Intro To Wine Investing
Wine investment is a particularly attractive area in which to diversify your investment portfolio, as the law of supply and demand governs the wine market in a uniquely advantageous manner. Not only is wine produced with a finite supply for each vintage, but the available quantity shrinks with consumption and breakage. And demand for fine wine is growing, not just in the US, but globally. Wine enthusiasts and individuals with high disposable incomes around the globe are still discovering what Europe has known for centuries - that fine wine is worth its high price tag. As a result of this supply and demand tug-of-war, prices for highly coveted wine continue to grow (it also makes wine significantly more recession proof than stock).
The value of wine not only increases with time, as wine quality improves after several years of storage, but it is also relatively stable for predicting returns. Unlike stocks, fine wine value is, in general, set based on the quality judgment of only a handful of individuals (e.g. Robert Parker). For better or worse, there is no denying the powerful role that these critics play in establishing consumer demand. Wine investors should pay close attention to the scores and deions of these wine "experts" before making their wine investments.
As a testament to wine's overall investment worthiness, prices for Blue Chip wines have risen more than the S&P 500. Traditionally the correct wines can accrue between 8-15% compound interest versus the S&P at 7%. According to the Liv-Ex 100 (www.liv-ex.com), an index of the world's top 100 most sought-after wines, the 8-year period from 2001 to 2009 averaged a 12% annual return. The S&P 500 yielded 0% annual growth rate during the same time period. There are several resources that potential wine investors can reference, many of which are listed in the Suggested Reading & Resources section of this website.
The key to successful wine investing is buying the right wines at the lowest prices, then storing them properly for several years until you unload your investment. The "right" wines are typically produced from (what we call) Blue Chip wineries, as they carry not only significant brand equity but also a long history of superior performance. The top châteaux of Bordeaux and Burgundy, vintage Ports, Super Tuscans and a few cult wines are considered Blue Chip. To purchase these wines at the lowest possible price you often need to procure futures, also known as En Primeur, because the final quality assessments have not yet been made by the critics and prices are generally lower for those willing to take on a slightly increased risk. Or you can take advantage of market dips, such as the one in 2008-2009, to buy older vintages at unusually low prices.
Wine storage is a critical element of your wine investment, but it can also be quite a challenge. Unless you have a cellar that controls both temperature and humidity, you might be better off paying for storage at a professional site. Be sure the bottles lie on their side, so that the cork doesn't dry out. And regularly monitor the bottles to ensure that labels, capsule and fill remain in pristine condition. Wine storage also includes the transport of the wine to and from your long-term storage location, so be prepared to pay premium shipping costs and never ship in the summer or winter when extreme temperatures can affect even overnight deliveries.
When it comes time to unload your investment there are several exit strategies to consider. These are summarized in more detail in the Exit Strategies - US Wine Laws section, but, in general, you should expect to pay a transaction fee to the licensed seller and the shipping costs to deliver your wine. These costs can be minimized if you personally deliver, rather than ship, your wines to the licensed seller. And if you aren't in a hurry to sell your wine, many licensed merchants will let you list your wines at higher-than-market value, thus ensuring a maximum return on your investment.
Despite its growth, the wine investment market is still a niche one. It's known mostly in Europe, and particularly the U.K., but wine investing in the US is gaining traction as investors seek alternatives to diversify their traditional financial investments.