Wine Investing 101
Why Invest in Wine?
Classic cars. Watches. Fine art. Fine Wine. All investments of passion. I recently started investing in fine wine and found it’s more fun, lucrative, and… liquid. Here’s why:
The last two years have been all about timing in the capital markets, and if you got that wrong, you likely made an expensive mistake. But, not so for wine. In 2021 alone, fine wine prices rose 15% outpacing other real-asset investments like Hermes Birkin Bags and rare bottles of scotch. While the Omicron variant continues to spread, leading new countries to be added to the red list, fine wine sales are booming. Demand soared in 2021– luxury fine wine merchant and global trader, Bordeaux Index, saw overall trading volumes up by 40% with newer entrants like Champagne and Italy driving up volumes – and the trend for increased consumption and investment is showing no sign of slowing. Overall the market is up lsd% and fueled by a surge in spending in part by high net worth individuals who have more cash to splash amid lockdowns.
However, the investment grade wine market has more to offer than just impressive returns.
Tangible Ownership: You have direct ownership of the object. Even if your wine investment company disappears tomorrow, you still retain ownership of every bottle in your portfolio. This also means that you can drink your wine and enjoy it (at any point of the ownership lifecycle). You can’t really enjoy your declining GME investment.
High Capital Growth: the market has delivered 13.6% annualized returns over the past 15 years, outperforming most global equities even in the decade long bull run and exchange-traded funds (ETFs).
Low Volatility: Fine wine has seen 16 months of consecutive gains and increased 119% in that time - merchants held firm on pricing, showing signs of a stable market and is less volatile than real estate or gold.
Portfolio Diversifier: they say “don’t put all your eggs in one basket”. A well-diversified portfolio can protect your bottom line from a variety of risks. Fine wine is unique as it has a low correlation with traditional assets and the stock market.
There are other benefits like potential inflation and currency hedges.
Liv-ex is where I get most of my data - it is the "the global marketplace for the wine trade” and has a number of indices, but focuses on the Liv-ex 100. This index tracks the price of 100 of "the most sought-after fine wines" on the secondary market (think Burgundy, Bordeaux) as "the industry leading benchmark." Over the past year, the Liv-ex 100 grew nearly 21 percent. Comparatively, the Dow Jones Industrial Average only gained 14.43 percent over the same period while gold actually declined nearly 4 percent. (S&P500 did edge out wine for the year at 23.2 percent growth so don't dump all your stocks quite yet.)
So – what actually is investment grade wine? It’s tangible asset whose value is expected to appreciate over time and is dependent on two factors – quality and scarcity. Your top wine pick? Top end Italian and Californian wines with a slight resurgence in Bordeaux first growths.
How to ID investment grade wine?
The technical definition of investment grade wine is: fine wine that has a chance of increasing in value after 5 years.
Identifying fine wine can be tricky so I’ve outlined some ways to identify great investment opportunities. There are a few terms that are must-knows. Let’s explore:
Critics Ratings - the wine generally must have a score of at least 95 points by one or more of the principal worldwide wine critics.
Price Appreciation - the wine must have a consistent history of substantial price appreciation over a 10-year period.
Liquidity - the wine must be made in sufficient quantities so it can be bought and sold on the secondary market.
Longevity - the wine must be able to age for at least 25 years with maturity occurring after the 10th year.
Here’s a quick reality check - most wines are not meant to be aged. Red wine have an average shelf life of 5 years and whites 2-3 years. To be investment-grade, wine must have a balance of acidity and tannin (the higher the better), alcohol, and flavor.
Pedigree - the wine must be produced by a chateaux, domaine or producer whose name is synonymous with quality and prestige. Wines made in the Bordeaux region, Burgundy, Rhone Valley, Tuscany or Piedmont in Italy tend to be more valuable over time.
Other things to know about and consider when investing wine?
Historically, there’s been a supply and demand imbalance in the fine wine market. The supply of wine is usually constrained because it is 1) produced in limited quantities
The effect of scarcity on price can be seen with well known brands. As an example, 2012 Domaine de la Romanée Conti (DRC) in Burgundy produced less than 4,500 bottles, which now sell for upwards of $13,000 per bottle. In comparison, first growth Lafite from Bordeaux produces 15,000 to 20,000 bottles per year, which sell for closer to $500 per bottle. For wines produced in limited capacities, the inverse relationship between price and quantity is accentuated as supply dwindles.
And 2) most top fine wine producing regions have restrictive classification system and zoning laws. There’s also a huge demand for these wines – traditional buyers and the emergence of wealth in China, Russia and other emerging markets; following an interesting pattern driven by these emerging markets but also by its behavior as a Veblen good (demand for certain wines increasing as price increases). The prestige-seeking behavior of wine investors helps explain the outsized price tags on wines. Additionally, because the quality of wine cannot be ascertained before consumption, buyers often rely on critic’s ratings, such as Robert Parker, giving certain individuals vast influence over prices.
Provenance is also probably the single most important concept in the fine wine market. It’s a catch all referring to whether the wine is genuine and how well it has been stored and if it’s fraudulent. It tells you the ownership history, source, authenticity, life cycle and storage of the wine. This can help you get a gauge for the price of wine and sell it with the right valuation. Aim to get a certificate of authenticity and try to learn generally about its storage and transit conditions.
Earlier, I mentioned that the fine wine market is typically less volatile. This is not to say that there are no risks associated – you must consider a few risks: wines can get mishandled or damaged in storage, in transit or due to a natural disaster. The value of wine doesn’t increase indefinitely. At certain ages, wine can become undrinkable (~50 years – depending on the type of wine) and it may be difficult to identify the right time to sell it. And, as mentioned, fraud in the wine industry has become a thing.
You absolutely must consider costs. Base price, costs that go into storage, insurance and shipping. Capital gains tax are a doozy – places like France, the UK, Germany and Hong Kong deem wine a wasting asset since it eventually declines in value and are usually free of capital gains tax. You must incorporate fees and commissions if you’re not doing the buying yourself. I also like to think of opportunity cost of the investment.
How to invest in wine?
Investing in wine is not as straightforward as executing an equities trade. Traditionally, you need lots of capital and the right connections. Investment grade wines come from the top-level Bordeaux (Lafite Rothschild, Latour, Haut-Brion, Mouton Rothschild) and gaining access challenges even the savviest investors.
Today there are more ways to invest in fine wine and more knowledgeable buyers around the world. People are more sophisticated and tech savvy than ever.
There are a ton of ways to invest in fine wine, all with varying risks and results. Let’s explore some:
You can invest in blue chip wine stocks and other funds like:
Investment Houses/Wine Funds – investors can buy shares in a wine fund that pools investors' capital. Fees vary.
Sommelier Capital Advisors Investment Fund - merges high-end wine with active professional investment. Only for Accredited (high-net-worth) Investors. Requires long-term commitment (minimum five years.)
Wine stock exchanges like Cavex (3% commission), Liv-Ex, and Berrys’ Broking Exchange have a good collection of fine wines that can be shipped internationally.
Blockchain-Based Wine Investment Platforms – Alti Wine Exchange sells tokens through IBOs – initial bottle offerings. Tokens are backed by wines stored in Bordeaux. Available to non-accredited investors.
Other Investment platforms –
Vinovest – Invest a minimum of $1,000 plus fees based on risk tolerance. The company offers algorithm-based portfolio balancing, storage, and insurance. You own the wine, so you can drink it if you want. An insurance policy guarantees provenance.
Cult Wines – For $15,000, you access a global portfolio. A $45,000 investment includes management services, valuation, advice, and access to en primeur allocations. Wine experts verify provenance.
Rally – Rally accumulates funds from many participants, then buys collectibles (wine/art/cars/watches). Investors buy “shares” in these asset classes with a low-cost point of entry. A partnership with Cult Wines verifies provenance. You can sell shares after 90 days.
En Primeur – essentially wine futures, granting an investor the opportunity to invest in wine while it is still in the barrel (i.e., before it is bottled), but more on this next week!
You can buy bottles of wine and store them yourself or at a specialized facility with the goal to sell at a higher price in the future. Specialized facilities are basically temperature and humidity-controlled storage rooms. This can get spicy, but I’ve provided some tips:
Deep Dive into Buying Wine Directly
Like I said earlier, do thorough research. You should research which vintages and wine makers have done well in the past and look at trends by wine experts and analysts. Understand what’s happening at the auctions, track market data on online wine exchanges like (Liv-Ex). Read reviews by wine critics, tasting notes, manufacturer’s details on websites like Wine Searcher, Wine Spectator, or Decanter.
Determine how much you can invest. I often see that you need at least 10,000 USD to start and like all dividend paying stocks and bonds, invest in a diverse range from different regions and vintages.
Decide where to buy wines from. I’ve listed a few channels here:
Direct from Producer – Buying directly from a producer is effective, efficient, and it guarantees provenance. But it can be challenging or impossible to get on allocation lists.
Wineries –Buy wines directly from a prestigious chateau or local vineyard, and get them shipped to your address. Often, there are several regulations with international wineries that may not allow you to buy wines directly. They also charge a huge buyers premium.
Brokers – Working through a broker, importer, or distributor offers more access and expertise. Costs will be higher, could be up to 10% more - Wine brokers offer personalized advisory services, and transact and trade on your behalf
Auction Houses – they can offer expertise and access hard-to-find wines that come on the market from private sellers. They’ll add a 10-25% charge. Newer online auction platforms may be less expensive. like Sotheby’s Wine and Christie’s.
Traditional or Online Retailers – You can buy investment-grade wine from your local retailer. Selection may be limited. Retail pricing is higher, so shop around for the best prices..
Where to sell your wine?
There are several ways to sell your wine:
Auctions - In-person and online auctions are popular. Commission charges for online houses are lower than in-person like Sotheby’s.
Wine Stock Exchanges - Cavex and Liv-Ex can facilitate P2P selling. They charge a selling commission of usually less than 10%.
Other Private Collectors - sell your wine to private wine collectors or enthusiasts.
Speak to a Financial Advisor
Fine wine is so unique as an asset class – its defensive in times of economic crisis and can benefit from economic upside when wealth is created and spending on luxury assets is high. More importantly, technology advances in the industry have brought new levels of efficiency and transparency to the wine market and now, more consumers than ever can invest in wine as an asset class.
Note: I am not a financial advisor and this is not financial advice. I’ve recently started investing in fine wine and this is simply an outline of my research.