Varietals for the Long Run? Wine Investments May Outperform Artwork and Bonds

Elroy Dimson

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It has been a difficult time for asset managers in search of investment returns. In June 2014, European Central Bank President Mario Draghi first announced a negative deposit rate for the ECB, and some industry observers have been warning of a crisis facing fixed-income investors. Against this backdrop, it may be appropriate to seek solace in alcohol — as an investment strategy.

According to Elroy Dimson, emeritus professor of finance at London Business School, wine investments have yielded some of the best returns of the 20th century. In “The Price of Wine,” Dimson and his co-authors analyzed a dataset of 36,000 prices from 1900 to 2012 and found that annualized real returns for wine investments exceeded returns on art, stamps, and even government bond investments over the same time period. Although equities delivered the highest return over the period in Dimson’s study, his findings raise interesting questions about what it means to have a diversified portfolio.

Dimson is one of the leading experts on long-run asset class returns and co-author of Millennium Book and Millennium Book II, in which he analyzes more than a century of investment data. Dimson included the analysis in his 2002 publication, Triumph of the Optimists, which Business Insider called “one of the most famous investing books ever published.” Along with his co-authors Paul Marsh and Mike Staunton, Dimson has continued to update his research with the annual Credit Suisse Global Investment Returns Yearbook.

Dimson has studied the long-term financial returns of art, stamps, and musical instruments from 1900 to 2012 with HEC Paris Professor Christophe Spaenjers. In their study, they suggest that the value in owning these types of “emotional assets” can be thought of as an income stream, encouraging a closer look at the trade-offs between financial returns and emotional fulfillment. When viewed alongside Dimson’s other work on asset class returns, the full benefits of diversification can be seen in greater detail.

Dimson’s studies of 20th century asset returns have also yielded insights into the performance of specific asset managers. By reconstructing the portfolios managed by economist John Maynard Keynes, Dimson uncovered a track record defined by intellectual flexibility and the ability to learn from past mistakes. According to Dimson, Keynes’s decisions as an asset manager are an important part of financial market history that can yield valuable insights to practitioners today.

In October 2014, Dimson spoke at the CFA Institute European Investment Conference in London. His presentation, “Keynes the Investor: Lessons to Be Learned,” examined Keynes’ investing decisions in greater detail.

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