Blog Podcast Why Wine Could Be Your Most Profitable Long-term Investment?

Why Wine Could Be Your Most Profitable Long-term Investment?

date May 10, 2021 time 9 min read 1636 views

For the last three decades, wine has proven to be a sturdy investment. So much so that it’s not uncommon to hear of bottles selling for tens of thousands of dollars.

But where does wine’s value come from? And how can you be sure that the wine you’re buying is an investment wine? From good wine, bad wine and even fake wine — we cover it all on this episode of Alternative Investing.    

Please use the Spotify link below, or if you haven’t got time, check out the transcript.

You can also listen on Apple Podcast, Deezer, Spreker and Podcast Addict

Remember: All investing involves risk. The content of the podcast is for informational purposes only and is not investment advice. Please always use caution and diversify.

CHRIS:

Hello and welcome to the 12th episode of Alternative Investing with MyConstant. I’m Chris Roper, Head of Communications at MyConstant, and with me today is…

TREVOR:

I’m Trevor Kraus, Content Manager at MyConstant

CHRIS:

First of all listeners, I just want to apologize for the previous episode we produced. The sound quality wasn’t all that great. Trevor and I were in a small recording booth with no table. We were perched with our laptops trying to look at our notes and talk to you guys — it was just a bit difficult to do. But now we’re in a larger recording booth and hopefully the sound quality is better.

As you know this is an alternative investing podcast and we thought we’d do a series on particular types of alternative investments. So the first one today is wine, or should I say, fine wines. Personally, I love wine. How do you feel about it Trevor? 

TREVOR:

I love a good wine. I’m not a professional connoisseur, but I know my way around a wine store or a wine list. 

CHRIS:

Yea, I’d say the same. I do enjoy wine. I have a fairly good knowledge of grapes and regions. I’ve never considered wine as an alternative investment. It’s actually quite a profitable alternative investment, as you’ll discover soon. 

But first, let’s define fine wine. As an investment, fine wine is not your average $10 supermarket wine. It’s going to be the more expensive stuff. Fine is a subjective adjective. Usually connoisseurs would rate things such as scarcity, complexity, whether the wine has a lingering full flavor and of course the region and the vineyard also come into the equation.  

Trevor, what’s the most expensive wine you’ve ever drunk? 

TREVOR: 

Well, after high school I was working at a fairly upscale French restaurant outside Philadelphia and we had a real estate developer come in often for lunch at least twice a week and he’d order a bottle of Puligny-Montrachet. It’s a type of chardonnay from Burgundy, France. 

We sold it at the restaurant for close to $400. Maybe at a wine store you could buy it for $100 or $150. It was excellent. And this guy would usually leave a bit in the bottle — enough for the staff to sample it.

CHRIS:

For me, my ex-girlfriend was really into champagne. So one day I bought a vintage bottle of Veuve-Clicquot. It’s got a yellow label — it’s quite recognizable. Normally it’s on the more expensive end of the supermarket champagne, but I wanted to do something special. I managed to track down a 1984 vintage bottle and I gifted it to my ex-girlfriend. 

We drank it together when we were on holiday and let me tell you, 1984 champagne does not taste good. It was very sour — I was surprised. Perhaps the bottle had spoiled? It was about $150. 

TREVOR:

That’s funny, because champagne usually has a long shelf life. So it’s surprising that it would have been that bad. Maybe it was a lemon. 

CHRIS:

But $150, $200, $400 — that’s far from the expensive end. You can get wines that go for tens of thousands of dollars. What is the most expensive wine ever sold Trevor? 

TREVOR:

Currently, a bottle of Romanee-Conti from 1945 sold at Christies in 2018. Do you want to guess the price? 

CHRIS:

I’m going to say — $150,000? 

TREVOR:

Motions up with his this thumb

CHRIS:

More? Really? 

TREVOR:

It sold for $558,000 for one bottle. 

CHRIS:

Wow! Why was it so valuable?

TREVOR:

Maybe this segues into how wine gets priced. But basically you have these wine professionals who come in to give wine a rating. Then when the wine comes to auction, the price climbs.   

CHRIS:

Right. And I think for a lot of people it’s a status symbol.

TREVOR:  

It’s a ‘veblen good.’ Which means, as the price increases, the desirability goes up too.  

CHRIS:

Yea, and it’s pretty cool that you could buy something and enjoy it too. Would they recommend opening that bottle? 

TREVOR:

I’m not sure. I’d imagine you can still drink it. But if it’s worth that much, you might want to hold off and see if you could fetch more money for the bottle down the line. 

CHRIS:

That said, fine wines don’t always have to be super expensive. The example like the one that Trevor just gave would fall under grad vin, which is the top, most exclusive fine wines. 

 TREVOR: 

Right. And in the US and France, fine wine is anything over $40 or $50 a bottle. 

CHRIS:

Some people might already invest in wines yourself. If you have a cellar or you just bought a case of nice wines that you’re laying down. Before they become more drinkable. 

The interesting thing about wine as an investment is this — I’m going to give you a headline here. 

Wine has outperformed the S&P 500 for the past 30 years including downturns. It seems to be a resilient asset to market volatility. By quite a big margin. It beat the S&P by 1000% for the past 30 years — that’s an incredible return. 

It makes it an attractive investment. Not for someone looking for quick gains. It has to be something you’re looking to stick with. 

But it’s a really big market. Liv-ex, which is the largest fine wine exchange, reports that it’s over 80 pounds of an investment. What 80 million pounds in dollars? Around 111 million dollar market.  

When did it all start? When did people start investing in wine?  

TREVOR:

Wine has always been valued — it’s always been a hot commodity. But it really started in the 1970’s and early 80’s as something to be invested in — at least in the States. This was the time that a very famous wine connoisseur named Robert Parker started rating wines on a scale from 1 to 100. Then, in the year 1982 he rated a Chateau Margaux very high and the price shot through the roof. 

So many people credit Robert Parker as spearheading fine wine as an investment. 

CHRIS:

So what is the training for a connoisseur? It’s interesting to think that this one person, this Robert Parker character, managed to influence the price rise. I wonder, is that still true today? Do connoisseurs set the market? 

TREVOR:

I’m not sure. They play a big part in that they rate the wines and then when they come to auction, they’re priced quite high. 

With Robert Parker, it’s been this doubled edged sword. In order to be a good connoisseur, you have to have a trained pallet. And try these older wines to compare. But now, these wines are so expensive, that they’re almost impossible to sample. So you’re going off of the history of a bottle. 

CHRIS:

You’re right. That’s interesting. In 2020, one might think that the demand for wine has dipped. But actually, having done some research, wine did very well. In the Liv Ex indices all showed strong growth. 

I did read an article that because people were staying at home, peoples appetite for wine is still strong. But rather than buying wines in the restaurant or bar — they’re buying them and drinking at home. 

Where is wines’ value derived from? One of the biggest factors is scarcity which goes back to supply & demand. Like any asset, when sometimes is rare it becomes more desirable and of course people pay a lot more money for it. So there is that element with wine as well. 

So scarcity certainly comes into it and status too. When you own a wine that’s expensive for old or comes from one of the well known regions or vineyards, then I think people place value on that. And the quality of the wine as well. 

You get to a certain price point where the gains in quality start to plateau. And then it becomes more just about scarcity and status. So, why invest in it? 

And interestingly, fine wine has an investment supply curve that gets worse over time yet wines volatility reduces over time. 

Wine is as old as human beings really. 

TREVOR:

Yea, it was even in the Last Supper painting. And maybe some of the unpredictability of it is fun too. You can buy a whole case of wine and perhaps the price will stay the same or the price will go up. 

I was reading about a guy in the U.K. and he was building a wine cellar. He spent around 30,000 pounds on wine — about 42,000 US dollars — and that was in 1990. And at that time he paid 350 pounds for 100 cases. One case has 12 bottles and then 5 years later the same seller who sold him these cases had a buyer who wanted the wine and he ended up selling the cases back for twice the price he paid. 

And he was drinking the wine as a leisure activity — he didn’t go into it with investing on his mind. But it shows that sometimes you don’t know what you’re sitting on. 

CHRIS:

I came across one fine wine investment company called Vino Vest and they actually let you drink the wine. So you could invest 1000 or 2000 and they go out and source the wines and store them. 

But you can, if you want, order the case and drink them yourself. That’s kind of fun. And that’s another factor. If you enjoy it, it makes investing fun. 

Now, that said, it’s not all roses, there are a few caveats. I’d say the biggest one is counterfeiting. 

In 1985 a single bottle of wine was sold for $157,000 at Christies in London. And this bottle was special because it was apparently owned by Thomas Jefferson. 

Turns out, the bottle was a complete fake. 

TREVOR:

That’s terrible! Also, it might not be on Netflix anymore, but there’s a documentary called Sour Grapes and it’s about a Chinese-Indonesian man named Rudy Kurniawan. And like many good grifters he slipped his way into New York’s high society in his mid 20’s and he had a good palette. And in the beginning of his wine career he was buying and selling authentic wine. 

And then later on, he ran into financial troubles. What he’d do is take an old bottle and take a vintage wine and blend it with a new wine. And he frauded people out of 10 million dollars. 

CHRIS:

Wow, that’s incredible. Imagine getting away with that for so long. 

It’s a serious issue and it seems to be quite easy to do. I’ve got some interesting statistics about where most of the counterfeiting is going on. Apparently there are around 35 bottles of wine sold in China per hour with fake labels. Others are cheap substitutes and some are not wine at all. 

The thing in China is that there’s a huge demand for it and they do import a lot and repackage it. 

So yes, that is one of the biggest problems facing wine at the moment. Storage is also an issue. If you don’t have the right storage, your wine can spoil quite easily and be susceptible to temperature changes. 

Or some places store the wine for you. Vino Vest does all the storage for you. 

TREVOR:

On that note, I was reading about hurricane Sandy in 2012, there was a big wine storage unit in Manhattan next to the Hudson River and the river flooded and destroyed many bottles, over 20 million dollars worth of wine. 

CHRIS:

Oh that’s terrible!

TREVOR:

I’d say if you’re storing your wine or if you’re using a company to store it for you, do your research. Make sure everything checks out and it looks good. You can even insure your wine.  

CHRIS:

You should. As any other thing that has value. 

My first experience of wine in Vietnam did not go very well. 

Wine is growing here  but it’s still in its infancy and when I first came to Vietnam 5 or 6 years ago, I went to the local market and bought what I thought looked like a nice wine and it was terrible! And I thought maybe that was just one bad bottle. But it actually happened to me two or three times buying from local supermarkets.

I think the issue is, the lack of awareness of temperature control environments. Perhaps when it’s imported it needs to be imported in a controlled environment.

TREVOR:

At night, they might turn off the AC. 

CHRIS:

Wine is an interesting asset and it’s kind of high maintenance. But there are things being put in place to control the industry better. 

Blockchain has been implemented to track and trace and authenticate the wine. There’s even a blockchain company in Australia offering geolocation services and label authentication. 

I think as the technology develops, the counterfeiting issue will go away. 

So, that’s been an overview of fine wine investing. If you’re interested in doing this, there are a few platforms out there where you can invest in fine wines. 

Before we go, I want to say one thing about alternative investments. They’re really designed as a supplement as other investing that you do. So definitely diversity. Do always consider different types of investments — don’t put all your money in wine, despite the fact that it’s out performed the S&P 500. 

As a crypto-backed P2P lending company, we offer rates up to 7% APR and all lending is backed by crypto, we can resell the crypto to repay you. It’s an easy asset to sell. 

Use caution, diversity and do your research. 

TREVOR: 

Set a good time frame for unloading your wine. Different wines peak at different times. 

CHRIS:

Any final words Trevor?

TREVOR:

No, those were my final words. 

CHRIS:

Well, thank you very much for listening, and we’ll catch you next time. 

TREVOR:

Bye guys! 

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Trevor Kraus

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