Recently, the Drinks Business reported that, according to Vin-X’s head of procurement Martin Pruszynski, “fine wine investment has been the best overall performer when total growth across major asset classes since 1988.”
No no no no no no NO.
Not again.
It seems that almost every year I write this retort. My view on this has not changed one iota in the last twelve months, despite Martin Pruszynski’s assessment that fine wine prices have outpaced the Dow Jones and S&P 500. The Vin-X findings are, in my opinion, closer to smoke-and-mirrors than to anything substantial.
Bear in mind that I am NOT an investment expert, and therefore I am NOT offering any true investment advice here. But I did semi-retire (in terms of being able to switch career gears) at the age of 40, so make your own assessment of how well I manage money, and the value of my opining on the subject. And my opining in a nutshell is that “investing” in fine wine (in terms of hoping it will accrue in value, and that you will actually be able to realize that gain) is basically a a really, really poor way to utilize your money…
Ignoring the possibility that it’s in Vin-X’s best interests to portray fine wine investing as being superior to other alternatives, cherry-picking time periods to show “superior” performance is a time-honored snake-oil scheme employed for several decades by, oh, pretty much every active investor that has ever lived. The bottom line is that there is Nobel-prize-winning science behind the concept of index investing, which maximizes a single investor’s risk mitigation and diversification, and is statistically more likely to beat pretty much all other investment strategies over the long-term, including putting your time/effort/money into collectibles (like… err… wine, for example).
When it comes to mutual funds, we can now easily take advantage of the award-winning science through simple passive investment offerings, most of which are incredibly low-cost. When compared with broad-based index investing, investing in any collectibles or commodities is, frankly, a joke (particularly when we take into account that, in the Vin-X estimates, “Dividends have not been included,” which makes the results even more laughable). Buying individual wines as investment vehicles can be likened to buying individual wines for investment – you’re taking on a huge amount of risk, and you’re not investing in the broader wine market and reaping the benefit of its total returns.
In the wine world, there really isn’t a vehicle available that allows you and I to invest in that broader fine wine market, thus diversifying our risks across many types of fine wines as they mature and their prices fluctuate. No, we have to buy/store/age/market/sell individual wines, and then hope to turn a profit. Which , by the way, some of the world’s richest wine collectors have barely been able to do in the real world. This is, in my view, a terrible way to spend time and money in search of returns.
Please, please, PLEASE do not fall for this bullsh*t; if you’re buying wines for investment, you are doing the statistical equivalent of gambling, no matter how much research you perform. Wine – and any collectible, for that matter – should probably not be the core of your investment portfolio.
You want to gamble with some excess investment funds by buying some choice bottles of vino? Be my guest. Have a great time. Sell that bottle to the greater fool and make some cash.
Just do it after the majority of your investment money is stocked away in index funds.
Cheers!
Comments
franktalkonwine
1winedude has it right. Generally speaking, investing in wine is a fool’s errand. You’re unlikely to “beat the market” by squirreling away a couple of cases of bordeaux that outperformed a crappy vintage or by building an investment-grade wine cellar. Yes, even fool’s get lucky once in awhile stock-picking or riding asset bubbles (does “stupid money” create bubbles? I think so). But as 1winedude suggests, drink and cellar wine, like you would acquire art–because you love it, not because you think holding on to the wine until the cult winemaker dies will pay big dividends down the road. Index funds, a broadly-diversified equities and debit portfolio, that’s how you make money over the long-term. After you do those sensible things, and have a few dollars left over to put penny stocks, or that vintage bordeaux, have some fun. Or go buy a flip a house in Las Vegas. I heard from taxi driver this morning that market is about to take off.
1WineDude
Thanks, franktalk! My cabbie told me to stock up on 2016 Bordeaux, it’ll be the (next) vintage of the century! ;)
Bob Henry
Dude,
Another OMGNA?
http://www.steveheimoff.com/index.php/2015/11/24/omgnas-the-wine-writers-nemesis/
~~ Bob
Pre-Great Recession article . . .
From The Wall Street Journal “Money & Investing” Section
(February 24-25, 2007, Page B1ff):
“Fine Wines No Longer Just Tempt Collectors;
Investors Sniff Around Some Prime Vintages;
‘Drink Your Losses'”
Link: http://online.wsj.com/article/SB117227639734517870.html
By Jeff D. Opdyke
Staff Reporter
Post-Great Recession/middle of economic recovery article . . .
From The Wall Street Journal “Money & Investing” Section
(April 25, 2011, Page C10):
“Drink to That? Acquiring a Taste for Wine Investment”
Link: http://online.wsj.com/article/SB10001424052748703907004576279352609906810.html
[See accompanying exhibit]
By John Jannarone
“Heard on the Street” Column
1WineDude
Ha! Yeah, for me it’s an OMGNA, anyway!
James B
The only way you’ll really make money from buying wine is if you buy incredibly expensive and thought after ones but even then it’s still a bit of a lottery. If we’re talking Champagne, squirreling away Old Krug’s, Dom Oenothèques, and Salon’s will probably make money over time. The usual suspects in red wine – Screaming Eagles, Romanee Conti, Lafite Rothschild, Petrus will likely be a decent investment. For whites we’re talking Montrachet Leflaive, Corton Charlemagne, Screaming Eagle Sauvignons etc. In other words, you need a f**k load of money in order for wine investments to work.
Changing the subject, I disagree with your views on Collectibles/commodities. Just look at what the classic car market has been doing over the last 5 years. Compound annual growth rates for classic Ferrari’s, Lamborghini Miura’s, and Aston Martin DB4, DB5, and DB6’s that would make anyone investing in the stock market weep. Of course it’s a bubble but the money people have made buying and flipping these old cars over the last few years has been immense.
Theresa
Its an interesting perspective you have, even I have been reading up on wine investments. It is good to be aware of the other side.
1WineDude
Theresa, maybe it works for about 0.01℅ of the investment population. For the rest, my recommendation is to avoid it.