Fine wine prices plunge; invest or drink?
If the secret to investing is buy low and sell high, the steep drop in fine wine prices — down between 25 per cent and 40 per cent from a year ago — could be an opportunity to diversify a portfolio — or not.
“I think there’s plenty of air left in this bubble. There’s more of this drop to come,” economist and author Robin Goldstein said on the sidelines of the American Association of Wine Economists’ (AAWE) annual conference at Princeton University last week.
Some investors are hop- ing alternative assets like fine wines will net them better returns than those found in the stock and bond markets these days. Studies show that few wines will indeed outperform the S&P 500 over the long term, but the asset class also has great volatility.
Experts and academic studies recommend investors approach fine wine as they would gold, though wine is much harder to buy and sell. They suggest it make up no more than five per cent or 10 per cent of a portfolio.
There are at least two other requirements to consider: the minimum investment should be at least three cases worth (roughly $30,000 for an investmentgrade Bordeaux) if taking possession of the wines and a very long-term time hori- zon. Minimum investments at wine funds — financial companies that act as asset managers and mutual funds that buy cases without any intention of drinking them — range from a low of $15,525 to $126,400.
Prices for fine wines skyrocketed during 2009 and 2010, but seem to have peaked about a year ago, according to the Liv-ex 100, an industry benchmark, or composite price index.
For example, a case of the legendary 1982 vintage Bordeaux from Chateau Lafite Rothschild, which auction house Acker Merrall & Condit sold in May 2011 for about $64,000, could be had for a mere $39,900 at its sale last month — a 39 per cent drop.
Also at this year’s en primeur, the Bordeaux futures market that runs from April to June each year, prices are down an average of 40 per cent from their 2010 highs. Christian Moueix, co-owner of Chateau Petrus — a case of Petrus sold at auction for $62,200 in November — told Reuters on a recent trip to New York that “wine is for drinking.”
“The idea of collecting and speculating is insane in some way. As my father used to say, ‘Another vintage is coming next year.’ ”