Colorful speculation

I don't think OP popularity is going away anytime soon - especially since Rolex discontinued some colorways, which will make getting one even tougher. Stella dials from the 1970s are still popular 40 years later...

They're easy and fun to wear, but still luxurious. It's the right formula for today's luxury buyer, I think. 

Colors go in and out of style so fast I wouldn't want it on an expensive watch. I'm sure someone would say "that is so last year". That tiffany color was all the rage in the 70s and it should have stayed there. Plus the fact that most of those colors don't go with a suit.

For years I have used Tulip Mania as an colorful example of a speculative bubble. I was posting on WC on one thing or another and was going to use tulips as an example/allegory. I did a little pre-post research (I have this thing about being right) and found that the sourcing on the Tulip Craze was fairly weak. I now think that it is more legend than history. Shame, because it is such a good story.

I think that color is here to stay.  I will put my marker down here: the next fashion will be colored proprietary alloy cases (see @celinesimon 's article for the opening shot). 

Yeah the discontinued colors will no doubt exacerbate the problem.

Any idea why we are suddenly so interested in color?  Because we live in dark times? 😂

💯💯💯💯💯

Tulip mania is as credible as the story my cousin once told me, about how he was hiking up in the Pacific Northwest, stumbled into a clearing, interrupting the dinner of a family of Sasquatches.  They invited him to sit down, they had a couple of bottles of Chateau Lafite Rothschild together, along with some garlic naan (Sasquatches are vegan, apparently), and then gifted him a commemorative Franklin Mint Star Trek plate, as seen below:

Nobel Prize Committee awarded the 2013 Nobel in economics, jointly, to Eugene Fama and Robert Shiller.  Effectively, the committee was saying, "Here's a Nobel for a dude who revolutionized our thinking on the Efficient Markets Hypothesis, with some really powerful math and empirical studies that have all supported this revolutionary theory, whose foundation he helped set up.  And if you follow the logic of his work, bubbles don't exist.  And, this Nobel Prize is to be shared with this other dude.  And, well, uh, we're giving the Nobel to this dude because he talks incessantly about how this is a bubble and that's a bubble and how there are more bubbles everywhere than at a Lawrence Welk concert...  though, he provides no actual mathematical evidence of bubbles, and were you to have actually followed his advice over the past several decades, you would have lost your shirt 18 times over.  But, everyone KNOWS there are bubbles!  So, we don't want to piss people off by contravening the conventional wisdom, so we'll abdicate any and all common sense and give the prize to two people who's theories completely contradict one another.  Here's your Nobel!"

Best explanation I've ever come across for lay people on bubbles:

https://johnhcochrane.blogspot.com/2020/02/tesla-bubble.html

https://johnhcochrane.blogspot.com/2017/11/bitcoin-and-bubbles.html

Oh...  wait...  this isn't the Econlog forum???  Whoops!

Yeah, I love colors!  Yay colors!

For years I have used Tulip Mania as an colorful example of a speculative bubble. I was posting on WC on one thing or another and was going to use tulips as an example/allegory. I did a little pre-post research (I have this thing about being right) and found that the sourcing on the Tulip Craze was fairly weak. I now think that it is more legend than history. Shame, because it is such a good story.

I think that color is here to stay.  I will put my marker down here: the next fashion will be colored proprietary alloy cases (see @celinesimon 's article for the opening shot). 

The first watch I bought when I started getting interested in watches was a silver dial OP36, which I picked up in the fall of 2018 when discounts were still achievable.  It's a really nice watch, but it certainly doesn't make the cut for the top 5 watches in my collection. At MSRP, I feel that the OP offers decent value, but there is no way that I'd pay a premium above MSRP.  

The color dials are nice, but that's about as strong an adjective as I'd use. I also see them as being more of a fad than a real trend. I wouldn't be surprised if they went the way of the Avacado appliance package and flower print wallpaper within a year or two. 

Dude!  Come on!  You just put up a picture of my kitchen.  Don't hate, bro!

Were you lucky enough to pick up your appliances at list from the Frigidaire AD, or did you have to go to the grey market to get them? It's too bad you didn't pick the tiffany blue appliances - they're currently trading on Kitchen24 for multiples of MSRP.  But they are well worth it. Sure, they're trading above Wolf and Sub-Zero prices, but hey, what a great color - well worth the premium. 😉

Great point.  So, Kahneman and Tversky's work is / was revolutionary.  So, everyone has always known that due to evolutionary fitness reasons, human beings are less than perfectly rational.  But, nobody had ever systematized the thinking.  And, without any guiding theory, anybody can say, "Well, people just aren't rational!"  Ain't no explanatory power in that.  (For example, my cousin is fond of saying that people are idiots, as an explanation for everything.  And, when you go through his worldview, you quickly find that EVERYONE IN EVERY SITUATION is an idiot...  with him as the lone exception.)

So, Kahneman and Tversky developed a set of hypotheses that asserted that you could observe the irrationality systematically.  Then, they developed a series of experiments and used compelling empirical observations to back up their claims.  Revolutionary not because they pointed out that people were, in some ways, irrational, but revolutionary because they were the first to show it could be identified in systematic ways.

Absolutely well-deserved Nobel.

However...  a funny thing happened on the way to the forum.  Behavioral economics was supposed to completely upend our thinking on EVERYTHING.  It never did.  I was there when Behavioral Economics was really getting off the ground and generating crazy excitement.  Had professors in grad school who were luminaries in the field.  A combination of things occurred:

• A bunch of people set up Behavioral Finance funds - if you could identify how people diverge from rationality systematically, you can exploit those insights to make massive market returns.  There is no Warren Buffett of Behavioral Finance after all these years.  None of these funds, that I'm aware of, have been able to systematically beat the market indexes on a consistent basis as they'd originally promised to do
• A bunch of the experiments and empirical observations that served as the basis for Behavioral Economics were conducted using students in the university labs.  John List conducts all his experiments and empirical observations in the field.  And what he's found is that these behavioral departures from rationality occur all the time in student experiments, because they ain't got any skin in the game, but in the real world, when real money is at stake for real people, they mostly know what they're doing.  For example, you don't see "endowment effects" with baseball card collectors, the way you do in the university lab setting
• A bunch of seminal studies in the field couldn't be replicated

Check out Steven Levitt's interviews of Kahneman, Sunstein, and Thaler in these episodes of "People I Mostly Admire."  Levitt is friends with all of them, I think he was golf partners with Thaler and Fama, and was a business partner at one point with either Sunstein or Thaler.  Anyway, in the interviews, he very directly asks them about why Behavioral Economics never lived up to the hype and why didn't it revolutionize everything as initially promised.  And each one of them points out, rightfully, that although Behavioral doesn't upend everything, it still has its uses.  Especially in the field of "nudges."  For example, by simply changing defaults on corporate 401k plans, you can get people to save 1% or 2% more without any additional costs, which makes them better off!  And, when applied to all these government nudge units that have cropped up, 1% or 2% when tens of millions of people are affected becomes something significant.  But, again, 1% or 2% is not revolutionary.  It's ain't nothing.  But, it also ain't everything.

https://freakonomics.com/podcast/daniel-kahneman-on-why-our-judgment-is-flawed-and-what-to-do-about-it-people-i-mostly-admire-ep-27/

https://freakonomics.com/podcast/why-is-richard-thaler-such-a-bleep-optimist/

https://freakonomics.com/podcast/all-you-need-is-nudge/

Finally, I would say, I think there's a general misconception about the "Efficient Markets Hypothesis (EMH)."  Folks see those words and think it has to do with EVERYTHING in the market place, and then react to it based on their political sensibilities or "mood affiliation."  But, the name is misleading.  EMH should actually be called, "how financial markets use transactions in a process called price discovery to reflect all available information."  But, I guess that's a less catchy title!

So, yeah, economists (other than maybe Stephanie Kelton) continue to use Rational Actor and EMH as their primary frameworks for understanding human behavior.  And, really, all it is is looking at incentives and how human beings respond to incentives, and recognizing that due to the central limit theorem, so long as deviations from rationality are random, the errors effectively cancel out, giving you strong signal:

https://en.wikipedia.org/wiki/Standard_error

Oh...  wait...  this isn't the Econlog forum???  Whoops!

Yeah, I love colors!  Yay colors!

I never thought I’d be discussing the Efficient Market Hypothesis on a watch forum. Thanks for this! This feels like a bubble. Rail stocks In the late 19th century. Electronics stocks in the 60s. Etc. If you think you might be ina bubble and are holding stock, good advice is to sell half of what you own. A good regret minimization strategy. Not sure what one does if one owns only one OP though. 

Ha!  Thank you!  

I always figure that 99% of people will react in absolute horror to the autistic stuff coming out of my mouth.  It's sooooooooo nice when someone is willing to actually engage in the ideas!  

Thank you!!!

Okay, let's have fun and debate!!!  😂

The problem with "bubbles" is that the Nobel prize winning oracle of bubbles has predicted 18 of the last 2 bubbles!  😜

Shiller uses his CAPE ratio to inform us whether there is a bubble or not.  And the CAPE ratio has told us that stocks have been WILDLY overpriced...  for the past 37 years!  Shiller's advice would have been to sell all your equities and hold gold starting back in 1985.  Which would have been precisely the wrong advice.  Because it turns out that real interest rates have been falling monotonically for the past 37 years, which would seemingly adequately explain the meteoric rise in the values of all assets over that timeframe.  

Here's the best explanation for the "bubble" phenomenon I've ever seen, where the post is designed for the layman:

https://johnhcochrane.blogspot.com/2017/11/bitcoin-and-bubbles.html

https://johnhcochrane.blogspot.com/2020/02/tesla-bubble.html

John Cochrane points out presciently that restricted supply of certain assets often results in "speculative demand," where volatility is a feature, not a bug!  In other words, we primates LOVE TO GAMBLE!  Why?  Because gambling F&^%ing rocks!  Per Cochrane's framework, Rolexes have:

1.  Price volatility - You could get an OP with a discount off MSRP as little as even a few years ago!  
2.  Turnover - Look at how quickly they are bought from ADs and then listed on Chrono24, and then bought, and then re-listed, etc.
3.  Impediments to short-selling - Ain't no way to short the OP
4.  Disagreement - Per Cochrane "an asset where there is a lot of disagreement, a lot of potential news, a lot of different opinions about long run value. Bubbles do not happen in regulated public utility stocks."

Ain't no such thing as an irrational bubble or a "greater fool" bubble or a "rational bubble."  In the case of the OP and all other Rolex models, it's all just gambling.  And it's awesome, because gambling is awesome.  Even though I know the fundamental value of Bitcoin is zero, I am currently holding some Bitcoin.  Why?  Solely because I love to gamble!!!  

I would hazard a guess that the very same people who believe that Rolexes are good "investments" are precisely the same people who buy lottery tickets and love going to Vegas!

Loved those posts you linked to. and I must admit to being a fan of CAPE ratios. But I do agree they tend to predict more crashes than we ever get :). 
 

I wonder if what we are seeing in the watch world is an extension of the “everything bubble”. No one wants to hold treasuries when they yield zero or less (although I admit that’s changed in the last 12 months with rates rising). Any asset becomes more attractive. 
 

It just feels to me like this can’t go on. But I’ve been saying that about the US stock market for the last five years and look where that has got me :)

Got a mind-blowing story for you about EMH.

• Best friend is crazy successful.  Colleague of ours said, "Yeah, life's not fair.  Not only is he the smartest person I know, but he's also the nicest"
• In late December 2019, he messages me to say, "Hey dude, there's this thing in China, called Covid.  I just looked into the R0.  It's going to be a global pandemic.  You should short the market, like me.  At the very least, go stock up on essentials"  
• I think, "Oh, boy, this is more talk like his whole AI misalignment thing, and how AI is going to wipe out the human race within a decade"
• Sure enough...  He put $1M into shorting the S&P 500, and that became $4M
• I say, "Okay, dude, take that money out now, and put it back in the S&P."  He says, "Nah, I now believe X, Y, and Z."  I say, "Dude...  EMH."  He says, "Nah, EMH holds 90% of the time, but because of agency issues, you find...  blah, blah, blah"
• He takes out another massive levered bet, and the $4M becomes like $100k
• I say, "Dude, did you learn anything?"  He says, "Yeah, I learned that my hypothesis was wrong about systematic agency issues in A, B and C.  EMH holds.  But, I also learned that I love gambling."  Plows his remaining $100k into a massively levered futures contract tied to LIBOR and inflation expectations
• $100k becomes $2.5M

According to him, EMH holds, but he loves to gamble!