Every year or so, I receive an unsolicited email blast from wine auction services that makes me want to Hulk rage. The 2019 incarnation of this comes my way from online auction house WineBid, is titled “16 Years of Burgundy vs. The Stock Market – and WineBid Auction Results,” and which I will only link to with the anchor text Probably Total Horseshit so as not to give them quite exactly the kind of organic social mention that they had in mind when they sent it.
In that WineBid article, which you probably shouldn’t bother reading, they make the claim that a report published by The Economist (using WineBid data) shows that “fine red Burgundy wine is a better investment by far than the stock market.”
Sorry, but that’s a steaming pile of horse crap of the tallest order.
Yes, they include cool-looking, impressive charts and lots of flowery language insinuating that if you love fine red wine then you’re an idiot for not considering it the world’s most impressive investment vehicle, so there’s that. But the problem is, well, that there are lots of problems with comparing the apples of proper investing to the oranges of owning fine wine, not to mention the issues with the report itself…
Here are a few of the concerns that you should have regarding this specious conclusion that Burgundy will be besting stock returns now or, like, ever:
- Even if Burgundy outperformed the market (which it won’t, more on that in a second), you cannot possibly purchase similar amounts of investments in fine wine as you could in mutual funds, so the comparison is misleading at its face.
- WineBid and The Economist, in this report, are engaging in the same time-honored trope that has been used for decades to convince people not to calculate how much of their money is actually going to smooth-talking financial “advisors” – namely, cherry-picking their data timeline to show the most favorable returns.
- There’s probably survivorship bias in their results (we’re likely not seeing inclusion of the performance of Burgundy wines that didn’t track well against the stock market).
- Past performance never, ever equals future performance.
- Wine investing is biased towards the “greater fool” requirement, which isn’t a winning investment strategy.
- When you invest in mutual funds the right way, you carry risk but almost no real cost of maintenance; in wine investing, almost all of the maintenance cost is on you, which, oops, WineBid doesn’t really mention.
- There are undoubtedly more issues to point out but f*ck this, I have better things to do, such as go clip my toenails.
Pretty much each time that I address this topic, I end it with the same cautionary tidbit, so I am just going to quote myself on one of the last ones I offered:
” If you’re contemplating any substantial move into the fine wine investment market, I’ve got three words for you: Don’t do it. And here, for good measure, are four more; remember that the four most dangerous words in any investment sphere are ‘this time it’s different…’ “
Cheers!
I own almost zero wine for investment purposes, but I don’t really see your arguments:
* Nobody is seriously suggesting replacing equities with collectible wine, so comparing market caps of the two makes little sense. But to state that scarcity makes an investment class uninvestible is empirically wrong.
* Cherry-picking timelines… probably, but the most recent 15 years for the article makes sense. Assumedly there is much better data than before. If they really wanted to cherry pick they would have started with ’07.
* Survivorship bias – well, same thing for stock market indexes. Crappy companies get culled and replaced by strong companies. Yes, there is more DYOR with wine, but culling poor performers is not unique to wine.
* Past performance -> future performance. Same applies to equities.
* Greater fools: applies to any desirable, scarce asset. Stick with DRC and Bitcoin and this is less of an issue.
* Actively managed mutual funds have expense ratios averaging over 1.0%… about the same you pay for wine storage and insurance. No difference there. Although, I guess that’s already baked into returns whereas it’s not included in the wine returns. OK, you’re right there.
Look, the same story is written about almost every alternative asset class… you’ll find the exact same story about baseball cards, art, etc. Some people make money; a lot don’t. I don’t think you’re wrong per se, but your individual arguments don’t really provide a strong counter-narrative imho.
Michael, from my perspective, you are helping to prove the counter-narrative.
The point is not that wine is different from other rare collectibles; it’s not. The point is that is shouldn’t be offered up as somehow comparable to, say, investing in Vanguard index funds, which is precisely what these press releases do (usually in dog-whistle format) every year or so. The fact that wine is no different from any other rare commodity doesn’t mean that the argument saying that investing in wine instead of the stock market is stupid is somehow no longer valid. Wine simply shares that same stupid-level as those other collectible investments, for the average person’s money.
Regarding actively managed funds, they are almost always an even dumber way to try to make money than collecting wines; those fees are effectively much higher than 1% and eat away a disproportionate percentage of returns, and their performance in aggregate over time tracks exactly to a bell curve, which means by definition that their results are random. I write this because anyone reading it should know that collecting wine might actually be slightly safer for your money than chasing actively managed funds :-).
In any case, people are much better served following the recommendations that have come out of decades of work by Nobel-winning economists: namely, investing in index funds, avoiding actively managed funds and individual stocks, and keeping your money out of collectibles (among other things).
A further note on equities: it is of course true that past performance doesn’t equal future performance, for any investment. However, this is precisely why a good index portfolio will be well balanced across many asset classes, sizes, markets, etc. In that kind of portfolio – which is ludicrously cheap to enter now (and literally requires no effort on the part of the investor to maintain or balance in the case of target-date/self-balancing index funds) – your bet is not on the vagaries of single commodity types or one business; it’s betting instead that the global economy will continue to grow over time. Incidentally, that’s the exact same bet that *anyone* who works as an employee for almost *any* company effectively makes by taking a job. It’s the closest thing to a “safe” bet that we will ever see in the investment world. Wine looks ridiculously imbalanced as an investment vehicle by comparison.
“Wine looks ridiculously imbalanced as an investment vehicle by comparison.”
So does any collectible. Nobody is saying dump all your public equities and bonds and buy wine and paintings. But because something is simply different from what Fidelity sells, doesn’t make it a bad investment. Indeed, the rich get richer often because of their investment in alternative assets that most retail investors can’t access (venture capital, real estate, etc.).
If someone told me they have 50% of their assets in wine, I’d question their sanity. But 2%… *if* the numbers work out, then why not?
Not sure what you were saying about taking a job. Are you arguing that taking a job for a company is the equivalent of an index fund or DRC. I’d argue the latter… nothing more imbalanced than tying yourself to one profession in one company in one industry. When AI takes that job, then what do you do?
“Nobody is saying dump all your public equities and bonds and buy wine and paintings.”
I absolutely get press releases that suggest/imply this; hence today’s PSA-style rant.
“But because something is simply different from what Fidelity sells, doesn’t make it a bad investment.”
True, but I think it’s quite clear that for **most people** wine is a crap investment vehicle.
“Not sure what you were saying about taking a job.”
When you work in the global marketplace, you are indirectly making the “bet” that the entire market will go up; it’s simply an unstated conjunct of producing goods/services in the global market. Read this for more perspective on the ideas in general: https://jlcollinsnh.com/2012/04/19/stocks-part-ii-the-market-always-goes-up/
“nothing more imbalanced than tying yourself to one profession in one company in one industry.”
This is very true and a BIG reason why owning stock in the company that employs you is almost always a bad idea.
“When AI takes that job, then what do you do?”
In the USA, the short answer is that you’re royally f*cked. We have half-assed tax laws that incentivize business outsourcing and automation with almost nothing by law going back to the workers who are displaced by this (workers that we almost certainly need in other fields if they could be retrained). But that’s waaaaay off topic now ;-).
Off-topic, but arguably about a zillion times more important. Talking to companies here and in China working on ML and blockchain projects that will displace way more people way faster than we would all hope for. And China is on a path to absolutely eat our f*cking lunch. Climate aside, I can’t think of anything more important.
Totally agree – most of the U.S. has no idea what is coming down the pike and our laws/policies are way, way too inept in present form to handle it.