Any Port in a (economic) Storm

I’ve been thinking about THIS POST from Steve Bachmann’s "Wine Collector" blog since it hit. Maybe anyone else with a retirement portfolio or investments should also.

Like most folks in their 40s, I’ve got IRAs, savings, investments, etc. The idea is to save up enough for when you retire so that you don’t have to fight for a place on Van Ness Avenue where you can stand all day holding a sign that says, "Former PR Exec Down and Out…Any Amount will Help."

Well, recently I’ve started to think about just how big my own sign should be.

The volatility in the equities markets and the downturn in the housing market really bites. It bites into one’s retirement plan in particular.

What Bachmann points out in his post, however, is that maybe wine is a relatively safer investment; safer particularly than stocks. The bottom line: While all the stock indexes have plummeted over the past 8-12 months, the value of collectible wine is still up 5.5% for 2008. A 5.5% gain in value for your investments in 2008 is looking pretty miraculous at this point.

What’s interesting about fine wine as an investment is that it’s not too difficult to learn the ins and outs. Certain wines, and there are relatively few, are the ones that tend to be collected, held and go up in value over time. Also, they are easy to procure either by buying futures before the wines are released or by finding them on the open market.

Bachmann lists four reasons why investing in wine is better than investing in stocks. Go read them. But one of these reasons, I think, is critical to the future:

"The aggregate supply of fine wine is relatively fixed
as most of the greatest European producers have little room to plant
additional vineyards.  The trends in global demand for fine wine, on
the other hand, are fundamentally going up (broader wine consumption,
wealth creation in emerging economies combined with treatment of fine
wine as a luxury good, and the likelihood of continuing decreases in
import duties in these countries)."

Of course, the validity of the above reasoning assumes we are not going into a multi-year, Depression Era-like global economic downturn. I think that’s a pretty good assumption.

When I worked at in the late 90s I had a chance to meet a lot of serious collectors. I liked them. They were, on the whole, a somewhat odd, eclectic bunch who collected fine wines for a myriad of reasons. Few of them, as far as I could tell, had wine as the primary portion of their economic portfolios. But many of them were in fact collecting wine (and selling it) as strictly as an investment.

Then there were the flippers. These were the folks who found their way on to the Screaming Eagle, Grace Family, Bryant Family, Maya, and Harlan mailing lists. They’d put down the Winebid shipping address as the location to which their wines should be shipped when released. Their instructions were "put it up for auction upon release." They’d usually double their money.

These people eventually started taking a lot of crap from "authentic collectors" and "real wine lovers" who were pissed they could not get on these lists while the flippers did get the wine and just turned them over. They thought the flippers were uncouth gold diggers. I never had any problem with the Flippers. They always struck me as very entrepreneurial folks. I don’t know the extent to which this still goes on because I’ve not followed the Cult Wine market that closely of late. But I suspect it does and if it does I can’t see why anyone who can afford to be on the right lists wouldn’t follow the same strategy.

However, flipping new releases isn’t what Bachmann is talking about in his post. He’s talking about a buy and hold strategy. And based on his stats and history, it appears to be a pretty good one.

5 Responses

  1. Emilio Saez van Eerd - October 15, 2008

    Hi Tom, your post might change my idea how to introduce my new wines in the market 🙂

  2. St. Vini - October 15, 2008

    It appears to me that his index merely lags the economy slightly. If I look at his data (which you can download into Excel), the index increased just 2% annually from July-01 to July-05. I’ll wager that the drop in his chart last month becomes a bigger drop as people stop buying and start drawing from their cellars.

  3. Dylan - October 15, 2008

    I’ve seen this discussed on a few other blogs and it seems like wine investment has really been a hot topic. Even though the economy has taken a bad spill, Dr. Vino actually polled his readers and found that they are purchasing wine the same prices and the same ways they always have. I’d be interested to see this same survey later in the year when the heating bills start coming in addition to the expense of driving.
    For now, the wine market seems undeterred.

  4. Oscar Quevedo - October 16, 2008

    One of the problems of an index like this is the lack of liquidity. If you need to sell a dozen of cases of these wines, the market will probably not be liquid enough to absorb all the wine at the best bid price.
    I think wine can be a good investment if you have a very small position and a long run view. We have the example of the Euronext wine futures contracts WINEFEX. It quickly failed.

  5. Jay - October 18, 2008

    RE: “The aggregate supply of fine wine is relatively fixed as most of the greatest European producers have little room to plant additional vineyards.”
    Tom, Although I understand why many accept the above premise as gospel, one can reasonably question its veracity for the following reason: it appears to assume a finite supply of “fine wine” while it tacitly implies that this wine is primarily fine French wines from Bordeaux (First Growths), Burgundy, perhaps with a smattering from elsewhere. As Kolleen Guy explains in “When Champagne became French: Wine and the Making of National Identity,” the notion of fine wine (e.g., fine champagne) was transformed into a luxury good (now brands) near the onset of the formation of AOC rules. Luxury good producers have every reason to convince customers that their particular product is “ne plus autre,” but common sense indicates that “fine wine finiteness” is in the transfixed eyes (and evolving taste) of the beholder. Bordeaux’s lock on this market, for example, becomes all the more tenuous as other regions find the keys to fine wine elsewhere.

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