Does wine flipping pencil out?

[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.

…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.

no way I’d buy for investment now or join one of those wine investment groups. The only wine area in which I have expertise is Burgundy and that’s in a bubble.

[Alex_Valdes]

no way I’d buy for investment now or join one of those wine investment groups. The only wine area in which I have expertise is Burgundy and that’s in a bubble.
[/quote]

I think that’s the question: what do you believe Burg prices will be in 5 years? Like you, I would never join one of the investment groups. Though, I do believe Burg prices still have a ways to go, especially the bottom part of the curve (villages, 1er cru closing the gap on a relative basis to GCs, “second and third growth” producers catching up to the top tier). That is the reason why I buy more than I can drink: I am worried about the prices will be a lot higher in the future.

Is your head in the same place? Curious as to your thoughts.

[JLee]

A more appropriate comparison for single wines would be to single stocks. Apple is up well over 50,000% since 1995. Nvidia is up something over 30,000% since 1999. If you wanted to take a high risk investment, would you rather do it on a single name stock, or a single wine?

[Alex_Valdes]

A more appropriate comparison for single wines would be to single stocks. Apple is up well over 50,000% since 1995. Nvidia is up something over 30,000% since 1999. If you wanted to take a high risk investment, would you rather do it on a single name stock, or a single wine?

That’s why I looked at wine indices vs a stock index. Looking back, you can always find an example - looking forward is much harder to do.

[JLee]

A more appropriate comparison for single wines would be to single stocks. Apple is up well over 50,000% since 1995. Nvidia is up something over 30,000% since 1999. If you wanted to take a high risk investment, would you rather do it on a single name stock, or a single wine?

That’s why I looked at wine indices vs a stock index. Looking back, you can always find an example - looking forward is much harder to do.

I agree. Comparisons with the S&P should be with dividends reinvested, as those aren’t accounted for in the S&P’s “price.” That puts the S&P total return at about 285% for the last 10 years, likely well above any wine index.

I also presume those wine indices don’t include cost of carry or transaction costs, which will be proportionally significant.

[Victor_Hong]

Single-asset investing is rife with measurement bias, via survivorship bias. Nobody admits to their bad choices, provided that he or she survives them.

[Alex_Valdes]

A more appropriate comparison for single wines would be to single stocks. Apple is up well over 50,000% since 1995. Nvidia is up something over 30,000% since 1999. If you wanted to take a high risk investment, would you rather do it on a single name stock, or a single wine?

That’s why I looked at wine indices vs a stock index. Looking back, you can always find an example - looking forward is much harder to do.

I agree. Comparisons with the S&P should be with dividends reinvested, as those aren’t accounted for in the S&P’s “price.” That puts the S&P total return at about 285% for the last 10 years, likely well above any wine index.

I also presume those wine indices don’t include cost of carry or transaction costs, which will be proportionally significant.

Yes, 285% is with dividends reinvested. Also not excess return on either (no round trip cost to buy/sell) - though wine generally carries higher cost. I guess if we wanted to really make it apples to apples, you would have to take physical delivery of shares…

Anyway, point is few broad asset baskets have made that kind of return over the last 10 years. 2000 to 2010 much easier to beat the S&Ps -5% return.

[alan_weinberg]

Is your head in the same place? Curious as to your thoughts.

I’ve been so wrong that I wouldn’t even listen to myself! Never would have thought Rousseau Chambertin would be $3000 a bottle, dozens of other examples. No idea where we go from here with Burgundy.

[Alex_Valdes]

Is your head in the same place? Curious as to your thoughts.

I’ve been so wrong that I wouldn’t even listen to myself! Never would have thought Rousseau Chambertin would be $3000 a bottle, dozens of other examples. No idea where we go from here with Burgundy.

I hear you. Let’s drink and find out

[Marcu_Stanley]

Is your head in the same place? Curious as to your thoughts.

I’ve been so wrong that I wouldn’t even listen to myself! Never would have thought Rousseau Chambertin would be $3000 a bottle, dozens of other examples. No idea where we go from here with Burgundy.

Yeah, forget theoretical arguments about putting your entire retirement savings in wine, this is really what we all need to know – where Burgundy prices will go.

Burgundy feels like a bubble, the constant price increases and escalation of village wine prices above world-class wines from other regions definitely give that impression. But the two things that give me pause about that are:

–Burgundy quality and winemaking is noticeably improving just in the last 5-10 years over what was already a very high baseline
–Burgundy has tighter supply restrictions than any other wine region, by far

the only thing that works to open up new supply in Burgundy is improved winemaking and weather in non Cote d’Or satellite regions like Marsannay, Givry, Santenay, St. Aubin, etc. This has clearly been happening but there are limits to those areas production capacity

[Andy_Sc]

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.

I wouldn’t call it “getting it below market price”. You’re getting it at market price (release price + distribution margin of the retailer), but then the next day, the market price has already climbed significantly. It wouldn’t be fair to compare performances of a wine and other investments by taking a price that is higher than the official release price. It’s buying at the IPO price, not buying pre-IPO.

There are some wines with so much demand that they instantly increase in value: many Burgundies (we all know the names), some Bordeauxs (Lafleur),

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?

Not some insiders, the whole allocation all the retailers get from the winery are sold at that initial price. Everything that happens afterwards is secondary market at higher prices. No retailer who gets direct allocation from the winery or the direct importer of the wine is allowed to sell it at the much higher market price. They would quickly lose the allocation as the winery doesn’t want speculation.

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.

That is a fair point and should be taken into consideration if you compare the performance of your wine investment vs other investments. I don’t invest in wine myself, so I never made the calculation. My point was more on the La Tache example which is wrong (wrong starting price).

I can only speak of my personal experience: to get to the point where you get allocated rare wines like this you have to be among the top few percent (in case of my retailer top 0.5%, the CEO told me) of all clients in terms of amount spent per year. So you will never be able to just buy a bottle of DRC and flip it. If I would want to flip one day I guess it would be still show good performance as the wines I buy with this retailer are mostly in this DRC category with instantly higher secondary market prices (I buy DRC, Roumier, Fourrier, Rousseau, Leflaive, Comte de Vogue, Trapet, Clos de Tart, Chave, Harlan, Shafer, as well as a bunch of Bordeauxs where performance is more depending on the vintage).

[Andy_Sc]

Burgundy feels like a bubble, the constant price increases and escalation of village wine prices above world-class wines from other regions definitely give that impression. But the two things that give me pause about that are:

I’m with you here. Some 2015s/2016s did come down from their peak levels already (by 10-20%).

–Burgundy quality and winemaking is noticeably improving just in the last 5-10 years over what was already a very high baseline
–Burgundy has tighter supply restrictions than any other wine region, by far

Maybe the climate change with less bad vintages (before it will get too hot in a few years and you will have bad vintages because they’re all too big and ripe) and improved quality across the board can counter the upwards trend in prices a little bit. At first I thought the Covid might put an end on the upward pressure which is there due to an ever increasing middle class and more wealth concentration across the planet but with all central banks flooding the market with cash which kept and will keep asset prices high and higher and due to the nature of the pandemic (affecting mostly lower paid jobs vs the financial crisis where it affected asset owners too), I doubt that upward spiral will not stop.

[emile_bond]

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.

La Tache 2005 750ML was released during Spring 2008 at a Wholesale price of $740/bottle(prior to a case break fee per bottle by a Distributor), or $4400/6-pack. So, a $1200/bottle retail price referenced by Vinous seems reasonable as this would be 38.3% retail margin. However, I recall bottles being flipped immediately at release for as much as $5000/bottle.

[Victor_Hong]

Sounds as if many folks here should start a wine investment fund.

[Dave_Greenfield]

Hi everyone, i’m new here but my friend Matt Latuchie looped me in to the forum. A lot of great points on here. I have a background working in the Asset management industry and generally I don’t think wine is a better investment than equities. However, at the current time I am looking at both wine and whiskey as investments given the inflated equity market. A lot of points here talk about the potential upside, but not as many talk about what I see as the main benefit in the current environment which is the less likely downside. Many major macro equity folk are predicting flat or negative performance for equity over the next 5-7 years. Here’s published predictinos from GMO https://www.gmo.com/americas/research-library/gmo-7-year-asset-class-forecast-august-2020/ which has a -6.5% projected return for large cap equity the next 7 years. I personally think thats a bit overly negative, but I think wine/whisky will outperform.

Wine I think is generally more stable and has the benefit of younger generation both getting wealthier and buying more wine than previous generation so creating a macro net inflow. Still doing more research there but that’s my general sense.

[Chris_Seiber]

Hi everyone, i’m new here but my friend Matt Latuchie looped me in to the forum. A lot of great points on here. I have a background working in the Asset management industry and generally I don’t think wine is a better investment than equities. However, at the current time I am looking at both wine and whiskey as investments given the inflated equity market. A lot of points here talk about the potential upside, but not as many talk about what I see as the main benefit in the current environment which is the less likely downside. Many major macro equity folk are predicting flat or negative performance for equity over the next 5-7 years. Here’s published predictinos from GMO https://www.gmo.com/americas/research-library/gmo-7-year-asset-class-forecast-august-2020/ which has a -6.5% projected return for large cap equity the next 7 years. I personally think thats a bit overly negative, but I think wine/whisky will outperform.

Wine I think is generally more stable and has the benefit of younger generation both getting wealthier and buying more wine than previous generation so creating a macro net inflow. Still doing more research there but that’s my general sense.

Best wishes to you with your project.

Speaking in very broad terms, do you imagine mostly buying blue chip wines with a track record of appreciating (Grand Cru Burgundy, First Growth Bordeaux, Napa cults, Grange, etc.) and hope they keep trending upward, or speculating on finding future high flyers (wines that will be the next Juge, Bartolo Mascarello, etc.), or a mix?

[Howard_Cooper]

Question for you amateur wine flippers out there, is it really worth the effort where your primary goal is Return on Investment? I got on one of the sacred cult lists 12+ years ago with the intention of flipping most of my 12-24 bottle annual allocation and keeping a bottle each year as a small dividend. I have about 6+ year vertical of the good stuff and plenty of the second tier going back to 2010. I have a cellar and don’t pay for off-site storage. I’ve gotten quotes from the brokers (Benchmark, et) who take quite a bite out of any potential profits. Negotiating a private transaction and shipping seems tricky at best. My back of the napkin calculation shows I would have made more money had I invested in the SP500 each year than buying and flipping to a broker. Now I’m thinking i’ll just keep it all and enjoy it in my retirement. I’m curious what other experiences are?

Does one ever make a decent return on investment with “second tier” wines? Does not mean that they are not excellent wines for drinking, but for investment?

[Howard_Cooper]

Hi everyone, i’m new here but my friend Matt Latuchie looped me in to the forum. A lot of great points on here. I have a background working in the Asset management industry and generally I don’t think wine is a better investment than equities. However, at the current time I am looking at both wine and whiskey as investments given the inflated equity market. A lot of points here talk about the potential upside, but not as many talk about what I see as the main benefit in the current environment which is the less likely downside. Many major macro equity folk are predicting flat or negative performance for equity over the next 5-7 years. Here’s published predictinos from GMO https://www.gmo.com/americas/research-library/gmo-7-year-asset-class-forecast-august-2020/ which has a -6.5% projected return for large cap equity the next 7 years. I personally think thats a bit overly negative, but I think wine/whisky will outperform.

Wine I think is generally more stable and has the benefit of younger generation both getting wealthier and buying more wine than previous generation so creating a macro net inflow. Still doing more research there but that’s my general sense.

Inflated prices on equities - what about wine. The price of virtually any imported wine could easily go down 25% (or a large portion thereof) if the tariffs go away next year. What makes you think wine prices are not inflated right now?

[R_Frankel]

I wonder if there is a needed balance between structured investment purchased wine and wine purchased for individual cellars (effectively to drink, but we know that many wines require long term storage and many of us buy more than we might reasonably ever drink). In other words, if nobody in the market is drinking the stuff, will people lose interest? What fraction of a healthy wine market could be in pure investment vehicles?

[Mark_Mason]

I used to buy/trade/sell/flip quite extensively about 20 years ago, but I found it was taking the fun away from my hobby and it became too much like work. The money was nice but I also have a full time job. Same reason why I don’t guide ice fishing, it mingles my job with my fun. My purchases have slowed down as my cellar matures and I only buy now what I intend to drink or gift.