The December 2008 stats for the Liv-ex 100 fine wine index are now in. The index fell 2.2% in December 2008 vs. only 0.6% for the Dow Jones Industrial Average (DJIA) but the the basic picture remains unchanged. Namely, you would have been far better off with you money in wine than stocks whether on a one-year or longer term basis. The four-year stats are dramatic with the DJIA declining 18.6% compared to a 110% increase in the the Liv-ex 100 index.
Madoff-like risks with wine investment funds?
One method you might consider for investing in fine wine is through a wine investment fund (although most are outside the U.S.). Over the holidays, James Suckling's Uncorked blog at the Wine Spectator had a post titled "Scary thoughts on wine investment." I suspect James is correct that these funds are not regulated in their respective jurisdictions. So to help avoid the risk of a Madoff-style debacle, I'd recommend that prospective investors consider what third party checks and balances are in place to prevent the "closed loop" system Madoff created. E.g., are wine assets verified by a credible independent accounting firm on an annual or more frequent basis? Are buy and sell transactions reported to investors in a transparent way? Are third-party storage facilities used or an in-house facility?
As an alternative to using investment funds which will charge annual management fees and a percentage of gains, interested wine investors can simply invest directly through one or more reputable merchants and take possession of their purchases for greater security.
Next post: I'll discuss various influences on fine wine prices and how to think about where prices may be headed.
