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Century-Long Study Shows Wine Topped By Equities

London's oldest wine merchant supplied historical price lists
© Berry Bros. & Rudd | London's oldest wine merchant supplied historical price lists
Researchers studied prices ranging over 112 years.

Fine wine has provided higher returns than government bonds, art and stamps over the course of the last century but has been less profitable than equities, according to a new study published by the American Association of Wine Economists (AAWE). 

Between 1900 and 2012, the study found that Bordeaux first growths had realized an annual return of 5.3 percent. Taking insurance and storage costs into account, the estimated return fell to 4.1%, the paper explains.

The report notes: "Equities [5.2 percent] have been a better investment than wine over the past century ... at the same time, returns on wine have exceeded those of government bonds as well as art and stamps."

However, the "exceptionally low returns on equities and the high returns on wine" in recent years are responsible for narrowing the gap between the two asset types in the last decade.  

Even so, old wine is able to steal a march on its investment rivals by containing a non-financial "psychic" return – i.e. the pleasure derived by collectors from owning rare wines, even when they are past their best in terms of taste. For these wines, the "psychic" factor is estimated at 1 percent.

While the drinkability of old wines declines when they are past their drinking window, this "psychic" factor means that "just like an artwork or a precious diamond, an unopened bottle can be a source of enjoyment." 

On the question of why bottles are not consumed at or around maturity, the researchers state that the wines may be forgotten in large cellars, or collectors may hold more wine at the optimal drinking age than they can physically consume (yet are discouraged by high transaction costs from selling).

In addition, the authors suggest that some collectors value "lifelong ownership" of a wine more highly than drinking it. And then there are speculators, who store wine "in the expectation of higher prices in the future."

The study was conducted by researchers from the London Business School, Vanderbilt University in Nashville, and HEC Paris. They set out to examine the impact of aging on wine prices and the performance of wine as a long-term investment, based on Bordeaux's five first growths. Focusing on vintages since 1855, they collected historical price data from Christie's in London and the city's oldest wine merchant, Berry Bros. & Rudd.

Armed with a total of 36,721 prices, the research team then analyzed the wines' performance from 1900 to 2012. They found that the best vintages "appreciate strongly for a few decades, but then prices stabilize until the wines become antiques, after which prices start rising again." In lesser years, prices "are relatively flat over the first few years of the life cycle, but then rise" year by year.  

An estimated one-quarter of high-net-worth individuals around the world now have wine collections, which on average represent 2 percent of their wealth. 

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