© Bryan Loofbourrow
Bryan Loofbourrow, a wine enthusiast who lives in Northern California, wrote this excellent dissertation (and slightly re-edited it for publication) in response to a question on the Wine Lovers' Discussion Group. If you would like to contact him about this article, send us E-mail at WineLoversPage.com and we'll pass it on.
Wines can definitely be an investment. However, they are not an easy investment. Some considerations:
- As with other kinds of collectible investment, you are at a disadvantage if you have to "buy at retail and sell at wholesale." For wines, for "sell at wholesale," read "sell at auction and pay the auctioneers fees." These fees tend to run about 15-20%. Wine is also bulky, and can therefore be expensive to ship. Transaction costs are higher for wine than for almost any other type of investment.
- When investing, one wants to "buy low and sell high." In the wine business, "buying low" can be perilous, especially when buying on futures. There are plenty of stories of wines not delivered, and of suppliers going bankrupt.
- Unlike most kinds of investment, wine is perishable. To retain its value, it must be stored continuously in temperature- and humidity- controlled storage. This kind of storage costs money. Most commercial wine storage facilities in the U.S. charge around $1/case/month. Few take financial responsibility if your wine is stolen or damaged in storage.
- Whether a wine will "last 20 years" is an almost always necessary, but not nearly sufficient condition for determining whether a wine will be a good investment. For example, a topnotch Vouvray demisec is certain to last 20 years or more, but is very unlikely to be a good investment.
- Wine prices skyrocketed during the boom of the 1990s, and, for the wines one would be most likely to consider as an investment, have not returned to earth. There is a good case to be made that trying to invest in wine right now [August 2003] would be buying at the top. Some British people used to make a habit of buying two cases of a Bordeaux on futures, figuring that the second case would be sold later, and would pay for the first. I would guess that this trick is much less likely to work in present market conditions.
- There is a sort of karmic argument that, by diverting the flow of a beloved and treasured commodity that is made to be enjoyed, into a cellar whose primary purpose is investment, one is reaping bad karma. Offsetting this is a counterargument that too much ageworthy wine is drunk too young, and you'd be doing the wine community a favor by removing a moral hazard. I admit the first argument is widespread in the wine enthusiast community, and the second is one I just made up, but I like it. I mention this in case such arguments carry weight for you.
- Wine investing these days can be crucially dependent on the continued affection of one man for your chosen investments. If you don't know his name, you're probably not nearly ready to invest in wine. If he bestows a high score on a wine, and you invest as a result, and he later makes a very significant revision in his evaluation (and changing one's opinion about a wine as you see it actually develop is a very normal and natural thing), you will likely see a very significant fall in the wine's value. This is especially true for one type of wine, Bordeaux, but it is also the case that this is the type of wine that is most commonly selected for investment.
- It is arguable that it used to be easier to make money on Bordeaux, because you could buy wine on futures before scores came out, and therefore have more of an opportunity to benefit from substantial changes in the market's perception of a wine. Now, Bordeaux sellers hold back all or most of their wine until the scores are out, so the wines are more fully valued by the time they're available to buyers.
Aug. 6, 2003
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