The Liquidity of Wine Investment
The liquidity of luxury wines is a hot topic for newcomers into the world of wine investment. Despite the lucrative nature of fine wine assets, liquidity is a justifiable concern for the investors, as it can determine the fate of a successful or unsuccessful investment.
What is Liquidity?
According to Investopedia, the definition of a liquid asset is as follows:
An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally regarded in the same light as cash because their prices are relatively stable when they are sold on the open market.
Essentially, to be classified as a liquid asset, there needs to be an established market with sufficient participants involved in buying/selling, without materially impacting the price of the asset. For example, the foreign exchange market is possibly the most liquid market across the globe, as there is a daily exchange of trillions of Euros, without a single individual being able to influence the market significantly.
The Difference Between a Liquid and an Illiquid Asset
Take for example stocks and shares, the traditional asset class found in most investment portfolios. Stocks are highly liquid as they offer an instant cash option; meaning, stocks can be sold in the stock markets with relative ease and paid out accordingly. Stocks and shares are therefore classified as highly liquid assets.
Real estate on the other hand, is not as liquid. Anyone who has ever owned or sold properties knows just how tiresome, and sometimes outright difficult, this process can be. Finding a buyer and ironing out all the formalities can be quite the drag; this does not mean that properties are a poor investment, only that it is an illiquid financial asset, especially when compared to the alternatives available in the market.
Why Luxury Wines are a Liquid Asset
An investment in luxury fine wine is similar to property investments, in that both are a tangible asset. However, in contrast to real estate, the market for luxury wines is highly liquid, as these assets can be liquidated at almost any time.
It is fair to say a decade or two ago, the investment wine market was much more illiquid than it is today; similar to the fine art industry, where serious gains could only be achieved through rare and long term investments.
Over the years, the fine wine market has developed drastically, especially due to the increasing global demand. Investment wines (or blue chip wines for investors) are so highly sought after, that most are available in very limited quantities. Add to the equation that the finite supply of an elite wine can only decrease over the years; it is rather obvious why the market is highly liquid.
Moreover, with the increasing popularity of fine wines, in particular from emerging economies like India, Russia and China (to name a few) it is no surprise that these top wines can be liquidated at any time.
The Liquidity of the Wine Market
According to financial estimates, the global fine wine market in 2012 was valued at over 168 Billion USD. Furthermore, in 2012, over 2,7 Billion cases of fine wine were traded on a global scale; a staggering sum for this relatively new, alternative investment.
These luxury products from the heart of Bordeaux have evolved into a status symbol for the rich and elite. Regardless of the financial environment, there remains a constant demand for these elite wines; one only needs to follow trends – if the increasing demand for fine wines is anything to go by – the future prospects of this thriving market look very positive indeed.
Bordeaux Traders - The Fine Wine Investment Brokerage GmbH
Mooslackengasse 17, 1190 Vienna
Phone: +43 676 490 51 19