Gambling on the Futures : Over the Years, Some Wine Investments Have Outperformed the Stock Market

Wall Street is certainly in the news these days, both for its scandals and the spectacular upswing in the stock market. But many wine lovers don’t realize that they can get caught up in a speculation frenzy without telephoning a stock broker, without buying a single share. They can play a similar game just as easily--and with sometimes even more profit potential profit--by investing in wine. In other words, you can literally put your money where your mouth is.

Speculating in wine is not a new game. For decades, eager English wine traders have been buying their precious clarets from French negociants located along the docks of the Gironde. In some years, these negociants , gambling on the prospects of a fine wine year, would buy up the entire vintage of a chateau as early as springtime bud-break. Fortunes were made--and lost--by these middlemen. To the grower, of course, the important factor was that he had his money, oftentimes before the wine was harvested.

This lure of--and need for--immediate cash is also at the root of today’s market in wine futures. Since many red wines don’t get to the marketplace until at least several years after the harvest, not a few vintners are frequently faced with cash-flow problems--especially since banks tend to be reluctant to extend huge sums of credit on so volatile a crop.

Enter the modern-day version of the negociant . Since 1983, Wine Futures Exchange, Inc. of Westlake Village has invited investors and wine lovers to gamble on high-quality Cabernet Reserves, a practice that tends to ease the cash-flow problems of vintners. But modern-day wine brokers have eliminated most of the risk, at least where it concerns the quality of the wines. Unlike the negociants , these brokers buy the wine only after it is in the cask, so it can be tested and tasted; no early-spring purchases off the vines for them. And to further ensure quality, these wines are released only when the grower--whose name, and reputation, are always on the line--believes that the wine is ready for the public.

Wine Futures Exchange, Inc. gets its capital from cash-rich investors who buy a set number of cases and then sit back and await the release date. Then they either take their profits or, if they are ardent wine lovers, they take possession of the wine itself.

Peter Miller, sales and marketing director for Wine Futures Exchange, says: “We tell our investors that the worst thing that can happen is they’ll be drinking the greatest wines in the world.” (For more information on the Wine Futures Exchange, telephone at (800) 822-9463.)

Of course, those who’d prefer to confine their gambling in wine to smaller stakes can do so. Four years ago, Betsy Jaeger Morgenthaler, who has an MBA from the Harvard Business School and who belongs to the family that shares ownership of Freemark Abbey and Rutherford Hill wineries, demonstrated that investing in bottles of young Napa Valley red wines could pay handsome dividends. Numbers she has supplied indicate that high-quality vintages, allowed to age, have consistently outperformed the stock market. Examples: A case of Sterling 1975 Cabernet Reserve that was purchased in 1980 for $240 sold in 1986 for $930, a 47.9% annual gain. A case of Beaulieu BV 1974 Cabernet Reserve purchased in 1979 for $144 was worth $180 a year later and $840 in 1986. A case of Diamond Creek Vineyard 1979 Cabernet Gravelly Meadow bought in 1982 for $180 fetched $372 in 1986, 38% annualized. (By the way, one can engage in such buying and selling legally. California regulations now allow non-licensed consumers to sell to other consumers white wines that are at least 5 years old and red wines that are at least 7 years old.)

If investing in wine piques your interest, you might investigate a book titled “Liquid Assets” by William Sokolin, owner of a popular New York wine store. The book, according to its owner, will not make you rich, but it will show you how to benefit from the changes in the wine market. And remember that, even if the market turns sour, your wine won’t.