Investment in the world’s greatest wines has been a market reality for the past 20 years. While the phenomenon grew from wine lovers who noticed price tags increasing on the wines they loved to drink, a new wave of entrants coming in as investors first has transformed the landscape of this noble beverage – turned luxury good – turned wealth placement vehicle.
Collectibles Trade-off
Finance professionals looking at wine investment for diversification will naturally evaluate risk and reward by weighing up the pros and cons. The perception of such evaluation might conclude as below:
- Pro: a tangible product decorrelated from financial markets, good for hedging and downside protection against economic volatility, and with steady returns
- Con: Associated logistics costs at the point of resale, meaning an exit spread between 5%-20%
Both observations are true, and represent recognisable attributes of most collectibles. Wine’s buy-sell spread is similar to watches, and lower than cars, art, or jewellery (which typically incur exit charges of up to 50% of sell value).
Trusting the J-curve
Like any real asset, wines tend to follow a J-curve, with an initial decline in resale price before increases begin. The key to maximising value in fine wine is patience, and sufficient time for the wine to become rare enough that sellers can name their price.
In the meantime, it’s important that bottles reaching their drinking peak be opened and enjoyed – afterall, a living, breathing cycle of supply depletion and replenishment is what keeps the fine wine clock ticking.
The Fourth Dimension
As in many aspects of life, time in fine wine is more complex than a linear set of events. Specifically, you cannot turn it back to uncover a bottle’s history if this has not been recorded from the beginning. A crucial element in retaining a fine wine’s value is preserving its condition through proper storage and transport, and documenting its provenance. Collectors who choose to do so, and can hold pristine wines into their drinking windows will reduce sell spread significantly relative to the market, thanks to the premium afforded wines in proven perfect condition.
Ultimately, investment in fine wine is a game of attrition, wherein the greatest gains go to the most diligent and patient players.