WinePrices.com's new fine wine indexes were just updated a few days ago based on global auction results in April. The summary results page provides further hard evidence that fine wine prices continue to climb as all indexes are up year-to-date (YTD) and the three indexes representing the most heavily traded fine wines are all posting double digit increases YTD (through April) despite still being down 25%-30% from 12 months ago.
This is what's driving stories like the New York Time's Investing in Wine: Now May Be the Time and Time to Invest in Wine? from the excellent blog, The Wine Economist.
Economics lesson
As The Wine Economist reminds us: "Prices fall when there is a surplus until the excess supply is gone. Prices rise when there is a shortage until the shortage disappears." What the data is telling us is that there is more demand than supply at current market prices (as proven by rising prices).
There is no doubt "excess supply" flooded the market in the financial panic as "forced sellers" were liquidating any asset they could to generate cash, including fine wine. In my opinion, most of that activity is behind us which should lead to a return of less price volatility as market equilibrium is restored. To quote The Wine Economist again: "The movement towards stable equilibrium is quite strong and predictable."
By the way, I don't think the economic concept of over-shooting which The Wine Economist suggests may apply to wine markets is relevant, mainly because there were good and explainable reasons for the sharp decline in wine prices (as cited above) even when normally they tend to be "sticky" (as with prices of most goods).
Should you invest in wine now?
Here's a short process I'd recommend you go through to answer this question:
- Evaluate the hard data. Frankly, part of the reason we launched WinePrices.com and its indexes was to make such data widely accessible (for free).
- Consider your investment alternatives. While fine wine prices have been increasing in 2009, the Dow Jones Average fell 6.9% in the first four months of 2009.
- Determine whether you're a "pure" wine investor. The Wine Economist story states that "a wine investor should buy what other people will want to own, which might have nothing to do with personal taste." But most people who invest in wine are not "pure" investors seeking monetary returns only. If one expands the measurement of "return" to include factors like having the option to drink something which matures better than expected or "eliminating" one's monetary loss by exercising the privilege to drink your investment at a fair value you were glad to have paid, then the real "risk" in wine investing tends to make it relatively attractive.
Your personal answers to these factors will help guide your decision.
Prediction on price trends
Getting back to the data, my personal view is that fine wine prices will continue their gradual climb but that it may take 18 months to 2 years for prior index highs to be reached again.
What's your opinion and why?
MAY 26 UPDATE
As a quick update, The Conference Board's Consumer Confidence Index for May was released today and it increased sharply (see press release) and is now only about 10% below the September 2008 level. This leading indicator of economic activity provides further support for a continuing climb in wine prices.
