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The danger with investing in wine is that you drink the profits. However, if you can hold your nerve, and choose the right vintages, the returns can be better than almost any other asset class.
Elroy Dimson, Peter Rousseau and Christophe Spaenjers crunched the numbers on price records for Bordeaux premier crus dating back more than a century for an article in the Journal of Financial Economics.
Their research, titled The Price of Wine, found that the real financial return of this specific red between 1900 and 2012 was 4.1 per cent, a better payback than bonds, gold, artworks and rare postage stamps.
Although an oenophile would have made more money putting his or her cash into equities, the academics found that great Bordeaux premier crus vintages tracked closely the performance of shares.
A distinction has to be made between bottles that can be bought as an investment and those that are better uncorked and their contents sipped, according to Prof Dimson, chairman of the Newton Centre for Endowment Asset Management at Cambridge’s Judge Business School.
“Our research looked at investment quality wine, fine wine,” he says. “If you had premier crus Bordeaux to sell in your wine shop, you would not keep it here [on the shelf]. Those wines are for drinking in the very near future.”
Among the rich, fine wine is already a popular investment. About a quarter of high-net-worth individuals own a wine collection, on average representing 2 per cent of their wealth, according to Prof Dimson. “In our research it became quite clear that wines mature up to quite a long horizon.”
The vintage of even fine wine will show whether it will be drinkable in 40 years’ time or just a few years.
“The rules of the road involve thinking about investment quality wines which will mature over a long period so that they can be laid down for a long time,” Prof Dimson says.
Several wine funds exist to satisfy the demand for investing in this product, such as Wine Asset Managers and Bordeaux Cellars.
As with any investment, putting money into fine wine carries risks. Growth in prices in the last part of the 20th century were driven by sales to Chinese buyers, which have scaled back their purchases in recent years as the record growth in China’s economy has dropped.
“As a financial professor what I would always tell people to do is to diversify and not to put an excessive amount in one asset,” Prof Dimson explains.
Ageing affects wine prices independently of changes in market conditions, according to the study he co-authored. Even wines which have lost their gastronomic appeal can be valuable if they provide enjoyment and pride to their owners.
There is also another big selling point of wine investing over putting your money into other assets, Prof Dimson mentions. “The upside of wine is that if the bottom does fall out of the market you can always get out your corkscrew, open up the bottle and console yourself with a glass of very fine wine.”