Wednesday, May 02, 2007

Another look at wine

I'm not sure if this is sensible or not. I have been building a (very) modest collection of wine for five years now. To date I have been treating the wine purchases as a hobby (or an investment in future drinking) and have kept the amounts involved quite small. However, the reality is that I will be very unlikely to drink all of what I have been buying. So far I have been treating my wine purchases as an expense and do not include their value in my balance sheet.

The value of my wines (quoted in GBP) has appreciated, although not by enough to get excited about. The currency factor has also worked in my favour. While the initial focus was on wines which were intended ultimately be drunk, I am giving serious consideration to purchasing some of the more expensive wines for investment purposes. My expectations in terms of returns would be modest - although I am not sure how easy it would be to quantify those expectations. Also, the amount of the investment would be low - wine would not be a core investment.

Is this a good idea?


L. Marie Joseph said...

Wine seem to be a slow investment. Not sure if it will be worth it.

I like wine as a treat not an investment.

I love Shiraz myself.

Anonymous said...

Funny that you mention wine, I was just chatting with my supervisor a couple of days ago and he told me he has his entire savings invested in wine.

He says the returns over the past few years have been excellent, with a growing demand for expensive wines in China. The basic reasoning behind wine is that the supply for a given vintage is fixed (and declining everytime someone drinks one), and that it is only the super-rich who consume $30,000 USD bottles of wine.

Given that the rich get richer this seems to mean that considerable appreciation in the price can be expected.

On the downside, wine doesn't really produce any cash-flow (unless you open a wine museum?? :), which is a definate downside compared to stock of real-estate. It's similar to gold in this sense, but I guess, given that you buy silver you don't have a problem with pure capital gains.

The other downside he mentioned is that the wine merchants charge 20% or so to purchase (or to sell) a bottle. 40% entry/exit costs is pretty steep. You'd want to see considerable growth to offset that. And of course I don't know if the bank will give you a margin loan against your wine :)

traineeinvestor said...

Hi moneymonk/raphael

Thanks for the comments.

I will not be investing more than a very small part of my assets in wine (at most). It will never be a core investment asset (although I do know people who have invested a lot of money in wine).

The transaction costs are very high (as you have pointed out), transparency is awful and the cash flow is negative (storage and insurance costs).

The overall supply of wine is rising but not at the very expensive end of the market. At the same time demand is rising. At the lower end demand is not keeping up with supply (which is why wine prices for cheaper wines - often very good drinking - have come down in price). At the expensive end the number of wealthy people who can afford these wines has experienced huge growth and this has resulted in the price increases at the top end of the prestige/pricing spectrum.

Current inclination is to buy a small amount each year as I am doing now but shift to more expensive wines. If they appreciate in value, that's great. If not, I will have a supply of very good drinking in years to come.