How to Make a Good Investment in Fine Wine
Sometimes, the most memorable things experienced during university didn’t seem important at the time. Maybe some of you had a statistics class where the teacher demonstrated “the birthday problem.” In a class of 40 students, there’s an 89% chance two people have the same birthday. Doesn’t seem intuitive, but there’s a mathematical explanation for it. Another amusing experiment is to give a room full of students a tiny piece of paper dipped in phenylthiocarbamide (PTC) and watch how they react.
Turns out that when you give a group of people PTC, 70% will taste something extremely bitter, and 30% will taste nothing, depending on their genetic disposition. It’s the same reason why some people think cilantro tastes like soap. Maybe this helps explain why there’s such a variation in what we all think good wine tastes like. Today, we’re going to talk about investing in good wines, so we need to know what constitutes a fine wine.
For centuries now, the Vitis vinifera vine has been grown across the globe, from Argentina to Spain. There’s a lot to learn more about fine wine, and nobody knows more about the subject than the world’s most elite wine experts – sommeliers (or somms for short).
How Can You Tell a Fine Wine?
Anyone who has served time in the restaurant industry can appreciate the role of the sommelier (pronounced suh-mul-yay). From a waiter’s perspective, the somms’ job is to
educate the guests about fine wines quickly size a table up and then recommend a wine that fits the top of their budget and satisfies their palettes. Some of the people that eat at fine dining restaurants wouldn’t know a good wine from a bad one, so it also becomes about telling the guests a story. What many don’t know is just how much work goes into telling some of those stories.
The Master Sommelier is a title so elite that only 280 people in the world hold it. One reason for that is an exam of ludicrous difficulty that covers wine, cheese, cigars, sake, and spirits across the globe in five languages. Imagine doing a blind taste test on six glasses of wine and correctly identifying what region of the world each wine came from, what types of grapes were used, and then the actual winemaker. That’s just a small part of an exhaustive 3-day test that’s been held once a year, since 1969. Practicing for the tests, the somms call out flavors during a blind taste. They are sniffing out clues to the wine’s origin – a fresh violet, a dried violet, a freshly cut garden hose, a freshly opened tennis ball, grandma’s closet, a sidewalk on a hot day when it gets rained on. These people don’t just obsess over the flavors of wine, but everything you can think of that relates to its production – like the 3,000 different grape varieties found in Italy.
If we’re going to invest in an asset class we know very little about, we ought to bring some Master Sommeliers on board to steer the ship because these people have dedicated their entire lives to understanding wine. One fintech startup called Vinovest has done just that, and we sat down to talk with Co-Founder and CEO, Anthony Zhang, about how to make a good investment in fine wine.
Wine Collecting for Investment
Founded in 2019, Los Angeles startup Vinovest has taken in $2.5 million in seed funding to develop a platform that lets anyone invest in fine wine as an alternative investment. Angels backing the startup include senior executives at some of the world’s largest financial institutions who love wine and see it as a viable way to diversify their assets. Anyone can be a wine investor with Vinovest which selects wines with the best potential for appreciation from the many types of wine available across the globe, not just in Napa Valley. Across regional varieties, from Italian wine to Bordeaux wine, and grape types, from cabernet sauvignon to pinot noir, Vinovest will find the most desirable wines to put in your fine wine investment portfolio. You can invest with as little as $1,000 and you don’t even need to be an accredited investor.
For the privilege, Vinovest charges lower fees than most other wine investment management firms – a 2.85% annual fee (2.5% for a portfolio of above $50,000). This fee includes wine purchases, fraud detection, storage, insurance, portfolio management, and selling. When you want to cash out, sell, or quaff one of your fine specimens, they’ll make the process fast and easy.
Big Wine Data
Investing in wine is more complicated than you might think, even when it comes to the ways in which you can invest. Ever hear of en primeur? These are essentially wine futures you can buy while the wine is still in barrels prior to bottling. A bit of predictive analytics could come in handy here, so Vinovest employs machine learning algorithms to sift through mountains of big data looking for insights. They’ve built a 40-year pricing index from mountains of sales data taken from auction houses and retail transactions. Some of the data they look at includes:
- Historically popular years based on regions
- Regional popularity
- Grape popularity
- The weather for any particular year and the likelihood that will be a great year for “wine type X”
- What is trendy
- What Wine Spectator thinks
- What restaurants are buying
- What collectors are buying
- How much wine was produced for any given year and what remains
Wine is a different animal though. No matter how sophisticated these machine algorithms become, they’ll never be able to judge what good wine tastes like, or understand the nuances of brand equity in a fickle industry. They’ll never be able to offer special access to wines that others might not have. In the wine industry, everything is about connections. Most of the time, access to new releases and the most popular wines are not available to the public. Sine Qua Non has a 10+ year waiting list. (100% of all releases are directly sold to a select list of clients.) Cult wine Screaming Eagle has a 15+ year waiting list. You need connections to get investment-worthy wines. It’s those connections and tribal knowledge that the Master Sommeliers at Vinovest bring to the table.
Vinovest’s Master Sommeliers
One of Vinovest’s advisors is Master Sommelier Jonathan Ross who achieved this venerable accomplishment in 2017. He’s served time in some of New Yawk City’s most confidential kitchens, like Eleven Madison Park, where he held the role of Head Sommelier. He’s curated wines for Qantas Airlines and launched his own wine label, and now he’s going to help you pick the best wines to invest in. Joining him is another Master Sommelier, Dustin Wilson, who was previously the Wine Director at Eleven Madison, and who you may recognize from the critically acclaimed wine documentary, SOMM, which followed his journey to become a Master Sommelier. Then there’s Master Sommelier Jane Lopes, another Vinovest advisor, and one of less than 30 women to ever pass the Master Sommelier exam.
If you want to make sure tomorrow’s cult wine ends up in your wine portfolio, you can’t rely on wine merchants or wine critics. You need the world’s most elite wine experts – the Master Sommeliers. Three of them have signed on to help Vinovest choose the best wines for you to invest in – and, of course, drink. That’s right. If you want to try some of the world’s most sought-after wines, you can have any of the bottles in your portfolio shipped over in time for your next dinner party. While this is starting to sound like a pretty enjoyable asset class to have around, is it a good investment?
Is Wine a Good Investment?
We’ve talked before about how useless performance metrics are without some sort of benchmark. Even with the right benchmark, you can just cherry-pick the time frames and shape the rules to make any investment “outperform.” Sure, wine outperformed the S&P 500 by +1000% over the last 20 years, but what investors ought to be looking at here is how correlated wine is to other asset classes like stocks and bonds.
What this means is that when the stock market is in the doldrums, and everyone is complaining about how their 401K dropped 30%, you can open up your Vinovest dashboard and see how your wine investment is moving forward with no consideration to the utter panic happening in the stock market. If you’ve experienced a proper market crash, you’ll appreciate the comfort to be had in an asset class that’s not correlated to stocks and bonds.
Self-Directed Wine Investing
Many folks out there may be drawn to wine investing because they enjoy drinking it as well. Let’s be careful to draw appropriate lines between these two activities. You may be tempted to think that getting your own cellar and buying bottles off a site like Vinfolio may be the way forward. A few things you need to consider here.
First of all, about a dozen things can go wrong when you decide to start putting cash under your mattress by having a wine cellar on your property. Bottles can break during an earthquake, someone might break in and steal them, you may not store them properly, or you may just drink too much of the profits. (Insurance won’t help you with that last one.) You can always find a bonded warehouse to store your wine collection, but storage isn’t even the biggest problem.
If you’re buying wine as an investment, do you really want to trust your fickle taste buds that think cilantro tastes like soap? What you think a wine tastes like, or what you saw someone else drinking at a restaurant, aren’t proper ways to select wines that will appreciate meaningfully over time. That’s why it’s so important to let experts decide what wines have the highest likelihood of appreciation based on dozens of factors that have nothing to do with the way that vintage tastes today. The real value of an offering like Vinovest is a portfolio manager equivalent who can help you navigate the wine market. Because of their connections, and the fact they’re buying at volume, you can expect to enter your positions at much better prices than you could yourself.
If you’re the type of person seeking out alternative asset classes that don’t correlate with your core equity and fixed income holdings, you’re probably someone who throws dinner parties and secretly wishes you knew as much about wine as you pretend to. As a wine investor with Vinovest, you can kill two birds with one stone. A $1,000 fine wine investment will get you about 12-24 bottles of quality vino which you will consequently become eager to learn more about, especially when that information comes from the mouths of Master Sommeliers. That alone is worth the annual fee.
If you enjoy drinking wine but wish you knew more about it, you absolutely need to open an account with Vinovest. We were so smitten by the business model that we put some money into their platform. And then some more. We're now proud owners of wines from M. Chapoutier, Paul Jaboulet Aine, and Chateau Montrose. Just be warned that it starts to get really addictive.