Illiquid Liquid – Port not sharing Wine’s Success?

Steve McConnell - Vin-X BloggerWith port achieving a record market share in October, Vin-X asks why this and other “liquid” investments have not shared wine’s success to date

Port Bottle - Investment?Producers of the beloved Portuguese tipple received a welcome boost last month, with Port accounting for a record 3.3% of the total Liv-Ex market share in October. Although mostly boosted by seasonal demand as we approach Christmas, the gain is still a significant one. Despite this, however, port is rarely offered as an investment, though it is perfectly plausible to treat it as such. Similarly, other ‘treasure’ assets such as whiskey and fine art are also possible to invest in, but have not seen the stability and growth that wine has over the last 20 years. Why is that?

“In God we trust; all others must bring data”– W. Edwards Deming

One of the biggest advantages that wine has over other treasure assets is the amount of reliable data which is available. Thanks to Liv-Ex, the London International Vintners Exchange, investors have access to clear and centralised pricing information, as well as records of price movements over time, information about which wines are trading when, and a clear picture overall of what is going on in the market. This, in turn, leads to more wine being traded and in larger volumes, and this in turn gives wine investment the liquidity which other treasure assets simply cannot match. This is a great example of how clear data leads to a virtuous circle: trading leads to more market-makers, buy/sell spreads tighten, liquidity increases and this leads to even more trading.

For example, fine art, while potentially a perfectly good investment, has no centralised pricing information: art is, very simply, worth whatever a buyer is willing to pay for it. This lack of a clear benchmark price means that trading becomes slower and more problematic, which means the investment is more illiquid and difficult to sell. Of course, a profit is not a profit until the asset is sold, and this lack of liquidity can cause investors real headaches even if they have made more than what they put in. Another barrier to the liquidity which wine enjoys for other treasure assets is the fact that they are not always the same. Wine benefits from product homogeneity: A case of Lafite 2009 in Original Wooden Casing with perfect provenance is always the same, whereas two pieces of art by Dali, says, are simply not objectively comparable. In the case of Port, the problem is not so much a lack of pricing as a lack of regular trading: there simply isn’t enough Port traded on a regular basis to be able to match the liquidity that wine offers.

In conclusion then, though Port, art and other treasure assets are perfectly viable investment routes, transparent data, an active market and accessible liquidity are three aspects of wine investment that always come up trumps when looking at other assets. It simply remains for me to say, as always must be done when discussing the liquidity of wine: no pun intended.