LONDOM, Jan 2 — If you have a bottle of fine wine you are holding as an investment, you probably ought to open it.

That's because, though wine has, at least on some measures, outperformed many other assets like art, stamps and bonds over the past 100 plus years, high transaction costs and volatility make a strong case for pleasure.

Fine wines, held by about a quarter of global high-net worth individuals, have had a bad few years as an investment, with the Liv-ex Fine Wine 100 index down about 35 per cent since June of 2011, hurt in part by an anti-corruption campaign in China.

A cyclical bad patch isn't the only argument for uncorking that bottle of fine wine; at least not on my reading of a paper on wine as an investment by Elroy Dimson of the University of Cambridge, Peter Rousseau of Vanderbilt University and Christophe Spaenjers of HEC Paris. 

Looking at only the top first growths — Haut-Brion, Lafite-Rothschild, Latour, Margaux and Mouton-Rothschild — and using data from auction house Christie's and price lists from venerable wine merchants Berry Bros & Rudd from the end of 1899 through 2012, they find respectable long-term returns from wine.

Adjusted for inflation and taking into account storage and insurance costs, wine returned 4.1 per cent annually in the study, against 1.5 percent for bonds, 2.4 per cent for art and 2.8 per cent for stamps.

Not too shabby, you might say.

But those figures somewhat flatter what an actual investor will actually realise if she invests in fine wine, not to mention the risk undertaken.

Taking into account buyers' and sellers' commissions at top auction houses, our pleasure-deferring wine owner might get only 75 per cent of the auction results, not to mention costs associated with transferring a physical asset from one owner to the next.

Another point in favour of drinking up is volatility, generally held to be an undesirable trait in an investment. By standard deviation in the dispersion of returns, one common measure of volatility, wine returns are about twice as jumpy as art, stamps and bonds.

When it comes to equities, the comparisons get considerably worse. Our 4.1 per cent wine returns, not including auction costs, is beat hollow by equities' return of 5.2 per cent, inflation adjusted, over the century plus. Moreover, equities showed a 19.8 per cent standard deviation in return dispersion, against 26.3 per cent for wine.

Pleasure vs, or as, return

The returns during the long period studied did show quite a few hiccups. For example, from 1900 to the middle of the 1930s wine returns were actually negative, hurt by the First World War and the Depression.

Wine prices increased, however, by more than 600 per cent between 1940 and 1945 as war disrupted supply and distribution, though there was a sharp fall in the years just afterward.

One imponderable in owning wine is the non-economic, or psychic, return — let's call it pleasure — that investors take in holding it. Younger wines from the best vintages, which are still getting better, go up more in price in their first 20 years than those from lesser vintages that are 40-60 years old, too old for drinking value to be peak but not yet rare collectors items. So the owner of a collectable wine gets a non-financial dividend of about 1.3 per cent a year, the study showed.

None of this is the final word on wine as an investment, and surely its popularity alone makes its own arguments. People like owning wine, as well as drinking it, and those who do would seem to make decent returns, though perhaps by passing on better or less volatile ones elsewhere.

Also not considered here are the costs of investment management, which can be quite high in wine despite the relatively small investible universe. Those who fear the supposed inflationary impact of money printing have made the argument in the past for hard assets like wine, though thus far that inflation has failed to materialise.

Perhaps the best argument, then, for opening that bottle is the oldest and simplest. Tomorrow's deferred pleasure may never arrive, so reap your returns while you can. — Reuters