New wine-price index from The Economist

Hi all,

I haven’t posted much on Berserkers of late, so forgive me for parachuting in to self-promote. But I thought the community might be interested in some new research I’ve been working on. I’m the editor of the data-journalism team at The Economist, and I reached out to WineBid to ask if they could provide me their full historical transaction record so I could track the investment performance of fine wine relative to that of other asset classes. They kindly agreed, and gave me a dataset of 1.6 million sales since 2003 to pore through. We’ve just published the results at Burgundy wine investors have beaten the stockmarket | The Economist, complete with a fancypants auto-rebasing interactive chart.

The tl;dr is that a diversified portfolio of ~500 fine red Burgundies–basically all the top GC’s from the top producers, with ultra-rarities like Roumier Musigny being weighted less than relative ubiquities like La Tache–has appreciated about 500% over the past 16 years, nearly twice the return of the S&P 500. However, all other regions, including white Burgundy, have done worse. I was surprised to see that Champagne has kept pace with Bordeaux, though that may just be because I don’t collect Champagne. I was also surprised at the divergence between the two halves of the Rhone–southern has been the single worst-performing region, whereas northern has kept pace with places like Piedmont–but it made sense once I dug into the details: northern is buoyed by the surge of demand for producers like Verset, Gentaz (though Gentaz gets a very low weight due to scarcity), and Allemand, whereas southern is dragged down by the lack of appreciation of a lot of non-Rayas/Bonneau producers that were still expensive enough to qualify for the index (e.g. Clos St Jean).

I’m happy to answer any questions about methodology and follow up on any suggestions for further studies using this data.

Dan

Very cool data. Thanks!

Dan, tangential, but I’m assuming you were the Dan Rosenheck that used to post (or maybe still does, I left there some time ago) at Baseball Thinkfactory?

So you’re saying it’s about time for a big crash in the wine market?

I wish it was not behind a paywall.

Would love to see the article and numbers behind this. However, my experiences with Wine bid is that they tended to be slightly under market. So if you buy from a mainstream store like Morrell and sell through Wine bid, that number may be as much as 15-20% below what you could have sold it for, which inevitably skews the results.

Jason T: Yup, that’s me.

Paul Mills: I think you get a free article or 3 if you register?

Michael: I am not making any predictions. :slight_smile:

Mark: If you both buy and sell on WineBid, hay shouldn’t matter.

I don’t have the figures, but I am pretty sure that people don’t buy on WineBid to sell on WineBid.

Dan - Unless the wine price figures include the cost of the investment (e.g., temperature-controlled storage; transaction costs such as the sellers commission at auction or a retailer’s cut if sold through one) the WineBid data is nothing like “investment performance” or “returns”; it’s just raw pricing. By contrast, the luxury stocks index reflects what you’d actually realize on an investment in those shares.

Also, any meaningful comparison of returns has to take into consideration the liquidity of the investment, and returns on wine don’t compensate for the illiquidity (let’s spare ourselves the obligatory jokes about that term vis-a-vis wine).

In other words, this is apples and oranges.

The wine trade pushes this kind of comparison, and every couple of years some story appears in the press playing up the rise in Burgundy (or Bordeaux, or whatever) pricing with the same invalid comparisons to marketable securities.

According to Cult Wines, which runs wine investment funds, the 10-year gain in the Liv-Ex 1000 wine index is 7.61%, measured from 2008, when securities market and wine prices were falling. They say that beats the MSCI World Index of stocks, but the return on the S&P 500 is nearly double the MSCI World since 2008. And, again, Liv-Ex is a price index, which doesn’t factor in the transaction and other costs of investing in wine.

The volume of Northern Rhone wine is a fraction of that from CdP, so scarcity really is a factor in the north. You’ve got a very thin dataset for wines like Gentaz and Versert (both dead and long retired before that).

Also, 2003 and 2007 CdP were massively hyped by Parker, and there is now substantial disenchantment with those wines, which I would guess shows through in the secondary market prices for CdP generally. The enthusiasm generally seems to have waned.

I saw this chart in a link I got from the economist yesterday. Nice data and I’ve never seen it broken down so well by regions. Yes, you can see a few articles free a month if you sign up at the Economist. That is what I do.

I view this as simply data and any conclusions or interpretations are up to the reader. These are not true returns and comparing to the stock index has issues as well. But you need to start somewhere and this is a perfectly logical way to do so. It is up to reader to deal with as they see fit. I don’t recall reading the article so maybe it draws silly conclusions.

Thanks for the nice work here which I certainly found interesting.

John Morris: It is of course correct that any evaluation of wine as an investment needs to account for storage and transaction costs. I did mention in the article that this analysis excludes those factors. The reason I didn’t bake it in is that everyone’s auction and storage costs are different, and I don’t have a dataset of representative expenditures in this area. But clearly it makes a big impact: using the ballpark numbers I used in a back-of-the-envelope calculation in our Twitter exchange, they would reduce the return on red Burgundy over 16 years from 497% to 304%—still better than the S&P, but only barely.

I don’t think you can read the text of the story as some breathless endorsement of investing in wine. Even before storage and transaction costs, only one wine region has beaten the broad US stock market. And the returns on that best-performing region are still dwarfed by the performance of its counterparts at the top of the stock-return rankings. The final sentence of the article says that the best way to make money in Burgundy is by making wine, not buying it.

The main value-add from this story, in my view, was being able to accurately measure the pricing and performance of thousands of different wines over long time periods, not just the handful of benchmark Bordeaux and Burgundy that trade on the Liv-ex. I’m hoping to expand the interactive graphic so that viewers can explore the returns on individual producers or wines as well as broad regions.

As I said in responding on Twitter, if you assume an investment span shorter than 16 years (say, 5 years), those transaction costs really eat away the returns.

Good work for those in that game. Wine as an investment is not my thing, but I can’t fault anyone for doing that. Hedonism, the pursuit of pleasure; sensual self-indulgence would be my naive interpretation of why one would buy wine in the first place, not to make a profit. I wonder if some of those on Berserkers making condescending remarks of California wineries selling their wines for $150-$300 a bottle, yet buy futures of Bordeaux, regularly buy Premier or Grand Cru Burgundy and high end Rhone to partially sell off a portion for an extra buck is a real thing?

Comparing prices at retail and auction is a specious argument. As someone ITB, you should know that prices at retail from any mainstream store are subject to mark up by the three tier system and set by the retailers. Prices on WineBid and any other auction house are set by the prevailing market demand from a sophisticated global audience with lots of data transparency.

The Economist article is a fun piece to consider for a broader audience, and should be taken as such. Dan very specifically pointed out that the indices do not include costs of storage and transaction, which can vary widely, and we all know that in any index, individual stocks can perform better or worse than the overall index or the market, and the same goes for any collection of wine.

Hi John, these are very astute comments and thanks for the observations and clarifications. We agree, and Dan pointed a bunch of this out in the article. The article was a good piece for a broader audience who would be interested in the high level comparisons, given the volatility in equity and bond markets. Sophisticated collectors, buyers and consignors, like you and everyone here on WineBerserkers, recognize the nuances and difficulties of wine as an actual investment. That’s why we definitely promote tasting, experiencing and sharing the wines.

[cheers.gif] Thanks for your kind comments and for enjoying the article as it was meant- to be enjoyed and considered while drinking a glass of wine, not while trying to trade a case!

Since all the data is still drawn from Winebid, it’s equally subjected to the skewing that you suggest. That is, unless you have reason to believe that the Winebid market is significantly different now than 16 years ago. I think your point is valid if you’re talking about your total returns, but in terms of the % appreciation over time, it shouldn’t really matter.


Sure, there are a million quibbles you could make (storage, illiquidity, limits on scale of purchasing, insurance, etc), but the data itself is fairly interesting and speaks for itself. I also can’t read the full article, so it’s hard to engage too deeply.

Maybe to take away a lot of the ambiguity in terms of availability and storage costs, it’d be interesting to just use the costs associated with Winebid (paying for Winebid pro + storage costs) for the last 16 years and look to see how well you’d have done if 15 years ago you just literally bought all the red burg or other types of wines above different price thresholds.

Looking forward to reading this, but since I subscribe via Kindle I don’t have access to the Economist online. (FWIW, the Economist is my favorite way to get news about the US and has been since I first heard of it in college).

I’m curious how you weighted the index of wines based on thinly traded wines, like Roumier Musigny. Naively, something like 1- (1/number of bottles sold) would work but would really penalize those thinly traded wines. Also, I wonder if you did any transformation to the prices before making the index.

(FWIW, the Economist is my favorite way to get news about the US and has been since I first heard of it in college > in the 1980s> ).

And the prose is generally first-rate. Or maybe it’s the Brit sensibility.

Interesting stuff Dan. Please post more frequently.

And if you would have invested the same money in Amazon when they went public, you’d probably have beaten the wine market handily.