Barron's interviewed David Winters, who manages the Wintergreen Fund (WGRNX). Winters is generally well regarded as a stock picker and I would describe him as one to hold on to stocks as a long term investor.
There was a lot of time in the interview devoted to his fund's positions in Swatch (OTCPK:SWGAY) and Compagnie Financiere Richemont which both make watches. According to Morningstar, the fund had a combined 10.83% in the two companies. To read the interview it is quite clear that Winters believe the prospects for the watch industry are very bright.
I believe Swatch has watches at all price points whereas Richemont skews to the high end. There was not a lot of detail about his optimism other than he believes the companies have pricing power and the extent to which these purchases are often emotional.
The stocks have done well in the last two years. Richemont is up about 50%, Swatch is up about 30% (same as client holding XLY and both were far ahead of the iShares All Country World Index ETF (NASDAQ:ACWI). There are a handful of publicly traded watch companies in the world including Fossil (NASDAQ:FOSL) and Movado (NYSE:MOV) in the US but these are very narrow companies making essentially one type of product.
I've read/heard a couple of different times people question the future of watches because of the ubiquity of smart phones which obviously greet you with the time whenever you turn them on. Personally I have no idea if that is a real threat to the watch business but it is an interesting question.
That a company just making watches is very narrow is not a bad thing. I believe in blending together some very narrow holdings with some broader holdings like sector funds and country funds to build the portfolio. I'm sure someone could look at the portfolio we manage for clients and conclude that some stocks are narrower in their scope than a watch company.
The watch-out situation (ahem) in my opinion is the almost 11% in something so narrow. It would be like having 11% in publicly traded coffee houses. At times they do very well but at times they get crushed and ten-ish percent in something so narrow is really ramping up the risk and/or volatility potential of the portfolio. This might work for Winters but it is not something I would do.