January 24, 2011

Investing in fine wine doesn’t diversify your portfolio

Filed under: Economics, Wine — Tags: , — Nicholas @ 08:31

Following up to this post, The Economist agrees that fine wine tracks too closely to the price of oil to offer much diversification for investors:

A bottle of Château Pétrus ’82 can cost over $5,000, whereas the equivalent volume of crude oil sells for less than 50 cents. Château Brent may taste a tad rough, yet fine wine and crude oil have more in common than you might think. Their prices have risen and fallen in step in recent years (see chart).

Wine experts usually explain price movements by supply-side factors such as the effects of the weather and age, but research by Serhan Cevik and Tahsin Saadi Sedik, economists at the IMF, finds that supply has only a small impact on prices. Instead, fast economic growth in emerging economies has been much more important in recent years — as is the case for oil and other commodity prices.

Between 1998 and 2010 there was a correlation of over 90% between changes in oil and wine prices.

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