(MONEY Magazine) – On Saturday mornings at around 10, Stewart Unger begins arranging the treasures in the window of Time Will Tell, his watch shop on New York City's posh Madison Avenue. No sooner do the burnished vintage Rolexes, Patek Philippes and Bulovas make their appearance than passers-by stop to peer through the glass. Huddled together, the gawkers personify the fascination with a growing trend: In the watch world, the new motto is "Seen that, want that." Everybody's at least dreaming of acquiring an "instant heirloom" to flash to their friends.

Generally, the term vintage watch describes a handmade, mechanical piece produced from around the turn of the century through the 1950s. Prized timepieces include not just those by famous European makers such as Patek Philippe and Vacheron & Constantin but also American brands like Elgin and Hamilton. Despite their age, many of the watches remain affordable, at least as splurges go. In good condition, the finest fetch from $1,500 to $100,000--and sometimes more. "Things in the high-end vintage market are going absolutely nuts," says Unger, author of American Wristwatches: Five Decades of Style and Design (Schiffer, $79.95). He says he's seen some watches more than triple in value in the past three years.

Consider the frenzied activity during a recent auction of watches and clocks at Sotheby's in New York City. Of the 472 lots for sale, bidders snatched up 85% of the goods and paid $2.5 million for them. Prices on many watches, including the sought-after vintage Patek Philippe and Rolex models, wound up well beyond auction catalogue estimates. For example, a 1935 18-jewel Patek with a "high" Sotheby estimate of $4,200 brought in $6,037.

Until the early 1980s, Americans preferred new or quartz models, not old mechanical watches that you might have to wind up. But around 1985, after collectors from Europe and Asia ticked up interest, prices and enthusiasm for the vintage products began to rise, surging to a peak in the past 12 months. Prices for high-end vintage watches at Unger's store have generally risen 20% to 30% in the past year and a half.

The burgeoning watch trade is only partly based on customers' hopes that their purchases will increase in value. It's also a function of fashion, price and practicality. Not only do collectible watches look trendy, they can cost 50% less than similar new models. And older timepieces that have been well maintained keep time just as accurately as their modern counterparts. Their fragility can lead to expensive upkeep, however. If your vintage watch needs repairs, replacement parts or cleaning, you could face a $400 to $3,000 bill. Changing the battery in a new quartz watch, by contrast, runs only about $25.

Some of the country's 3,000-odd dealers were way ahead of the current craze. Albert V. Munday, a Stamford, Conn. watch dealer and real estate broker, started acquiring vintage timepieces in the 1970s. Currently, he owns more than 100, most of which are tucked away in his bank safe-deposit box. One of his first buys was a 1939 14-karat yellow-gold Tiffany triple-calendar watch. He picked up the soft yellow-gold model at a New York City antiques show in 1976 for $235. Today it is worth about $3,000, and he has a rider on his homeowners policy to insure it. "I fell in love with this watch," says Munday. "My older jeweler friend thought I was nuts. He couldn't understand why I wanted somebody's used 'junk.'" That "junk" has appreciated roughly 10% to 12% a year.

Dealers and even collectors caution against buying vintage watches as an investment without consulting a knowledgeable expert first, though. Rather than fretting over payback potential, savvy collectors focus on a watch's beauty, rarity and other aesthetic qualities. Says Massimo Barracca, owner of the Miami Beach jewelry store SenzaTempo: "You want something you can wear and enjoy."

Other pointers:

--Bag the best names. "This whole market is based on status," says Daryn Schnipper, director of Sotheby's international watch department. That explains why big recognizable brands like Cartier, Patek Philippe and Rolex rule. They can be thought of, in fact, as portable status symbols, owing to their tradition of quality workmanship. "It's very much like collecting cars, except you can't take a car into the board room or restaurant," Schnipper says. "But a Rolex goes with you."

With their superb movements and hand craftsmanship, Swiss models like Cartier, Patek Philippe and Rolex represent the top of the line. Patek Philippe, considered the world's finest mechanical watch company, began making timepieces in 1839, and in the early 1940s first turned out the highly coveted 18K perpetual chronograph model. Thirteen years ago, you could have picked one up for about $13,000. Today, that watch costs $90,000. Other high-end Swiss makes include Audemars Piguet and Jaeger Le Coultre. Expect to pay a minimum of $2,000 for these vintage brands, as well as for Cartier, Rolex and Patek Philippe.

--Scope out styles and shapes. Watches from the 1940s and '50s are particularly in demand, says Danny Govberg of Govberg Watches & Fine Jewelry in Philadelphia. "Stylistically and technically, that era was a high-water mark in the history of watchmaking," he adds. In addition, many older people remember them and want to own a piece of the past. Classic shapes--rather than multisided or triangle models--are the most enduring. Some experts say that bigger is better, which also means the person next to you can't help noticing. That also explains why men's watches are more popular collectibles than women's. "On most ladies' styles, the design doesn't pop," says Barracca. "They are too small."

--Check the condition. Collectors know that the single most important feature of a watch is the condition of the dial, or face. A ruddy or cloudy face means oxidation has set in, making the piece less of an art object. You'll also want to ask whether the watch is completely original or has been restored, since condition can affect price dramatically. Over a period of, say, 40 years, a watch is apt to lose at least a few of its original components. So hybrids abound. But these replacement parts or improvised features tend to depress the value of the watch. For instance, you might come across a Patek Philippe watchcase with a soldered-on bracelet. No matter how attractive it is, the add-on feature could bring the watch's price down by 25%.

--Look for unusual features. These days, gizmos like alarms, perpetual calendars (which automatically adjust for leap years) and chronographs--all known as complications--can boost a watch's price. Such devices can raise a watch's value from $5,000 (for a mechanical alarm) to $100,000 (for a split-second chronograph).

--Don't always go for the gold. Rarity and condition are the keys to a vintage watch's worth; materials like 18-karat gold, platinum and diamonds may only moderately affect price. In some cases, highly durable stainless-steel watches can cost even more than those made with precious metals. For example, at the Sotheby's auction a rare 1955 Patek Philippe steel watch with mesh bracelet brought $5,175--or about 10% more than many gold watches by the same maker.

--Be cautious. Counterfeiters are increasingly clever. These days, they use genuine gold and print serial numbers on their knockoffs. So it is important to buy vintage watches from a reliable source. Rare-watch dealers are the safest bet, since they will guarantee authenticity and offer a warranty. To find one, ask for recommendations from jewelers you trust. One caveat: Dealer markup is high. After acquiring pieces through auctions, estate sales and swaps, dealers tend to hike prices on watches by as much as 100% or more. So before you accept a dealer's price, check out the going rate for similar timepieces in a book like The Complete Price Guide to Watches, 17th edition, by Cooksey Shugart and Richard E. Gilbert (1997 Collectors Books, $26.95).

It is possible to get a great deal at auction houses such as Sotheby's and Christie's--but only if you know your stuff. "Everything is sold as is," warns Sotheby's Schnipper. "And we don't give any guarantees." A third option is flea markets, such as the one held at Los Angeles' Rose Bowl on the second Sunday of every month. Unless you have really done some research and comparative shopping, however, it can be difficult to determine whether you're getting value for your money. One way to protect yourself is to ask the seller for documentation that the watch is authentic.

One last tip: Buy in moderation. "It's far better to have one nice-quality watch than 20 mediocre ones," counsels Barracca. After all, even collectors can keep up with only one second hand at a time.