Liquid Alternative Investments

By: Steve Weintraub

A not too cheap stock market and artificially depressed bond yields have created a renewed interest in alternative investments. Typically involving real estate, private equity, or commodities, these have long been the private domain of the super-wealthy and required long holding periods without liquidity. The increased demand for such strategies has spawned a wide range of options accessible in either a mutual fund or ETF structure: liquid alternatives. But when we said liquid, we meant it literally and want to discuss the investment opportunities in – wine. 

Domaine de la Romanée-Conti produces some of the rarest and most sought-after wine on earth, the truest expression of Burgundy. Purportedly, the 1964 release of La Tâche went up by 84% in 2019 to $5,468 per bottle. The 2005 wine went up 17% between 2019 and 2021 to $7,347 per bottle. Sure, those are extreme examples, but similar gains have also been achieved from Gaja Barbaresco from Italy, Beaucastel Châteaneuf-du-Pape from France, and Opus One from Napa. The most expensive wines typically come from France including red Burgundies and Bordeaux.

Potential price appreciation isn’t the only attraction. For every winning stock or real estate deal, the gains are typically shared with your silent partner, the I.R.S. With wine, the gains can be enhanced by turning a “thing” into an “experience” as opposed to a taxable event, something that millennials especially enjoy. 

Taking the experience to a restaurant can greatly magnify the economic returns. Consider the 2005 La Tâche referenced above that would have set you back a steep $6,247 had you bought it in 2019. If you happen to be dining at the famous French Laundry in Yountville, you could purchase that 2005 wine, but it would cost you a nice round $15,000. If it were your intention to enjoy this one spectacular wine at a special occasion in 2021, your two-year return on investment would have been 140%, tax-free. We will ignore the sales tax on the wine that would have widened the gains. 

Efficient Markets

Burgundy and Bordeaux are like FAANG stocks (Facebook [now Meta Platforms], Apple, Amazon, Netflix, and Google); everyone likes them and, they are priced accordingly. Being a serious investor requires either a major commitment to learning about the market or, finding someone who makes such information available at a reasonable cost. 

Another Approach

Especially if you live on the Central Coast, in the Bay Area or near Portland, try to learn about the local wine market that populates the menus of the country’s finest restaurants. Consider joining a local winery club where you can taste for free and enjoy pick-up parties (great outdoor experience in a COVID-19 world), have access to more exclusive wines and get a significant discount on price. You don’t need to buy wines that will age over 20 years to benefit. Buying a $50 bottle of wine with a 15% discount will cost you $42.50. Lay it down for a couple of years and bring it to a restaurant. They will typically charge two times the then retail price of a similar wine, say $120 for a $60 wine. Even paying a $25 corkage fee puts you well ahead.  

Challenges

We care about your money, but we also understand the challenges facing the restaurant industry since COVID-19. Part of their business model entails the sale and nice profit margin on the wine they serve their customers.

Consider this, too. Aging wine properly requires meticulous storage and handling. EuroCave, professional-quality wine refrigerators, start at $2,500. Vinotemp coolers that store 155 bottles are available at Costco for $1,600.

Wine Spectator has long wielded influence on the industry with both the leading fully dedicated magazine and a 100-point rating system. However, please be aware that WS has a definitive bias toward “new world” wines, those that are more fruit forward but typically less age worthy.

Cellar Tracker provides software that can track your inventory of wines, and can tell you the appropriate time for opening a bottle. They also provide an open forum for comparing tasting notes.

Bottom Line

As proof of how serious some people take their wine, consider this anonymous quote that appeared in Forbes Magazine on May 6, 1996: “She gets to keep the chalet and the Rolls, I want the Montrachet.” 

If you would like to get started collecting wine, feel free to reach out. We can guide you to reputable wine stores or Santa Barbara wineries that produce age-worthy wines.