Does wine flipping pencil out?

[Tom_G_l_a_s_g_o_w]

Is comparing specific wines to a broad based stock index really an apples to apples comparison? Agree with Marcus above.

[Marcu_Stanley]

Just like in the stock market, the real gains are made on finding the undervalued stocks/wines. The top wines such as DRC are priced accordingly. Try doing the same exercise using Jacky Truchot or maybe Rene Engel wines.

Sure, Rene Engel has outperformed the S&P over the past 15 years and if you had guessed that in advance and put all your money in a single-wine Rene Engel portfolio you could have made a very good return relatively (assuming you could sell it all at a reasonable transaction cost). But Amazon has outperformed the S&P by much much more than Rene Engel over the past 15 years and if you had guessed that in advance and put all your money in Amazon you would have done far better. So even if we are assuming people own time machines and can go back and invest their money knowing what the future will be, you wouldn’t use that time machine to invest in wines, you’d still use it for stocks.

[JonathanG]

also keep in mind that I believe your tax rate on the gains is viewed as a “collectible” and not a “capital gain” and as such is subject to a higher rate than gains in stocks.

[Ethan_Abraham]

After a few minutes of googling, here’s an example of how hard it is to come out ahead if you try to use wine as an investment product.

Say you had invested in a first tranche of 2005 DRC La Tache on its release in Spring, 2008. You paid 35.6 thousand pounds per case at that time. Today, 12 and a half years later, that wine would be worth 51.8 thousand pounds per case, for a gross return (not taking into account inflation) of 45.5%

(source: 2005 | La Tache | Domaine de la Romanee-Conti | Cult Wines)

Now compare the S&P 500. If you had invested your money in April 2008 in the S&P 500, you would have multiplied your money 2.41 times, for a gross return of 141%.

$100 in DRC would give you $145 12 years later, vs $241 for the S&P investment. That’s a whole lot to give up!

That’s for 12 years of investment in the top wine from the top vintage of the hottest wine region ever at first tranche pricing (the price spiked over 20% over the next few months after April 2008), with ZERO transaction costs in buying or selling and ZERO storage costs

Not pretty!

Something seems off there. In the vinous database the release price of 05 la tache is listed at 1200/bottle. There’s another thread where someone mentioned it was sold at one retailer for $700. Also the pound was worth much less than so your returns on using gbp to buy stocks would also have been much worse.

[Victor_Hong]

Just like in the stock market, the real gains are made on finding the undervalued stocks/wines. The top wines such as DRC are priced accordingly. Try doing the same exercise using Jacky Truchot or maybe Rene Engel wines.

Sure, Rene Engel has outperformed the S&P over the past 15 years and if you had guessed that in advance and put all your money in a single-wine Rene Engel portfolio you could have made a very good return relatively (assuming you could sell it all at a reasonable transaction cost). But Amazon has outperformed the S&P by much much more than Rene Engel over the past 15 years and if you had guessed that in advance and put all your money in Amazon you would have done far better. So even if we are assuming people own time machines and can go back and invest their money knowing what the future will be, you wouldn’t use that time machine to invest in wines, you’d still use it for stocks.

Exactly. Data mining is the perfect way to validate ex-post a winning strategy. Implementing that same strategy in an ex-ante manner is a touch harder.
But, then, we Chinatown noodle-slingers are dumb and poor for a reason.

[Paul_Jaouen]

Just like in the stock market, the real gains are made on finding the undervalued stocks/wines. The top wines such as DRC are priced accordingly. Try doing the same exercise using Jacky Truchot or maybe Rene Engel wines.

Sure, Rene Engel has outperformed the S&P over the past 15 years and if you had guessed that in advance and put all your money in a single-wine Rene Engel portfolio you could have made a very good return relatively (assuming you could sell it all at a reasonable transaction cost). But Amazon has outperformed the S&P by much much more than Rene Engel over the past 15 years and if you had guessed that in advance and put all your money in Amazon you would have done far better. So even if we are assuming people own time machines and can go back and invest their money knowing what the future will be, you wouldn’t use that time machine to invest in wines, you’d still use it for stocks.

Doesn’t have to be either/or. Buying wine is a lot more fun and if it doesn’t pan out, you can always drink it. You can’t do that with any loser stocks.

[Chris_Seiber]

1990 DRC La Tâche released in 1993 for $233/bottle. Put that in an inflation calendar and fast forward to 2020 and $233 is worth $419.11, up 79.9% yet it sells for $6000. S&P in 1993 was 435.23, now 3338.99, rise of 767% while that DRC bottle is up 2575%. So it depends on the time frame chosen to make one’s point.

One could cherry pick many examples from the 1990s that, with the benefit of perfect hindsight, could make you money. Some people on this board I’m sure lucked into such returns from their collecting. But the point is, what is your chance of guessing in advance at such an investment and putting major money down on it? Very low, extremely low. The S&P is an index of all stocks and you are comparing it to a single perfectly chosen wine, chosen with the benefit of hindsight. A better stock comparison would be something like, what if I bought Microsoft in 1993? That would be up something like ten thousand percent.

I picked the 2005 DRC La Tache because it’s a reasonable example of what one might think is a “blue chip” wine investment that you would pick and expect to be good/solid without advance knowledge, expect to be a secure investment. But relatively to other investments it would have been an absolute disaster.

Trying to guess in advance the next wine that will blow up in the way that DRC did from the 1990s is almost impossible and even if you get it right you would need to put almost all your money down on it. If you diversified across a lot of wines you would water down your returns. So you are talking about an insanely risky strategy. In recent years, the alcoholic beverage that has really blown up in value hasn’t even been wine, it’s been bourbon. If you already enjoyed the stuff and had it around you could have made excellent money I’m sure. But the chance of guessing that in advance?

Exactly. It’s like saying you could get rich betting on the NFL by looking back at results and hypothesizing that you had bet a lot of money on the winning teams. The question is whether you could consistently do that before you know the results of the games.

Suppose one said today, I am going to invest $100K to make significant returns investing and then reselling wines. What would you buy? How confident are you that it will generate significant positive gains in the coming years, especially net of your shipping, auction/broker, storage, insurance and other costs?

[Andy_Sc]

After a few minutes of googling, here’s an example of how hard it is to come out ahead if you try to use wine as an investment product.

Say you had invested in a first tranche of 2005 DRC La Tache on its release in Spring, 2008. You paid 35.6 thousand pounds per case at that time. Today, 12 and a half years later, that wine would be worth 51.8 thousand pounds per case, for a gross return (not taking into account inflation) of 45.5%

(source: 2005 | La Tache | Domaine de la Romanee-Conti | Cult Wines)

Now compare the S&P 500. If you had invested your money in April 2008 in the S&P 500, you would have multiplied your money 2.41 times, for a gross return of 141%.

$100 in DRC would give you $145 12 years later, vs $241 for the S&P investment. That’s a whole lot to give up!

That’s for 12 years of investment in the top wine from the top vintage of the hottest wine region ever at first tranche pricing (the price spiked over 20% over the next few months after April 2008), with ZERO transaction costs in buying or selling and ZERO storage costs

Not pretty!

As Ethan said, somthing is not right here (initial price you mention is far too high, the La Tache clearly beats the S&P). Buying La Tache (or RC) is always a great investment as you can sell it the day after you bought it for at least double of what you paid (in good vintages triple of what you paid). S&P500 hardly ever doubles in a day. Would have worked with the 2017, 2016, 2015, 2014, 2013, 2012…

[Chris_Seiber]

After a few minutes of googling, here’s an example of how hard it is to come out ahead if you try to use wine as an investment product.

Say you had invested in a first tranche of 2005 DRC La Tache on its release in Spring, 2008. You paid 35.6 thousand pounds per case at that time. Today, 12 and a half years later, that wine would be worth 51.8 thousand pounds per case, for a gross return (not taking into account inflation) of 45.5%

(source: 2005 | La Tache | Domaine de la Romanee-Conti | Cult Wines)

Now compare the S&P 500. If you had invested your money in April 2008 in the S&P 500, you would have multiplied your money 2.41 times, for a gross return of 141%.

$100 in DRC would give you $145 12 years later, vs $241 for the S&P investment. That’s a whole lot to give up!

That’s for 12 years of investment in the top wine from the top vintage of the hottest wine region ever at first tranche pricing (the price spiked over 20% over the next few months after April 2008), with ZERO transaction costs in buying or selling and ZERO storage costs

Not pretty!

As Ethan said, somthing is not right here (initial price you mention is far too high, the La Tache clearly beats the S&P). Buying La Tache (or RC) is always a great investment as you can sell it the day after you bought it for at least double of what you paid (in good vintages triple of what you paid). S&P500 hardly ever doubles in a day. Would have worked with the 2017, 2016, 2015, 2014, 2013, 2012…

So you aren’t talking about the asset appreciating, but just that certain insiders are in a position to buy it at 50% of the actual market price?

If so, then that is what it is, but I don’t think that really speaks to “buying wine as an investment” generally. It would be like saying certain executives from Apple can buy their stock at 50% of its value and then turn around and sell it – that is great for them, but it doesn’t really imply whether regular investors buying Apple stock today are making a good investment going forward.

Also, those insiders with access to steeply discounted DRC, how many bottles can they buy at those prices? You’d have to be able to buy more than a few for this to be a foundation of a meaningful investment strategy.

And do you have to buy other wines as part of a bundle, or be some big time customer of those sellers, to have that access? How do those other wines perform as investments? If you had to be a high roller buying six figures worth of wines per year from this seller for many years in order to get a case of DRC at 50% of market, you have to factor all that spending, and the value of those wines, into the profit you may get off the DRC bottles themselves. You can’t just view those in isolation.

[JBrochu]

Doesn’t flipping imply selling almost immediately after the purchase? (I’m just confused why people are making comparisons of multi-decade investments in equities versus multi-decade wine investments when I think the OP was talking about the math for flipping.)

[Victor_Hong]

Doesn’t flipping imply selling almost immediately after the purchase? (I’m just confused why people are making comparisons of multi-decade investments in equities versus multi-decade wine investments when I think the OP was talking about the math for flipping.)

To enable non-comparable comparison.

[John_S]

I think the orig question is does investing in wine make sense vs. something like the S&P 500. The answer to that is pretty easily no. Wine is not that “liquid” as an investment, has higher cost to carry (store insurance etc), and broad wine returns (not cherry picked) generally are less when all the costs are included. That certainly does not mean one can not make some $$ when selling wine. But it generally is not as good nor liquid investment as broad equities etc.

I think many people read of some great buys from 20/30 years ago and think they can do the same. Alternatively it is a common way some validate buying more wine than they would otherwise with the I can always sell later if I need to mentality. Nothing wrong with either approach as long one has realistic expectations which are always the tough part.

FWIW, as a retired investment profession I have no issue with people who view wine (or anything legal) as an investment. Nearly anything can be sold these days and Ebay has done wonders for market transparency and the re-cycling of many things that would have been tossed in the past. A world with better informed buyers and sellers is a great thing.

[michael_holmstrom]

Great insights here, thank you. Assuming I wanted to divest of 60 bottles of cult, does it make any sense to try and time the market. Is there much buyer vs. seller market fluctuation?

[Mel_Knox]

I know people who buy expensive wines and then sell half of it later for a profit. Then they say to themselves, “I am drinking for free”.
But they could have done better by investing that money in the market and celebrated their big gains.

The one thing I remind people when they ask me about this: the stock market is set up so you can buy and sell easily and without huge commissions to the broker. and/or the pain in the derriere factor.

On the other hand, a friend of mine lived off the money he made flipping Petrus 82 for several years. Very unusual circumstances tho.

[Marcu_Stanley]

After a few minutes of googling, here’s an example of how hard it is to come out ahead if you try to use wine as an investment product.

Say you had invested in a first tranche of 2005 DRC La Tache on its release in Spring, 2008. You paid 35.6 thousand pounds per case at that time. Today, 12 and a half years later, that wine would be worth 51.8 thousand pounds per case, for a gross return (not taking into account inflation) of 45.5%

(source: 2005 | La Tache | Domaine de la Romanee-Conti | Cult Wines)

Now compare the S&P 500. If you had invested your money in April 2008 in the S&P 500, you would have multiplied your money 2.41 times, for a gross return of 141%.

$100 in DRC would give you $145 12 years later, vs $241 for the S&P investment. That’s a whole lot to give up!

That’s for 12 years of investment in the top wine from the top vintage of the hottest wine region ever at first tranche pricing (the price spiked over 20% over the next few months after April 2008), with ZERO transaction costs in buying or selling and ZERO storage costs

Not pretty!

Something seems off there. In the vinous database the release price of 05 la tache is listed at 1200/bottle. There’s another thread where someone mentioned it was sold at one retailer for $700. Also the pound was worth much less than so your returns on using gbp to buy stocks would also have been much worse.

I got the price data from the wineinvestment.com site and included the link you can click through. It says the price is as of April 2008, so seemingly very close to release, and the price shows a spike over the rest of 2008 like an early release wine. It is probably a market price as opposed to direct from winery so I probably shouldn’t have said “first tranche”. As someone said, if you are getting a below market price, like an insider deal on an IPO, then all bets are off. You are then not trading on wine market values but on connections.

[Victor_Hong]

I know people who buy expensive wines and then sell half of it later for a profit. Then they say to themselves, “I am drinking for free”.
But they could have done better by investing that money in the market and celebrated their big gains.

The one thing I remind people when they ask me about this: the stock market is set up so you can buy and sell easily and without huge commissions to the broker. and/or the pain in the derriere factor.

On the other hand, a friend of mine lived off the money he made flipping Petrus 82 for several years. Very unusual circumstances tho.

Yeah, but Rudy has low housing, food, and travel expenses for a while.

[Victor_Hong]

I think the orig question is does investing in wine make sense vs. something like the S&P 500. The answer to that is pretty easily no. Wine is not that “liquid” as an investment, has higher cost to carry (store insurance etc), and broad wine returns (not cherry picked) generally are less when all the costs are included. That certainly does not mean one can not make some $$ when selling wine. But it generally is not as good nor liquid investment as broad equities etc.

I think many people read of some great buys from 20/30 years ago and think they can do the same. Alternatively it is a common way some validate buying more wine than they would otherwise with the I can always sell later if I need to mentality. Nothing wrong with either approach as long one has realistic expectations which are always the tough part.

FWIW, as a retired investment profession I have no issue with people who view wine (or anything legal) as an investment. Nearly anything can be sold these days and Ebay has done wonders for market transparency and the re-cycling of many things that would have been tossed in the past. A world with better informed buyers and sellers is a great thing.

As people learned via Rare LLC, Silver Spirits, Premier Cru, Rudy/John/Allen, Safe Harbour Wine Storage, WineCare LLC (Hurricane Sandy), Hurricane Katrina, and Mare Island, one unexpected loss, damage, fraud, legal, or casualty event can blow away a wine portfolio, with scant net recovery.

Concentration risk kills, irreparably.

[alan_weinberg]

1990 DRC La Tâche released in 1993 for $233/bottle. Put that in an inflation calendar and fast forward to 2020 and $233 is worth $419.11, up 79.9% yet it sells for $6000. S&P in 1993 was 435.23, now 3338.99, rise of 767% while that DRC bottle is up 2575%. So it depends on the time frame chosen to make one’s point.

One could cherry pick many examples from the 1990s that, with the benefit of perfect hindsight, could make you money. Some people on this board I’m sure lucked into such returns from their collecting. But the point is, what is your chance of guessing in advance at such an investment and putting major money down on it? Very low, extremely low. The S&P is an index of all stocks and you are comparing it to a single perfectly chosen wine, chosen with the benefit of hindsight. A better stock comparison would be something like, what if I bought Microsoft in 1993? That would be up something like ten thousand percent.

I picked the 2005 DRC La Tache because it’s a reasonable example of what one might think is a “blue chip” wine investment that you would pick and expect to be good/solid without advance knowledge, expect to be a secure investment. But relatively to other investments it would have been an absolute disaster.

Trying to guess in advance the next wine that will blow up in the way that DRC did from the 1990s is almost impossible and even if you get it right you would need to put almost all your money down on it. If you diversified across a lot of wines you would water down your returns. So you are talking about an insanely risky strategy. In recent years, the alcoholic beverage that has really blown up in value hasn’t even been wine, it’s been bourbon. If you already enjoyed the stuff and had it around you could have made excellent money I’m sure. But the chance of guessing that in advance?

agree. No way I’d buy DRC now for investment. But depending on what time frame one chooses, he/she can make the argument work. I lucked out buying during a time of great value and it’s all appreciated beyond S&P.

[Markus_S]

1990 DRC La Tâche released in 1993 for $233/bottle. Put that in an inflation calendar and fast forward to 2020 and $233 is worth $419.11, up 79.9% yet it sells for $6000. S&P in 1993 was 435.23, now 3338.99, rise of 767% while that DRC bottle is up 2575%. So it depends on the time frame chosen to make one’s point.

One could cherry pick many examples from the 1990s that, with the benefit of perfect hindsight, could make you money. Some people on this board I’m sure lucked into such returns from their collecting. But the point is, what is your chance of guessing in advance at such an investment and putting major money down on it? Very low, extremely low. The S&P is an index of all stocks and you are comparing it to a single perfectly chosen wine, chosen with the benefit of hindsight. A better stock comparison would be something like, what if I bought Microsoft in 1993? That would be up something like ten thousand percent.

And don’t forget you can lose EVERYTHING with a stock. The only way you would do that with a wine was if the bottle broke or was corked.

[Alex_Valdes]

1990 DRC La Tâche released in 1993 for $233/bottle. Put that in an inflation calendar and fast forward to 2020 and $233 is worth $419.11, up 79.9% yet it sells for $6000. S&P in 1993 was 435.23, now 3338.99, rise of 767% while that DRC bottle is up 2575%. So it depends on the time frame chosen to make one’s point.

…and comparable asset. Is the S&P the right comparison? Why not Treasury bonds? Why not art? Why not the equity of Constellation Brands?

The S&P comparison is cherry picked just like 82 Lafite is cherry picked. Many trades underperformed the S&P over the last 10 years. If you bought the exact components of the WMJ indices, you would be down 2% in Bordeaux, up 25% in Cali Cult and up 190% in Burg. The S&P is up about 190%.

The question, always, is what do you think will happen? If you don’t have a view, what do you believe the best default choice is? If the broad US equity market, why?

Given the annualized price volatility of wine indices tracked by WMJ is around 15-20%, consistently making 5-10% flipping wine would be a good risk adjusted return. You probably can’t do that at volume like you can in deep asset classes, but you could probably do this in the small. Given you are buying retail and the various market frictions (seller commissions, taxes, shipping, storage, etc) you probably need at least 20-25% price clearing.

Of course, you should think about why flipping is even possible so you don’t get in a situation where you are long wine you don’t want and can’t offload it. Some obvious reasons why you can are: 1) ability to call the next winner, 2) access to highly sought after wine at below market price, 3) ability to get around a geographic or legal barrier cheaper than the alternative (there are probably others). Considering you are basically operating the same business model as a wine distributor, you have to wonder whether you really know something they don’t, have access they don’t have or are operating on a different timeline where profits exist they aren’t set up to capture.

I think flipping, like ticket scalping, can be helpful in small doses but it has the risk of distorting the wine market in ways that are not great for wine drinkers broadly. The positive is obviously greater access to wine for people who don’t have connections or don’t have 10 years to get on a list. It’s bad when wine is stocked up by people solely looking to turn it for profit. Profit isn’t bad but, in that case, the profits aren’t flowing to the wine producer but the middle person (see the “Has KL lost their minds”). If a wine maker is keeping prices low on purpose to make sure access is a function of allocation and not ability to pay, flipping hurts this relationship between the wine maker and their intended consumer. As we’ve seen with concert tickets, prices have both gone up in response to scalping and artists have employed methods to ensure their less affluent fans still get a chance to experience the show through giveaways, inability to resell, etc. You see some of these flip barriers erected by big names but I suspect, for the most part, the flip seems to be mostly tamped down by importer and retail price response.