The Abstractification of “Intrinsic Value”

In a world wandering ever further into the abstract, the arbitrary and the subjective, it comes as no surprise that so many are confused on the meaning of “intrinsic value”. 

When used at the personal level, the “intrinsic value” of any asset is in its use case, the properties it inherently possesses; at the market level, its “intrinsic value” is in its use case independent of sentiment and appraisal. In any other context, or under any other set of conditions, the metric is entirely useless, serving only as a form of rhetoric or foolhardy marketing. 

As a metric or principle, “intrinsic value” serves to offer a floor, the minimum value of any asset; thereby serving as a reference point for any subsequent appraisal (or long-term market-clearing price). “Intrinsic value” is best described qualitatively in its immutable properties and use cases, and quantitatively by stripping the calculus of any anomalous artifice, conditions, sentiment and speculations supporting current market prices. 

Confusion on this subject is particularly common within the markets for artwork and collectibles. Indeed, a popular YouTuber, Jenni Elle, is just one such example of that confusion. 

In her video titled “The Rolex Bubble Has Burst”, she correctly identifies the characteristics of a bubble — a market priced out of proportion with its deliverable value — and she points out the many features indicating that the Rolex market is, and has been, in a bubble. However, she stops well short of the truth: virtually all of that market defies “intrinsic value”, operating entirely under the forces so characteristic of a bubble: sentiment, artifice and speculation. 

The “intrinsic value” of a watch is in its function as a reliable timepiece and the materials it possesses; differing only slightly from the way a painting offers “value” as both an exhibit and a canvas with dried paint. As a timepiece, Rolex watches, and others with mechanical movements, possess little “intrinsic value” relative to their more accurate, durable and inexpensive quartz counterparts; the latter of which, in price, approximates a reference point for the “intrinsic value” of the former — in short, a value which is negligible. 

Further evidence of this is found in the fact that replica watches, even perfect reproductions, are not even remotely as pricey as "genuine" examples; indeed, they are often a tiny fraction of the price. This goes to show the influence of brand equity; the fact that people associate “value” with brands, prestige and exclusivity; and that these factors have absolutely nothing to do with “intrinsic value”. 

As for the materials, rarely are they precious or particularly rare, and rarely (in such cases) does a difference in materials significantly improve the timepiece’s relevant performance. As such, their value is generally negligible relative to the total price of the watch, a price which admittedly represents an emphasis on form over function. 

Even where the materials are precious, such as in the case of gold or platinum, their quality is almost always lower than investment grade; and they are typically used in watchmaking for cosmetic enhancements (at astronomically high premiums), not for enhancements in performance or usability. So, while it may rightly be said that those precious metals will increase the piece’s “intrinsic value”, that benefit comes at a very high price relative to the metal’s spot price, or the current market price at which the raw material is deliverable. 

This makes a gold or platinum watch, or any other watch made of precious metals, a highly inefficient investment in “intrinsic value”. Moreover, in such cases, the metals’ “intrinsic value” is entirely separate from their use in the watch. This means that their “intrinsic value” exists independent of the watch; that the metals must first be separated from the watch to be used for their “intrinsic value”.

Therefore, it can rightly be said that luxury watches are just that: luxury items with precious little “intrinsic value”. Like luxury automobiles, all else equal, their true “value” — as measured by utility — is never higher than it is at the time of production, and seldom greater than that of the more economical alternatives. Like any haircut or handbag, so long as it serves its purpose, none is necessarily more valuable than the other, at least “intrinsically”; it is merely a matter of personal tastes and preferences. 

Take water, for instance: it possesses “intrinsic value” because it hydrates, whereafter any flavoring is, again, merely a matter of taste. The flavoring has no bearing whatsoever on water’s “intrinsic value” — insofar as the term is at all useful — because that too is, like luxury watches and their designs, a function of preference and sentiment, which are always subject to change. “Intrinsic value”, however, is constant, always independent of appraisal and approbation. 

Artifice, sentiment and speculation are fleeting and unreliable, which is why they are so typical of bubbles. Indeed, any market or appraisal governed or dictated by either cannot be said to reflect an asset’s “intrinsic value”. 

Ultimately, a market driven exclusively by emotion cannot be said to offer “intrinsic value”; just as any collectible or piece of artwork, whose only value is said to be in the eye of a single beholder (or the eyes of a small set of beholders), cannot be said to possess any “intrinsic value”.