Fine wine investment is not a gamble. Follow the price of money

Paulo Pinto

Alti Wine Exchange founding member

Dear reader,

To invest in fine wine, which is the purpose of Alti Wine Exchange – if you do not want to buy it and drink it –, is not something that should sound hazy or a bad bet. Instead, it is a long-term investment that can be also an excellent refuge for your portfolio.

Just as an example, fine wine is performing well above the financial markets during the first months of the covid-19 pandemic, as per the latest results of the Wine Market Journal’s (WMJ) Top500 index. It shows just how useful it is to hold non-correlated assets during uncertain times.

By now, you may have already realized the benefits of fine wine investment.

But our certainty is not only due to the natural appreciation of age-worthy vintages like the ones listed here.

How fine wine can protect from inflation

Instead, I would like to demonstrate how interesting the returns of fine wine investment are, simply by looking at the monetary system – and also at what I foresee as an almost inevitable chain of aggressive consequences bound to arise due to the current pattern of monetary inflation.

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I am not the kind of person that gambles my entire life savings in one trade or one asset. The reason being life has proved me wrong many times, in particular about timing.

Nothing is more upsetting than waiting to be right.

Putting money in fine wine, however, is not gambling. Because I am not expecting the price of wine to rise, but because I believe the price of money will go down, meaning we will have inflation.

Now you cannot time inflation. As Hemingway once said, it happens “gradually and then suddenly”.

Gradually is what central banks have been trying to do, with a 2% goal. Suddenly is what happens when you print money like there is no tomorrow.

Overall, the price of good wine has been on the rise, as colleague Sergey Glekov has been demonstrating here, and that is the result of elasticity of demand – as economists would say.

Basically, well known brands making use of the name will increase prices reaching the same amount of people. Their goal is not to expand the client base, but to expand the value of the brand.

What I am talking about is much more conservative: just the full value of money.

In 1982 a bottle of Chateau Pétrus could be bought for 240 french francs (the currency at the time), or 36.58 euros if we apply the value of the French franc fixed at the end of 1999 at 1 Euro = 6.55957.

In the year 2000, with a new currency, the price of Pétrus went to 228 euros around 1500 french francs. Today, its average price is 5,399 euros, according to Wine Searcher.

But let’s see if the Pétrus price was an accident. According to a catalogue from FAV Leclerc from October 1991, prices in French francs were:

• Chateau Mouton 1984: 278.30 francs – or 42,42 euros, today 357 euros

• Chateau Latour 1983: 431.40 francs – or 65,76 euros, today 435 euros

• Lafite Rothchild 1987: 303.80 francs – or 46,41 euros, today 591 euros

• Chateau Margaux 1984: 267.30 francs – or 40,74 euros, today 335 euros

• Angelus 1986: 146.70 francs – or 22,36 euros, today 262 euros

• Cheval Blanc 1986: 394.90 francs – or 60,20 euros, today 420 euros

These are huge gains accentuated by the change in currency from French Francs into euros.

There were worse situations in the history of the monetary system. It collapsed before the first World War in 1914 and the second World War in 1939, and it changed in 1971 when the US abandoned the gold standard.

We are on path for another monetary change.

A change of the current monetary system means the US dollar losing everything gracefully… and this will not happen gracefully – because there is too much at stake.

A new monetary system, if not prepared and agreed, can lead to civil unrest and the destruction of wealth.

If history is any guide, real assets perform very well – and so does fine and rare wine.

Articles by Paulo Pinto

Alti Wine Exchange founding member