An Introduction to Wine Investing - Part 2 (by Biffermas)

 

Picture courtesy of BT310.  Thanks!

Note: For those confused by the appearance of wine collecting / wine investing material on a trading blog, keep in mind this series is meant to be posted during off-market times, evenings, and holidays when little is going on.  This post will include charts and economic information, so in that regard it’s relevant to the core mission here. Based on the first posting it’s clear that I’m not the lone wino on The Slope of Hope.  There are some very smart and knowledgeable wine consumers / collectors here.  I’d like these posts to be approachable to most people, so this by no means is an exhaustive survey of the wine world.

There are several indices that track the fine wine market.  Two highly respected are the Liv-ex 100 and the Wine Spectator Auction Index.  The Liv-ex is Euro-centric, and 90% of the index is comprised of French Bordeaux.  The Wine Spectator Index is comparable to the Dow-30, since it’s comprised of roughly thirty of the most famous and collectable producers from Bordeaux, California, Italy, and Portugal.  These are the titans of the field, like Mouton-Rothschild, Haut-Brion, Joseph Phelps, Mondavi, and Opus One.  Click here for the full list.  If collecting simply for asset appreciation / speculation, consider this list a great starting point.  If you collect with the intent of building a good quality, drinkable cellar, I'd look elsewhere (unless you're a powerful oligarch).

 

Like most asset classes, the fine wine industry suffered a downturn in 2008, dropping 22%.  However, compared to the broader equity indices and commodities, this seems kind of cute.  Before the correction, the Liv-ex 100 rose 140% since 2005, a stunning rise.  While under performing equities in 2009, the fine wine market since 2005 remains up over 100% versus an 8% decline in the S&P 500.

To say technical analysis in wine collecting is primitive is an understatement.  The Liv-ex chart is released monthly, and the Wine Spectator Index is updated 1-2 times per year.  Many websites like Vinfolio, Liv-ex, and Cellartracker, will value your cellar and produce charts of individual bottles, tasting notes, etc.  Many parameters can be graphed such as total portfolio gains and losses.

 

There is substantial cost involved when selling your wine through an auction house.  A hefty 20% fee is levied to the seller, which means your capital appreciation must be substantial if any profit is desired.  The next post will cover ways the small-fry investor can purchase good wine with low retail markup, and sell their wine with only a 5-6% scalping by the broker.