“Wisdom doesn’t automatically come with old age. Nothing does — except wrinkles. It’s true, some wines improve with age. But only if the grapes were good in the first place.” – Abigail Van Buren
Recently, Dr. Steve Sjuggerud — ETR’s resident stock expert and the creator of Investment U –passed on some interesting and potentially profitable advice from Eric Roseman, the editor of “Global Mutual Fund Investor” newsletter. According to Roseman, wines — fine wines — have outperformed stocks over the last decade or so.
In fact, the value of a bottle of 1990 first-growth Bordeaux, a vintage wine made from the top-quality grapes grown that year in the Bordeaux region of France, has grown by 522% over the last 10 years, solidly beating the performance of the stock market. That works out to a gain of more than 50% a year . . . and that’s the kind of performance any stock investor would give his eyeteeth for.
“Some of the world’s finer vintages have severely outpaced the S&P 500 Index,” says Roseman, “especially from 2000 to 2002, when the American broader market crashed 40%. Wine truly has no correlation whatsoever to the S&P 500 Index and offers key asset-allocation diversification as an investment.”
In other words, since there’s a disconnect between wine values and stock prices, investing in wines can be a great way to diversify for overall portfolio protection.
In fact, in some ways, wine appears to be the ideal investment. It is produced in fixed quantities each year. There are numerous vintages that allow for the collection of “sets” (for example, one bottle or case from each year). And, best of all, since most people drink up their investments, the supply of the best wines diminishes over time . . . and that pushes up their prices.
The truth is, though, that there are some real downsides to collecting wine. Transaction costs can be high, since most wines are purchased at auction and auction houses traditionally take a commission of from 25% to 30%. Also, it costs money to store wine properly. (You can’t just put a case of fine wine in your garage and expect it to hold its value.) And the prices fluctuate wildly — not just from year to year but from auction to auction. So, all told, it must be remembered that investing in wine is not foolproof.
Still, there are profits to be made. While profits of 52% per year are not routine, wine can provide some nice gains. Robin Duthy, author of “The Successful Investor”, says that a $10,000 investment in selected vintage Bordeaux in 1975 was worth $225,000 in 1996. That’s a 2,150% increase, or 15% per year compounded. Not too shabby.
How expensive does wine get?
Well, according to Forbes.com, the most expensive bottle of wine that you could drink today is also the most expensive bottle that has ever been sold in America. This wine, a Montrachet 1978 from Domaine de la Romanee-Conti, was sold at Sotheby’s in New York in 2001. The lot of seven bottles fetched $167,500, or $23,929 per bottle.”
How do you get started as an investor in wine?
Just like investing in stocks or real estate or anything else, you need to educate yourself before you make your first purchase — bearing in mind that researching wines may be the most fun you’ll ever have since you left the second grade. Here’s what I recommend:
- Spend time sampling different wines and learning about vintages as you establish a relationship with a reputable wine merchant who can tell you the ins and outs of the business.
- Read books, subscribe to wine magazines, and go on wine-tasting tours — in the great vineyards of France, if possible.
- Think long-term. Because an investment in fine wine might take as long as 30 years to bear fruit.
Michael Masterson adds these suggestions:
- Specialize in one kind of wine. Only by specializing can you hope to acquire enough knowledge to make good decisions.
- Start off small. Initially, your total investment should not exceed 1% of your investment portfolio.
- As you gain experience and confidence, increase your wine investments — but resist putting more than 10% of your portfolio into the noble grape.
Notwithstanding its many advantages, it is still a speculative venture.
(Ed. Note: Steve Sjuggerud shares his investment advice through his newsletter True Wealth.)