American Association of Wine Economists
10th Annual Conference
University of Bordeaux, France
Thursday, June 23, 2016
Fine Wine: A Fine Goal-Based
Investment?
Paul J. Merton
President & Founder Ethos Wines Group, Inc.
Email: [email protected]
Introduction & Overview
Past studies have suggested that fine-wine investing
makes sense as a purely financial investment.
Dimson, Rousseau, & Spaenjers (2015) calculate the
real financial return (for UK investors) of Bordeaux
Premier Cru at 4.1% net of storage costs, 5.2% for
equities and 1.5% for Bonds, between 1900-2012.
This extensive research is a proxy for “Fine Wine
Investment”
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New View on Fine Wine Investing
Consider three investors with different goals for investing in
fine wines:
1. Pure Financial Investor’s goal is to maximize his financial
return; focusing only on earning the highest expected return
for a given risk exposure.
2. The Epicurean Investor’s goal is to maximize the likelihood
of owning specific wines solely for his own consumption.
3. The Hybrid Investor’s goal is a mix of Epicurean
consumption and the Financial’s highest expected return.
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1. The UK Financial Investor
• Searching for the highest Sharpe ratio
✗ Fine Wine is .21 and UK Equities are .30
• However his goal is in £ not wine bottles
✗ The transaction cost of 15% reduces the expected
financial return
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The Real Financial Return
✗ His goal has not been achieved
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2. The Epicurean Investor
• The Epicurean Investor who invests in wine is
buying his risk–free asset.
• Everything ≠ Risk Free is a risky investment;
including wines he does not want to consume.
✔His goal has been achieved.
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3. The Hybrid Investor
✗Will receive the same poor financial return on
wines, just as the Financial Investor
✔Will invest the same risk free investment as
the Epicurean Investor
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‘I DON’T WANT
OUR WINE IN FUNDS’
“You can’t block that from happening but
you can try to control where the wine
gets sold. I want to do everything I can to
discourage speculation and am trying to
prevent our wines from ending up in
investment funds.”
“It’s important that our wines are opened
and enjoyed rather than traded. Above
all wine is about pleasure.”
Stéphanie de Boüard, managing director
of Château Angelus
Shaw, Lucy. “DE BOÜARD: ‘I DON’T WANT OUR WINE IN FUNDS’” The
Drinks Business. Web. 24 February, 2016.
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Wine Pooling
• Can take advantage of economies of scale &
leverage expertise
• “Buy and Hold” transactions only; the drag from
selling is too high.
• Minimal additional expenses, no fees
• Must be wary of diversification
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Conclusion
• Three investors, with different goals will have different
outcomes by investing in the identical investment.
• Fine Wine is a poor investment for Financial Investors, a
good investment for Epicurean Investors, and mixed for
Hybrid investors.
• Wine Pooling is a possible alternative and perhaps a
topic for the American Association of Wine Economists
11th Annual Conference in Padua, Italy 2017.
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