Thoughts on this moral quandary?

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I am looking at this from other perspective - what if I die and leave my watch to my daughter. Would I care that she sells? Do want her to hang on to the watch she most likely never wear and basically is forced to keep it forever just because of whatever tradition says? Do I want to be remembered by physical thing or by memories?

Nah, it's hers now, she can do as she wants.
 
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Agree wholeheartedly with the advice to keep it for now and give it a chance to grow on you. My father died unexpectedly and his two Cartier tank watches, which he had said he wanted to leave to me, ended up being grabbed by another family member who probably sold them. Those watches wouldn’t have ever been my style but, as @wagudc said, you’ll never have another grandfather’s watch. Three years later, not having any tangible thing to remember my father by is something I’m never going to stop feeling sad about.
 
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Thanks again everyone for chiming in. So much value in hearing how you would all approach this.

To go through life collecting trinkets that serve no purpose sitting in draws gathering dust makes no sense. Converting them into something of use to be worn, or displayed that brings daily pleasure makes more sense.

^ This particularly stood out, and gets at the crux of the moral dilemma. The watch is valuable, physically, and more importantly, sentimentally. As such, I’ll never be able to part ways with it without regret—despite knowing I can liquidate it for a grail I’ll enjoy infinitely more.
 
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I have a friend who owns a mid-1960s Rolex GMT-Master (gilt-gloss 1675) that is a family piece. He has not seriously entertained the idea of selling it, but sometimes the value of that watch (~$25k) is a temptation.

In contrast, the value of a 1980s DJ, while significant, would not be life-changing for most people. Obviously, the owner who has inherited it has every right to do what he wants with it, no question about that. I just think it's the type of decision one might regret later.
 
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I am looking at this from other perspective - what if I die and leave my watch to my daughter. Would I care that she sells? Do want her to hang on to the watch she most likely never wear and basically is forced to keep it forever just because of whatever tradition says? Do I want to be remembered by physical thing or by memories?

Nah, it's hers now, she can do as she wants.

I have my grandfather's watch. Sits on my desk under a small glass dome. He didn't formerly hand me the watch to preserve for all time. It just somehow made it to me via my father. Yes, I would have memories of him without it, but it does spur new memories every time I look at it.
 
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In contrast, the value of a 1980s DJ, while significant, would not be life-changing for most people.
That’s right. However, $5k is a nice head start for a $7k or $10k grail watch.

You bring up a good point. I think how the funds are spent matters. I’d feel much worse if the funds were used for gas and groceries, as opposed to acquiring a new timepiece which can be thought of as a metaphorical gift in lieu.
 
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I own my father's watch, it a quartz peice with no real monetary value but he had to give up his clock collection when he went into the nursing home so he treasured that watch. Its the watch I'll never sell but will wear the least (the last time was the day of his funeral).

By the sounds of things there are no other items for the OP to remember his grandfather so maybe take some time to think about this. If required, a service might make the watch more wearable for you (or easier to sell) but think hard about polishing if you do wish to sell it.