Wine Investment

30. January 2013 by Joachim Goldberg

Wein Investment

I was recently asked for my thoughts on ‘Wine as an Asset Class” in a TV interview recently. The interviewer knew I was a Bordeaux enthusiast and was keen to know how I gauged the prospects for this ‘most illiquid of liquid assets’ in the aftermath of the roaring bull market for top Bordeaux and Burgundy crus in the years prior to mid-2011. Although I follow the developments in the Live-ex Fine Wine 100 index, I do not actually buy wines with the intention of selling them at a higher price sometime in the future. I do sometimes see my purchases as an ‘investment’, but the reality is that I have never resold a single bottle. For example, I sometimes talk about my wine cellar as part of my wealth – a reserve to fall back on in case of material hardship. Yet I know this doesn’t really make sense: any profit on paper could easily be gobbled up in the huge spread between purchase and resale prices.

Still, the experience of a wine connoisseur is not that different to that of an investor. When I have to pay up for a high-value wine, it hurts in the moment of purchase. This because I perceive the foregone money as a loss in the present, whereas the gain – consuming the bottles’ contents – is typically intended for the far distant future. However, I can console myself with the knowledge that the enjoyment I will have from this wine in the future is far greater than it could deliver if opened immediately. These feelings are not hugely different from those of an investor who sacrifices present consumption to buy a bond. Wine, like the financial investment, has a yield.

When I have friends over for dinner, I will usually ‘clip a coupon’; I will open up a couple of bottles from my wine investment and enjoy them. A little while ago, I opened a 60-year-old Bordeaux, which prompted my guest to ask whether I had reservations about sacrificing such an expensive bottle without any special occasion. I humoured them with a remark about the pricelessness of their charming company, but the truth was that I couldn’t even remember how much I had paid for the bottle all of those years ago. My wine choice on that evening might have been very different if I had had to buy the same bottle from a merchant on the evening.

The bottle that once slipped out of my hands and came crashing to floor when I was taking it from the wine cabinet had also been paid for many years earlier. But that was different: I sulked for hours over my misfortune. Fortunately, it was not a particularly expensive bottle, but I readily reckoned my loss to be the replacement cost at today’s prices. Not being able to remember the original purchase price was a distinct disadvantage in this case. It was only when I came across academic research on precisely this topic did I learn how generalised my experiences were[1].

[1] Shafir, Eldar & Thaler, Richard H. (2006): Invest now, drink later, spend never: 0n the mental accounting of delayed consumption, Journal of Economic Psychology 27, pp. 694-712

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