Buy wine low, sell it high?
"In 2003 a bottle of 1982 Lafite-Rothschild sold for an average amount of US$490 at auctions. Six years later the same bottle went for $2,586, yielding the seller an annual return of around 70 percent."
Whoa! That sounds like serious money, provided you don't object to thinking about wine as an investible rather than a drinkable.
Economists Philippe Masset and Jean-Philippe Weisskopf continue in the same vein in "Raise your Glass: Wine Investment and the Financial Crisis," a February 2010 working paper for the American Association of Wine Economists:
"Examples of such hefty price increases for fine wines are frequently cited in newspapers and suggest that the demand and prices for wines have surged in recent years. An ever growing number of positive press commentaries on the favourable risk-return profile of this asset class has helped to convince investors of the advantages of adding wine to their financial portfolio.
"As a consequence," the economists argue, "wine is increasingly viewed not only as a pure consumer good but also as an interesting investment opportunity by many an investor. ... We confirm that the addition of wine to a portfolio as a separate asset-class is beneficial for private investors.
"Particularly during the recent financial crisis these effects are most pronounced and improve portfolio diversification when it is most needed."
An investment you can drink. Who knew? But does this argument really hold financial water?
Financial Post writer Ian McGugan isn't convinced. In an April 17 article headlined "Don't buy in to this cellar's market," he mounts a variety of arguments against the idea. For example, he says, transaction costs up to 21% when you buy and 10% when you sell can quickly "turn the investment appeal of most wines to vinegar."
Moreover, he said, wine auction markets are fickle, booming after 2005 when the Asian market became a growing competitor for top wines, but just as quickly flattening when times get tough.
"You can buy blue-chip vintages on the chance that one day you will be able to turn your bottles into a lush stock portfolio," McGuigan concludes. "To my mind, though, a better plan is to pour your money into blue-chip stocks on the near certainty that they will eventually pay for all the fine wine you can possibly drink."
This coincides with my standing advice to would-be wine investors: Fine wine is far less predictable than more traditional investment commodities.
What's more, a traditional investor may keep his portfolio in a safe-deposit box at the bank. Even commodities investors don't really have to unload 20 tons of pork bellies into the garage.
The wine investor, however, must take possession and keep the property in long-term storage. Temperature-controlled cellaring facilities are critical - a naturally cooled or electric cellar unit capable of storing all the wine at a constant 55F. Even then, a power failure can wipe out your inventory; while a negative review from a major wine critic can impose a paper loss from which you'll never recover.
My advice? Anyone who views wine as a mere investment would be better advised to get into more traditional markets that hold a more substantial hope for success. Invest in wine simply for your own pleasure, taking your profits in tasting pleasure. That way, you can hardly lose.
WEB LINKS:
Read the full American Association of Wine Economists working paper,
"Raise Your Glass: Wine Investment and the Financial Crisis."
http://wine-economics.org/workingpapers/AAWE_WP57.pdf
Read Ian McGugan's analysis in Financial Post.
http://www.financialpost.com/news-secto ... id=2916340
Read this column online:
http://www.wineloverspage.com/wineadvis ... 100507.php