How to Avoid Crashing – DIVERSIFY
If one strategy is being used to initially find a niche and grow your expertise in watch trading, that is a wise approach. One strategy being used as an ongoing game plan is actually the opposite. It can completely undo your hard work, deplete your funds, and catch you off guard leaving you out of watch trading for good.
I’ve seen it happen often with traders who get a taste of healthy profits, but then they get lazy, or greedy, or comfortable, and BAM! Just like that they’re back at $0 or taking a bath because they didn’t diversify.
What exactly do I mean by diversifying your watch trading strategy? And what are some examples of ways traders have bit the dust by not practicing said approach? I’ll give you some clear ideas in this latest article.
Eggs in 1 Basket FAILS
Almost everyone knows and loves Rolex. Rolex has done an insane amount of work marketing and building a brand that is fail proof so it’s no wonder enthusiasts go crazy for them. The good and the bad with Rolex is the demand is so high you can assume you’ll probably be okay keeping one for a very long time and not losing much money. The downside is, the market can be so overhyped that when people get greedy or want fast cash, they start playing an arbitrage game that is more risk than reward. For example, collectors, enthusiasts, and traders alike will pay over MSRP retail for luxury sport models so they can potentially make a few hundred dollars or even a few grand on a trade. Now that is a solid strategy here and there when it makes sense. But investing four to five figures in a steel sport watch that is trading hands thousands above where it started to make a potential $750 isn’t worth it especially if that’s the only strategy being deployed for all watches in your inventory. Markets shift faster than most learning traders realize. In the course of a month if there is a macroeconomic event, and/or an announcement of new models, prices can shift in a direction that leaves you high and dry. You may think paying $24K for a blue dial stainless steel SkyDweller originally priced at $14,800 is wise to make $800. But when you understand that that number is approaching the white gold SkyDweller price, and that next week’s trend could bring this week’s price drop on the pieces you’re holding that you already bought too high…. you start losing $500 here, $1,000 there, and breaking even just to carry a brand that is a “fast mover”.
The same can be said about the opposite strategy which would be only holding scarcity play or odd ball pieces in your inventory. If all the pieces you’re holding have $2K+ profit potential in them, but aren’t moving fast enough you could just be sitting on stale money.
A lot of traders I know get caught in the Wholesaler game. Being a wholesale trader isn’t necessarily a bad thing in itself. There are some decent opportunities to make 5-10%, and meet connections who can supply you with pieces/services in times of need.
That said, there are a lot of risks that come with the wholesale approach especially if it’s your main strategy. For one, wholesale deals are usually sold as-is. This means they’re not retail ready and tend to have issues. Things like needing a polish, slight repairs, and replacement parts are common. And in this day of closed operations it is almost certain turn around times for these services will take 3-5X as long to complete. This leaves you at a high exposure of money being locked up which could be used for trading. Believe me when I say there are times when a replacement bezel took 3 months instead of the typical 2 weeks to be ordered from a manufacturer. I also had committed to a deal on a Hublot that was supposed to be shipped in from Hong Kong, and due to logistics delays and complications, the watch just couldn’t get here to the USA. Fortunately I didn’t pay for it yet, but the point is the deal never even came to actualization. So if you have all of your deals setup in wholesale type arrangements, there’s a high probability you’re going to give yourself a headache for profit margins that aren’t worth it. Another example is buying watch only deals. Although these can work well for small profit quick flips, they aren’t always the best for the full retail buyer close. Again, going only with this approach is bad news.
Brokering other people’s watches is a great way to make money without needing your own funds at times. And pre-ordering pieces that are in high demand from dealers or brokers by paying up front and taking delivery later can also be lucrative.
But remember you’re only as safe as the supply chain and person you’re working with on the other end in this arrangement. This means, if the person you’re brokering the watch from, or pre-ordering with can’t deliver the goods, and/or doesn’t clearly communicate the condition of the inventory, you could end up completely screwed. You have to ask yourself if the person is trustworthy enough that you would give them your money and they would pay you back if something on their end didn’t work out. Otherwise, you risk losing it all.
The Due-Diligence FAILS
I’ve unfortunately seen this one happen more than I’d like to. Either a green behind the ears rookie, or a semi-seasoned vet trader gets lazy or comfortable on buying/selling a watch and they get scammed.
You would think that with all the resources available at WTA, and in the Facebook group this would be avoided, but again people get comfortable and misstep when they get confident and/or overlook safety precautions because they think they scored the deal of a lifetime. Always go through a checklist of investigating the counterparty so you know who you’re dealing with. Too many people have lost all of their capital by buying one watch or a bundle from scammers.
Diversity is NOT an Old Old Wooden Ship…
So how can you hedge your risk, and ensure you take advantage of all watch trading has to offer?
Simply put…. DIVERSIFY! Diversify where your funds go. Use PayPal credit, cash, bank funds. Deploy a mix of trading strategies like quick flips, hold pieces, scarcity plays. Also source from multiple avenues. Leverage private sellers/buyers, your personal network, wholesale dealers, retail dealers, and customers. Keep a healthy rotation of different brands and you will never fall flat on your face when the economy and trends shift.
Just like any healthy and well built investment portfolio, it’s always best to deploy trading strategies that get you to your goal at the end of the day.