The stock market sure is scary. Is wine any better as an investment? - October, 1998

Updated August, 2002

Over the past couple months, you've had that same sick feeling in the pit of your stomach as your friends - you're actually losing money in the stock market.   The major news magazines scream from the racks: "Is Asia's Problem our Own?", "How Far Down Will It Go?" and even "The Coming Depression?". You've started to think retirement might be a few years further out (gee, maybe even 55!!) and you've thought about cutting back on luxury expenditures.  Unless you're made of steel, you probably didn't buy much more stock when the Dow was in the lower 7000's - it looked too much like it was teetering on the edge of disaster.  And what about other investments?  Surely others might cut back on non-critical purchases and the luxury wine market could tank, right?  Better just to stick with bonds, and GNMA's and maybe leave the rest in an interest bearing, insured account until things blow over.  After all, your parents and grandparents still talk about what caused the Big One.  And there's that Y2K thing coming, right?  So another recession's about due, isn't it?

Notice all the question marks?  They're there because no one knows. But as of this writing, the bull has found new breath.  And even if the stock market bops around for a while, history shows that fine wine as an investment has every chance of staying strong.  How so, you ask?

Some Recent Wine Price Performance

Let's look at how some fine wine has performed  from 1996 through 1997:

Source: Bacchus Resource Replacement Value auction reports.

The selected wines above averaged a 38.4% increase in value from 1996 to 1997.  Not bad. Did your stocks do as well? Data from 1998 is not all in, but fine wine prices have been pretty solid so far this year.  By the way, I selected the above wines for a reason I'll discuss starting next month.  I did not do it with 20-20 hindsight to exaggerate a point, incidentally.

Longer Term Wine Price Performance

Well how about over the long term?  One report generated by Robin Duthy, author of  The Successful Investor, looked at Bordeaux for a period of 22 years.  A $10,000 investment in selected vintage Bordeaux in 1975 was worth $225,000 in 1996. That's a 2150% increase or 15% per year compounded. Robin's surprising conclusion was that wine investing actually had the best return of any common investment, including stocks, bonds and real estate.

The Reality of Wine Investing - some cautions

The fundamentals of wine investing appear pretty good at first blush, but just like any investment, there's plenty to learn before one can start being successful.  Here are a few quick facts.  We'll explore each of these topics in more detail over the next few months.

Only a few wines appreciate regularly. Most wine is made for quick sale as a consumable and does not appreciate.  There are only a few key wines that are made to age well and have the demand and track record to qualify as true investments. And only certain vintages of many of these wines are good investments. 

There are a limited number of channels for liquidating (pun intended) fine wine.  Most states place severe limitations on private individuals' ability to sell wine.  The major market tends to be the auction circuit.  Commercial auctions of private citizens' wine are only legal in four states - New York, Illinois, California and most recently Missouri. While there are about 10 major houses that regularly deal in fine wine, all will take between 25% and 30% of the proceeds and will want to hold your wine for 6 weeks to 4 months before you get your money.  You may also be looking at taxes, shipping and insurance costs on top of this big "spread".  And if your wine doesn't sell, you often get hit with a charge from the auction house anyway.  This is not as outrageous as it seems, as these houses provide appraisal, storage and marketing services and provide valuable protection to both the buyer and seller. 

Sales prices vary pretty dramatically.   Even taking into account variables such as bottle condition and provenance (ownership history), the price a particular wine fetches at one auction may be quite different from what the same wine fetches at another auction.  This is because the market is quite limited. Only a few bottles of a particular wine may change hands in a year. A few dozen cases in a year is enough to qualify a wine as a big mover.   Mismatches between supply and demand occur frequently with the resultant wide fluctuations in price. 

Wine takes up space.  You need rather specialized storage facilities to effectively invest in wine. 

The upside - some special benefits of wine investing 

So why do people invest in wine?  There are some unique fundamentals of wine that lead to its appreciation in value and to the special, often emotional attachment that people have for this investment.

The product improves over time - With very little effort on the part of the owner, investment quality wines inexorably improve, unlike most other investments. Imagine a piece of real estate getting better without any investment in maintenance or upgrades!

The quantity declines over time - Just as inexorably, the quantity of a particular wine declines, making it dearer without any effort on the part of the owner. It's almost as if all publicly held companies regularly bought back more of their outstanding shares then they issued.

There are alternate avenues to liquidate wine.  Almost every metropolitan area hosts one or more charity wine auctions.  Many local philanthropies also welcome fine wine as a key part of general auctions they hold.  There can be some good tax benefits, and of course the satisfaction that comes from donating.  Depending on your states' laws, you may also find a local wine distributor, retailer or restaurant that is interested in purchasing your wine, especially if you can demonstrate that it has been well stored. There's even a somewhat active (if quasi-legal) wine barter market.  Trade a bottle of old wine for a case of new wine?  How about for a fine meal?  How about trading a 1989 for a 1990? 

Wine collecting brings you in touch with some interesting people.  I've worked closely with folks in high tech, in stocks, in real estate and in the wine trade.  There's no comparison.  Wine professionals and lovers tend to be a very warm, friendly group, into the finer things in life without the pretension. The stories about stuffy wine stewards tend not to be true, at least in the U.S.  And wine events, be they dinners, auctions, tastings or picnics can be some of the most memorable of one's life.  When was the last time you really enjoyed a stock investment seminar?

The product brings pleasure. What other investment truly creates pleasure? A wine collection has been described as "uncashed paychecks".  Wandering one's wine cellar can bring the pleasure of anticipation of great wines to come and joyous memories of great wines that were. And if your investment doesn't go up in value, there's one more way to liquidate it and get you money's worth. Pop!

Next month we'll discuss in more detail the attributes of wines that regularly appreciate and those that don't.  We'll also start our list of collectible wines.  See you then!  Until then, here are:

Dave's Top Ten Reasons to Invest in Fine Wine

10.  You actually have a good chance of making money.

9.  It's something you can hold and caress in the mean time.

8.  You get pointed at when the waiter offers the wine list.

7.  You have a good reason for going down to a nice, quiet, cool room with a special person (or by yourself) any time.

6.  You're not drinking too much wine, you're checking your investment.

5. You always have a housewarming or birthday gift ready at the spur of the moment (watch out for this one!)

4.  Wine events are the most fun you've had since your seventh birthday party.

3. The quality of the food you eat seems to be improving. 

2.  You seem to be celebrating more often.

1.  It tastes absolutely FANTASTIC.

Looking back at this article four years later causes chills to run down my spine as the parallels between now and then are so close. The stock market is at virtually the same level it was back then - in the low 8000s - and has been very volatile of late. There are hints of a recession to come and lots of uncertainty in the world. Stocks are just as much a wild ride as they ever were. How about wine?

I never did get around to telling you why I picked the stocks I listed four years ago.  They were a first attempt to pick a few wines that represented the heart of wine investment market, from top vintages. Of course, it was overly simplistic to pick just a few Bordeaux from just one vintage and a few trendy Cabernets, from two vintages.  But let's look at how they did. 

The above 16 wines appreciated on average about 7% from 1998 through the first half of 2002. The Dow Jones industrial average moved down about 7% from July 1, 1998 to July 1, 2002. Hmmm. Purists will tell me I selected very bad examples of wine market indicators back in 1998 and haven't taken into account the substantial selling costs of rare wine. In the next article, the first of the new Millenium, we will examine a much better set of wine market indicators, the Wine Market Journal Wine Index. In the article after that, we'll explore the true costs of buying and selling rare wine and how to do it most efficiently. 

All new value quotes are courtesy of the Wine Market Journal. A subscription is heartily recommended as the best way to stay on top of the wine market. 

Do you have any questions or comments about wine collecting or investing? E-Mail me at dave@brentwoodwine.com.  If you'd like to join our wine investment special interest group, drop an Email to specialinterestgroups@brentwoodwine.com.

To health and happiness now and wealth in the future.

David Parker

You can read the September Investment Trends article Musings on Runaway Wine Prices here.

You may also enjoy reading back issues of Storing Wine, Tasting Wine,  Entertaining with Wine and Wine-Friendly Cooking.  Click on what you'd like to see.