester01]

Good. I cant wait for the music to stop and the market shakes out the folks here to make a quick buck they can go back to stocks.

[Laszlo]

If you do the math on some Rolexes that aren’t parabolic, you’re basically paying retail, tax and a grand or two premium. So it’s not that bad for some SS/Sport Dress models. Also, when you look at the retail prices of most SS Rolexes, IMO they’re already under priced, especially when you see PAMs (as an example) near the same retail price for like watches. I personally think all SS/Sport Dress Rolexes should retail with starting prices over $10k anyway except for the likes of OP etc..

[Knappo 1307]

If you can figure that out, you've figured out life...

[JasoninDenver]

I thought this was going to be a thread about cryptocurrencies. Or tulips.

[904VT]

Originally Posted by Rollieo

“In finance and economics, the greater fool theory states that the price of an asset is determined by whether you can sell it for a higher price, at a later point in time. On assets where the theory applies, it is implied that the asset's intrinsic value is less important than the increase in demand, however irrational it might be. Any person buying the asset might be a fool, but a person buying the overpriced asset later on, for a higher price, is deemed the greater fool.”

When does it stop? When there’s no greater fools.

I feel mixed about this post. Mainly because I genuinely like watches, and don’t see it as some kind of investment game. I only buy watches to wear, I don’t plan to ever sell or trade any piece I buy. I’ve also been lucky to have a number a good watches and not had to buy anything grey. Principally I’m against buying grey, I’m not against those that do.

Paying 2x, 3x, 4x retail? The idea is that prices will always go up I guess? Not sure the endgame, but the music has to stop at some point.

I think two ways to look at it:

1. Secular growth trend in prices will slow down and flatten. Then we move back to the historical cyclical growth trends.

2. Historically Rolex (SS Professionals especially) have acted as a inflation adjusted store of value i.e. not an "investment".

So either we are experiencing a secular growth trend that will soon revert to cyclical growth or perhaps inflation is much greater than we perceive.

[Mendota]

Originally Posted by 904VT

I think two ways to look at it:

1. Secular growth trend in prices will slow down and flatten. Then we move back to the historical cyclical growth trends.

2. Historically Rolex (SS Professionals especially) have acted as a inflation adjusted store of value i.e. not an "investment".

So either we are experiencing a secular growth trend that will soon revert to cyclical growth or perhaps inflation is much greater than we perceive.

Yes, there was a fantastic chart someone posted here on TRF one time that showed the inflation adjusted MSRP of a Rolex submariner on the chart of those initial dollars at time of purchase. I think it went from the 70s through the mid 2010s. The two lines were identical, meaning when you adjust for inflation MSRP literally just keeps up with inflation.

[GradyPhilpott]

Double post.

[GradyPhilpott]

Originally Posted by Rollieo

When does it stop? When there’s no greater fools.

“There are more fools in the world than there are people.”
― Heinrich Heine

[904VT]

Originally Posted by Mendota

Yes, there was a fantastic chart someone posted here on TRF one time that showed the inflation adjusted MSRP of a Rolex submariner on the chart of those initial dollars at time of purchase. I think it went from the 70s through the mid 2010s. The two lines were identical, meaning when you adjust for inflation MSRP literally just keeps up with inflation.

Yes, that was a great chart

[BroncoOne]

It’s what makes a market. Everyone has a different perception of value.

[Goin2drt]

Originally Posted by Blansky

And also, say, $20,000 is a lot of money to some people and pocket change to someone else who just buys whatever they want.

So the cost is meaningless, if it's an item they want.

While some people are sitting around figuring out 'value" and cost benefit ratios, and resale values, others just spent irrelevant cash on something that they bought on a whim.

This right here. $39K for a hyped inflated Daytona is literally a rounding error for many while this is a lifetime achievement and a grail for others. The latter are mad about the flipping, gray, price increase etc etc while the former could care less and probably not even on here and ambivalent to what is going on.

As for when it ends and at what height, no one knows just hundreds of threads on forums "speculating". Maybe it will never come down only flatten. Who knows. Certainly possible the "market value" prices of today never goes lower even if there is a crash.

All I do know and hope and what we all talk about around the barn is hopefully people are not leveraging themselves to the hilt for all these luxury purchases. Seems like people think they are rich when they look at their home value and 401K. Hopefully they aren't going out and borrowing on that paper "equity" because when that does come down, which it will always does, those are going to be the ones in trouble. My philosophy right now is if you can't buy it all cash and could lose it tomorrow without any issue then you should probably hang on to your money.