Investing In Stocks Vs. Investing In Wine

Alternative Assets are becoming more and more popular, as a piece of one’s portfolio. Wine has become a part of that story. 

Ah, wine. The nectar of the Gods is also an investor's delight. Fine Wine indices have traditionally outpaced the stock market over the last 20 years. Modern tech has made the industry as accessible to investors as other forms of alternative investments. At Vinovest, we are leveraging that tech to the max. 

An investor myself, I take the diversified route of spreading my capital across individual company shares, real estate funds, commodities etc. Now, I also include wine; an asset class that has a track record of outpacing the S&P 500.

There are some important things to understand about the wine market that differ greatly from the stock market. Being a stock market guy myself, it was a bit of a learning curve getting involved in a very different type of asset class.

While wine investing can have comparable, if not better returns than the S&P 500, the structure of the industry is considerably different, and requires a different approach to find success. 

So what are the biggest differences between more traditional stock investing vs. wine investing? 

You’ll Need A Warren Buffett Mentality

One of the most crucial facets of the entire thing that needs to be understood upfront, is that wine investing is more akin to a Warren Buffett investment style of “buy and hold”. The greatest returns on wine start to be realized after around the 5 year mark. Before then, there is simply too much volatility and supply/demand variables at play. Even something as popular as Sassicaia, the wine every celebrity and professional seems to be drinking, takes time for the big gains to show up. 

Wine prices are based on scarcity and consumer demand. 

Stocks vs. Bottles

The easiest way to understand the difference between stocks and wine, is how the value is created.

For stocks, we’re looking at quarterly or (if you’re smart) annual earnings reports. We’re looking for increased sales and net income that translate to value per share of stock. 

For wine, imagine that every single vintage starts out with 100,000 shares. Through time, people drink those shares. As the number of shares decreases, the value of the remaining ones increase. That’s how you make your money in the wine business. You’re trying to hold onto your shares (bottles in this case) longer than everyone else does. 

I talk about this analogy a lot. It might sound simple, but at the end of the day investing consists of fundamental concepts. Buffett doesn’t overcomplicate it. Neither should we. 

Liquidity is different

The stock market consists of billions if not trillions of shares outstanding. There are tons of trading firms, individual investors, broker dealers, etc. There are huge exchanges with massive trading volume. There are also multiple market makers, ensuring the liquidity of assets in short time frames. 

The wine market is expanding, and liquidity is growing thanks to online markets, exchanges, and investment platforms like Vinovest. Still, it’s a different dynamic. You cannot expect to invest in wine, and sell a month later for 20% gains. This Is Not Day Trading. You will likely be putting your money in a long term asset more akin to real estate. The majority of time, it will take years for the prices and liquidity to stabilize into a reliable place to profit from. 

Why? It comes back to what we said before. Stocks are driven by earnings. If you invest in Ford (NYSE:F) right before it reports a 98% earnings beat to the upside, you’re going to see trading volumes and prices rise pretty fast. 

Wine is driven by scarcity and consumer demand. Consumer demand rises as a wine reaches its ideal drinkability window. It used to be that you’d need to have a whole wine collection in your personal cellar at home. With Vinovest, we make it easier; handling the storage of your wine in state of the art warehousing. 

The Benefit Of The Wine Investing Style

When you first get into the wine game, it can get incredibly tempting to try to be overly involved. This impulse couldn’t be further from what’s needed. It cannot be stated enough that wine is a long term game.

The benefit of this longevity and simplicity of strategy? It’s incredibly hands off. Once you’ve made your picks, you just sit back and wait. There’s no constant monitoring of quarterly earnings reports, or management shake ups. A good vintage doesn’t change. If anything, it simply gets better with age. Imagine buying a stock that you knew would only have a better balance sheet with time. 

Oh what a world that would be. 

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