Every once in a while we read about how good and how safe wine is as an investment. Not seldom it is written by someone who is offering services to potential “investors”. Felix Salmon, financial journalist at Reuters, is of a different opinion. When he read a recently published paper on the merits of wine investment in the financial crisis (Raise your glass: Wine investment and the financial crisis by Philippe Masset and Jean-Philippe Weisskopf) he’d had enough. So he wrote an article on why, in his opinion, the paper is wrong and why wine is an investment class of dubious merits. In short:
1. Wine is such a small market so there is not really any substance to compare it with other asset classes (e.g. bonds or shares) to see if it is better or worse.
2. Analysis of wine as an investment rarely takes account of the costs in trading or investing in wine, e.g. transaction costs or storage cost. Taking these into account would change the picture, says Salmon.
3. The sample that is the basis for the analysis is not representative (it has “survivorship bias”). The sample is a post-facto selection of wines that have been “investment grade” over the period. Others, which might have failed, are not included. With a neutral sample the result might have been quite different.
4. Wine is not just any old asset. It has a limited life span and a peak. In the long run, and if the market for investment wine was bigger, this would make it risky.
Read Salmon’s (quite short) article in full here: blogs.reuters.com. and don’t miss the comments where Masset & Weisskopf responds.
