After all the exaggerated claims over the years from people in the trade (e.g., Bill Sokolin) about wine being a great investment, and outright B.S., I was interested to see a piece in this morning’s WSJ has an interesting story about a new economic study of wine prices.
Looking at Bordeaux auction prices back to 1899, three economists in the U.S., U.K. and France have “calculated that over the entire period, the prices of these wines beat inflation by an average of 5.3 percentage points a year.” But, based on storage and insurance costs of around 1.2% a year, “their estimated net after-inflation returns to 4.1%—substantially below that of stocks.” (It isn’t clear if they factored in auction fees.)
Obviously, it’s hard to know if the market dynamics were the same a century ago. But the article raises an interesting point about the more recent run-up in some wines. "t was always unclear how much of the wine going to mainland China was actually being consumed, rather than being hoarded for further speculation, he says. The boom began bursting drastically in August 2011. Since then, hoarders have been dumping surplus inventory, driving down prices."
I can see how wine investment funds might make decent returns, because they buy in bulk at the cellar door. But that means their profits rely on eliminating the middle man and not on rises in the market alone. Investing as a consumer, paying retail, it’s hard to see how buying wine makes a sense as an investment strategy. The study seems to substantiate that view.
It’s nice to see some skepticism brought to bear on the sillier claims about the investment potential wine.
Well, I would like to see the study itself to see the methodology. I would like to see what was included/excluded, how they counted the beans, etc.
Looking at the article itself, I see it says: “Then there comes the vexed issue of which wines to buy. As noted earlier, wines from different regions have fared very differently in the past year. And that isn’t unusual. For example, the Liv-Ex index of Lafite-Rothschilds has quadrupled in price in a decade, while its index of Sauternes has barely risen at all.”
Well, it’s only “vexing” if one approaches the concept of investing in wine without any knowledge of the subject matter or the market. I don’t know of any knowledgeable person who would generally recommend “investing” in a broad portfolio of Sauternes or Port, for example.
In other words, I certainly wouldn’t suggest that investing in wine is appropriate for the average investor.
storage costs are not a fixed percentage of wine value and many people don’t insure their wine, hence the debit to annual return is sometimes fallacious.
On the other hand, lots of people were saying three years ago that Bordeaux could only go up, up, up because of the Chinese. I’m not sure that even knowledgeable wine investors are likely to beat the returns on more conventional and (economically) liquid investments.
Well, an estimate, anyway. As I said, above, it isn’t clear if they factor in auction fees.
The story doesn’t say whether they factor in liquidity, which you have to consider in comparing returns on different assets. Even if wine generated close to stock market returns over the long haul, that would be a bad bet given the illiquidity.
The days of “nailing” it on Bordeaux futures are long gone. And few people are going to pay more than “market” price for new world wines or Top End Burgundy - so the article is probably spot on.
That’s not to say that some people haven’t made a killing off the fluctuating wine market. I still think of that Wisconsin doctor who purchased hundreds of cases of '82 Bordeaux futures from me, strictly for investment. 20 cases of '82 Pichon Lalande at $99 a case - 20 cases of Lafite for $450 a case - and so on, and so on - I would say he made a pretty big killing.
But the futures market was lousy before '82 and after '83, prices just started creeping up again, so I haven’t seen any futures market worth scrambling for since…1990?.
And some of the gain on 82s was attributable to the sharp drop of the dollar against the franc in the mid-80s, which pushed up the price of Bordeaux in the U.S. substantially. If you bought any asset produced in Europe in that era, you’d see a gain.
I would take MSFT over [fill in the blank] wine futures in a NY nanosecond. Great cash flow, P/E about 15, and with a ~2.8% divy they are paying you to “store” the investment.
I have to agree with the timing comment. Just like the stock market, there are good and bad times to buy/sell. We all know the Lafite party’s been over for a while. And also just like equities, it depends on which wines/stocks you pick.
That said, I’m not surprised by the article’s conclusions if they were looking at a long-term buy and hold strategy utilizing a broad market basket of wines. There’s no contradiction between that and the fact that people beat the crap out of the market buying and selling first growth Bordeaux in the recent past. The take home message is that that was not typical. Past performance is no guarantee of future returns.
Sorry Nancy, but I think the tax low says that you may deduct hobby losses only against hobby gains. AND drinking and gifting are not ONBEs- ordinary and necessary business expenses. On the other hand, you can’t drink a stock certificate.
Bubbles are great investments if you get in early and then have the prescience to get back out before everything goes haywire.
There are plenty of people on this board who are old enough to remember wine prices pre-Parker, and for them [collectibles taxation rather than long-term capital gains taxation notwithstanding], trophy wines would have been an outstanding investment.
For the younger crowd, not so much.
$200,000 in student loan debt, no employment prospects, and you’ll never be able to afford to buy a 1st Growth?
Depends what you think about risk through the prism of an investment. In that case it is important if you are comparing to equity returns.
The take-away isn’t under performance. The take-away is what type of asset-class correlation an investor sees in wine (or commodities, art, precious medals what have you) against their broader portfolios.
I don’t know if Microsoft is a good investment NOW?
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