Measuring the wealth of wine
August 21, 2008
So I am sitting in the sauna this week reading research reports. I know that sounds a bit strange, but I am trying to absorb as much data on this crazy market as I possibly can. The hedge funds are fighting naked short selling, new regulation in the housing market, blah blah blah.
And then I eye something of interest from Investment News – “uncorking a new asset class.” You may have guessed based on the catchy title, but the article is about the practice of fine wine investing. Now there are so many new things being packaged out there in the investment universe that I am having to, well, read research in the sauna these days.
But a wine index? Please tell me it ain’t true. But it is. The Liv-ex 100 fine wine index was actually up 9 percent this year compared to the S and P 500 at around a negative 12.5 percent.
So what is the wine index I wonder? The index, which the London International Vintners Exchange ( hence Liv-ex) established in London in 2004, and gained a whopping 42.2 percent last year. The Liv-ex 100 represents the price movement of 100 fine wines for which there is a strong secondary market.
The returns are calculated monthly and consist mainly of Bordeaux, along with wines from Burgundy, Rhone, Campagne and Italy.
It appears that there are legitimite drivers behind the rising value of investment grade wines. The thoughts here are that there are more and more globally wealthy people out there these days drinking up expensive Bordeaux.
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The fact that there are only so many bottles out there of the stuff and people are drinking them, is the basic law of supply and demand. This should drive up the price.
Compare that idea to, say, buying a stock. Just think about what a share of GE would be worth if every night there was less of it. So the way I see it, people just have to keep drinking these wines so that the price continues to appreciate and the index goes up.
Now, I am not suggesting that we all go out and invest in fine wines. If you don’t know what you are doing, you could really lose your shirt, but this is an interesting concept. With current market conditions in traditional asset classes being , well a bit volatile these days, you are opening your monthly brokerage account statement containing stocks, bonds and the like. Do you think that you may have a helluva urge to drink wine? Perhaps.
• The opinion expressed here is of Carol Perry and may not reflect those of AWA Wealth Management or LPL
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