Wine as a Profitable Asset
Oct 20, 2011 |
Earlier this year my husband sold some old fine wine in Hong Kong. This happened because he heard wine was selling for a high price and we had some in our basement that we didn’t expect to use.
The downside was the inventory of the bottles and preparing them for shipping to California. From there, Spectrum Wine Auctions took care of the rest. They transported the bottles overseas, sold them at auction and in a matter of months a check arrived. It was for more than we expected. We learned we had an asset class that was buoyant even though the S&P was more or less at its 2004 level, as was the FTSE, the financial times stock exchange 100 stock index similar to the S&P in the United States.
The chart above is from The Wine Investment Fund. The Sharpe ratio is a reward-to-variability ratio or a measure of the excess return per unit of deviation in an investment asset. For the time frame shown, TWIF (The Wine Investment Fund) dramatically outperforms compared to other asset classes.
The increase (or lack thereof) in the S&P from 2004 to the present compared to our profit isn’t relevant as we purchased the wine in 1983 to 1984. Since then, the S&P had increased six times. But, because our wine brought more than that in profit, it still did better than if we had our money in the S&P all that time. There was another bonus too. We could have drunk the wine if we had chosen.
Fine wine is a luxury commodity just like art. Studies have shown that both can be added to an investment portfolio to diversity it. Rachel Campbell and colleagues from Maastricht and Tilburg University showed that in 2009. I have always been a bit skeptical of this concept, even though it seems logical on some level. But, at least in this one circumstances, I’m a believer.
The concept of selling anything — stock, bond, commodity, wine, art or whatever — when it is red hot seems to be one key to profits. This is the reverse of the other sure way to make money in the market: buy when the same investment vehicles are ice cold and no one else wants them. They all seem to revert to the mean, but not after a lot of up and down movement.
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