In the past month (ending 10/10/08), the Dow Jones average is down 26.0% (and much of that was in the past week). Does anyone believe the prices of investment grade wines have fallen by anything close to that level? I don't. In fact, the Liv-ex 100 Fine Wine Index was down only 3.7% in the month of September (-6.0% for the DJIA in same period). The YTD change for the Liv-ex 100 is still +5.5% through September (see 4-year chart on right) vs. -18.2% for the DJIA.
As the September Liv-ex data and some of my recent analyses of September auction results indicate, there's no question that fine wine prices are softening. Consumers have slowed spending and personal financial circumstances have caused cherished wine to be reluctantly put up for sale which changes the supply/demand balance that drives market pricing (note: Vinfolio's own pipeline of private collector purchase opportunities has surged in the past few weeks to about $10 million).
Four key reasons why wine investing beats stock investing
- The supply of each fine wine is fixed upon production and only shrinks over time as wine is consumed. If anything, people drink more in a recession as it's a lot cheaper pleasure than vacations, new cars, etc.
- Collectors tend to hold on to scarce wines when finally located and purchased given the difficulty in replacing them. This reduces "liquidity" in a given w
ine and helps push up prices to buyers. - Wine is a tangible collectible and benefits from the perceived security this provides relative to electronic entries in a brokerage firm account. There's a reason why the sale of home safes have been soaring in the past month. People can pick up and handle their wine assets whenever they want. See the CNNMoney.com chart at right which compares the Dow Jones average performance in the past month (green) to another hard asset: gold and silver (blue).
- The aggregate supply of fine wine is relatively fixed as most of the greatest European producers have little room to plant additional vineyards. The trends in global demand for fine wine, on the other hand, are fundamentally going up (broader wine consumption, wealth creation in emerging economies combined with treatment of fine wine as a luxury good, and the likelihood of continuing decreases in import duties in these countries).
What are you waiting for?
