Investing In Wine: Turning $3,000 Into $198,635
While the broader economy tanked in 2008, then struggled through 2009, Michael Wigley's investment fund earned 32.6%. In the same period Wigley made investors money, the Dow Jones Industrial Average lost 10% and the median home price dropped 4.1%, according to the National Association of Realtors. Wigley doesn't run a Madoff-style Ponzi scheme. He buys and sells wine.Is wine a good investment? "Yes is the short answer," exclaims Wigley. Wigley runs Bacchus Partners, LLC, the first and only wine investment fund in the U.S. He calls wine, "a complicated asset class that's knowledge based like art and other collectibles."
But Wigley thinks he's taken something complicated and made it simple, by developing a system to grade each wine. Developed over 25 years, the system looks at 25 different variables to forecast the likelihood of any bottle of wine increasing in value, maintaining its price or decreasing. So, for example, Wigley's grading system gives a bottle of 1982 Chateau Lafite-Rothschild an A+. Wigley says it's currently in its drinking window and he predicts it has 20 to 30 years life left in it.
When it first became available Wigley bought a bottle of 1982 Lafite for $29.77 a bottle. At the end of January 2010 he invested in more at $3,000 a bottle. He says it's still a great investment because the 50-year average for fine wine appreciation is 15% per year. That means if that $3,000 bottle of Lafite is still drinking well in 30 years it could sell for $198,635.
It's a shockingly large sum, and other wine aficionados say it's not likely to cost that much. But consider this: those bottles Wigley bought in 1983 have appreciated at 18.6% annually. As he looks for the next 1982 Lafite, Wigley's rating system considers the quality, quantity and distribution of the wine. "A wine can be great but if no one's ever had it, it's not a good investment," he says.
He points to Kitchak Cellars' 2005 Adagio, it won the Double Gold Medal at the 2008 San Francisco International Wine Competition. But it was made in small quantities. So even though it's a great wine, Wigley would not call it a good investment because only a few people have tried it and it's hard to get. Still he says, "I'll pick up a few cases for the fund on the hope it gains value."
But investing on hope isn't good enough for Todd Stahl, a Certified Financial Planner who also owns a wine shop in Seal Beach, California. Even if you're picking it up as an investment, he recommends you only buy wine if you love it. "If you buy a case and can't sell it, you'd better be ready to drink it," he warns.
Stahl points out that bottle of 1982 Lafite can only be worth $198,635 in 2040 if someone's willing to pay that price. Between now and then a lot could happen. "If bad news comes out about a stock, the value of that stock goes down," he says. "If a bottle you're holding, some reviewer tries it and says it isn't great you'll lose money," even, he adds, if it was just one bad bottle.
But, Stahl has seen wine investments pay. One customer sold a case of wine and was able to buy his son a car. Still, as a financial planner he would never advise the average investor to buy wine over putting money into more stable investments. On the other hand, he says, someone with a large net worth, looking to diversify into a high-risk investment might want to consider it. "There is money to be made, but it's speculative," he says. "With time, wine eventually will deteriorate. It doesn't last forever."
For that reason, he would rather see someone invest in gold. It doesn't go bad and you'll always own a bar of gold. And like gold, wine prices can drop. In the fall of 2008 when nearly every sector of the economy lost value, so did wine. But, Wigley points out, "It didn't go down as far. And came back a lot faster." It's why his fund made such a large profit in 2009. In spite of that 32.6% return, Stahl says he wouldn't buy into a wine fund. "The downside to a wine fund is you don't get the wine if it all goes south," he says. He'd rather buy his own investment wines. Then if a bottle isn't worth selling, Stahl says he'd drink it.
This post was contributed via Seed.com, AOL's new platform for freelance writers.
