Rob Wolford owns more than $100,000 worth of wine, but he hasn’t seen it or held any of the bottles, and it’s stored far from where he lives. And he doesn’t really care if he ever drinks any of it.
“No, I don’t, and I’ll tell you why,” says Wolford, a 50-something financial advisor in Southern California. “I didn’t buy a bottle of $500 wine to drink it. I bought a bottle of $500 wine so it would turn into an $800 bottle of wine. I’m perfectly happy to buy $50 to $100 bottles of wine and drink those. I want to make money on the others.”
Does this sound odd, someone buying wine with no intention of drinking it? Maybe it did at the beginning of the century, but not today. Today, collecting wine has taken a direction few would have anticipated 20 years ago. Today, wine has become an investment for a growing number of people — some wealthy, some not — who see wine as little different from stocks and bonds, gold, and real estate.
A look at the buyers
These investors are often younger, don’t necessarily drink wine, and consider their purchases a necessary step in diversifying their portfolio. This is a far cry from the baby boomers, who bought wine to collect and to drink; their cellars, stocked with First Growths and rare Napa reds, showed off their wine acumen, and the bottles meant far more to them than something to fund their retirement.
This has driven the rise of wine investment companies like Vinovest, which offer the same services for wine that banks and brokers do for more traditional investments.
“I suppose, given that there are blue chip wines the way there are blue chip stocks, that it doesn’t take a rocket scientist to see that someone like this was going to happen.” says William Davis, the director of education for Wilson Daniels, a wine importer and wholesaler, and who has long helped collectors buy wines. “But there is a big difference between collecting fine wine and speculating in it, and I’m not sure that that’s a difference that is good for the wine business.”
Follow the money
The two-year-old Vinovest has more than 5,000 clients and approximately $50 million in assets under management. Its co-founder, Anthony Zhang, wasn’t necessarily a wine drinker when he started the company, but he saw an investment opportunity that others had overlooked.
“There was a lack of financial rigor for wine as an investment,” says Zhang, the Vinovest CEO and who had sold his two previous venture capital startups. “If you look at the stock market, if you look at crypto, you have to ask, ‘Why not the wine space?’”
Which, of course, is a question hardly anyone had asked in the previous couple of hundred years. Wine has always been a collectible, dating from the 1855 Bordeaux rankings and the quality ratings it set for many of France’s greatest wines. But wine had always been something to collect with the intention of drinking. Otherwise, what was the point?
“That’s mostly been my experience,” says Arnaldo Burgos, who helps some 700 clients buy fine wine and spirits through California’s Bounty Hunter retailer. “Yes, some people buy wine to make money, but for most, you’re still seeing them want to drink the wine — if not for them, to lay it down for the grandkids.”
When did wine stop being a drink?
Buying wine with an eye to selling it in the future really began in the U.S. in the 1970s, but for a long time it was an insider’s game — would-be investors needed to know where to find the wines, and how to sell them. And also, how to avoid scams and fraud.
A pivotal moment came in 2001, with the founding of London-based Liv-ex, the stock exchange-style service for wine. Today, some 550 international members can use the service to buy and sell fine and rare wine, and access Liv-ex’s charts and graphs, which mimic stock exchange indices like the Dow Jones Industrial Average and the FTSE. While Liv-ex is strictly for wine merchants — private collectors cannot join — those merchants have access to two decades of pricing information plus up-to-date information about fine wine releases.
The other key moment came in 2008, when the Hong Kong government realized that their harbor could be the gateway to Asia for wine. In February that year, they dropped all duty on wine, which kick-started a fine wine boom in Asia, particularly in China. Despite the global financial crisis, the price of fine wine began to soar, as wealthy locals competed to buy the best bottles. Wine auctions boomed, and an entire infrastructure sprang up to cater for collectors.
Wine lovers were forced to understand, perhaps for the first time, that the supply of great wines is finite. Companies can always issue more shares of stocks, but once the 2000 vintage of a specific wine has been released, there won’t be any more. Which, given the law of supply and demand, means prices should always go up. And wine has proved to be an excellent investment, with the value doubling every six to seven years.
“In a way, that’s like classic car collecting,” says Burgos. “There are only a certain number of pre-war cars like Duesenbergs, so the pool keeps getting smaller and there are fewer to buy.”
“Yes, some people buy wine to make money, but for most, you’re still seeing them want to drink the wine — if not for them, to lay it down for the grandkids.”
So, says Vinovest’s Zhang, why not use that framework to produce an algorithm to help his clients figure out which wines to buy? And, since it’s an online service, why not give them the same tools stock brokers give their clients, like real-time access to pricing data and the ability to buy and sell at a moment’s notice? And, finally, since it’s an investment and not something to drink, why not insure and store the wine for the clients, saving them the time and expense of doing it themselves?
“It’s a way to give investors a chance to diversify their portfolios,” says Zhang. “They’re just not in stocks or real estate, but in something that holds its price.”
The algorithm — which conjures up images of vast computer farms crunching numbers to decide exactly when to buy and sell — has several human components. Pricing data is a key part, but so are critics’ scores, weather conditions for specific harvests, appellation differences, and changes in winery management. It takes a knowledgeable human to put it all together.
“Vinovest checks all the boxes for me,” says Wolford. “It feels institutional — it’s scalable, it uses the best technology, it’s cost-efficient, and it’s expert. I can confirm trades, I can see where the wine is stored, and since I don’t actually take possession of it, I don’t have to worry about sales tax and VAT.”
Not surprisingly, Vinovest’s clients, says Zhang, are younger — millennials and younger Generation X, who are comfortable with this kind of technology. It’s also easier for them to see wine as an investment that’s no different from crypto or fine art, since they didn’t grow up drinking it. And, finally, if these investors aren’t what the financial trade calls high net worth individuals yet, they’re on their way.
It’s a situation that dismays wine lovers.
“I hope that this change doesn’t mean that wine is going to go the way of the sneakerheads,” says Davis; in October, a pair of Nikes that basketball star Michael Jordan wore in 1984 sold for $1.47 million. “Do we want people who collect wine to treat it like those who collect the shoes and never wear them? Who only keeps them in a closet so they can look at them?”
Unfortunately, the answer is probably yes. With interest rates at historic lows, investors are looking everywhere they can for returns, from sneakers to trading in Stradivarius violins. And wine has proven itself to be an excellent investment.
At least until the investors spot them.
3 wines to keep an eye on:
This isn’t being recommended as an investment wine, but as an alternative to extremely expensive Bordeaux wine. Why is it so relatively inexpensive? Because it’s not French, where the style of wine could cost four or five times as much. As such, top-rated wines like the Taita, from a leading producer like Montes, offer a great alternative to top-end Bordeaux.
Call Vega Sicilia, perhaps the best known high-end Spanish producer, the municipal bonds of wine investing. That is, its wines are dependable and tend to hold their value regardless. The Unico, a blend of Tempranillo and Cabernet Sauvignon, scores well even in so-called off vintages.
Ice wine is a rare wine that can only be produced in exceptionally cold winters — and it will only get rarer, because of the warming climate. To make it, the grapes must be left to freeze on the vines, which concentrates the sugars, resulting in an almost indescribable honeyed, luxurious wine.