Vinovest Deep Dive: Is Investing in Wine Worth It?

Disclosure: I may earn affiliate revenue or commissions if you purchase products from links on my website. The prospect of compensation does not influence what I write about or how my posts are structured. The vast majority of articles on my website do not contain any affiliate links.

Extra disclosure: I am a FINRA-registered securities trader. I am not licensed to give investment advice or analyze securities and I do not provide investment advice. I do not manage investments for others. This post should not be construed as investment advice. I am providing my opinions on this alternative asset for informational purposes only. I have not been compensated directly for writing this post (this is not a “paid” or “sponsored” post) and my only prospect for compensation is reduced management fees if readers sign up for this service using my referral link.

The Purpose of Investment Deep Dives

I’m curious about new ways to make money. Investigating investment opportunities and asking the hard questions excites me. I’m not here to restate facts that you can find on a website or to provide templated side-by-side comparisons. My goal is to pose informed opinions and eccentric questions that force you to think about investments in different ways. I don’t try to distill things to a “yes” or “no.” I frame things how I want without any underlying motivation other than to help you make more informed decisions with your hard-earned money.

Alternative Assets Introduction

“Alternative investing” now spans many assets that would have elicited laughter just five years ago. Cryptocurrencies, sneakers, clothing, Pokemon cards, even entry-level Swiss watches. Until very recently, the alt and collectible investing space was opaque and inaccessible. The most common avatar was a baron of industry spending millions on artwork that only seemed to rise in value while simultaneously investing in hedge funds offering twice the rate of return of the S&P 500, hoarding obscure commodities, owning an apartment complex, and seeding ventures being heralded as “the next Facebook.”

In other words, alternative investing enables the rich to get richer in obscure and, sometimes, fascinating ways. Due to a lack of capital, connections, and requisite knowledge, the average investor is stuck sitting on the sidelines.

The story changed over the last decade as FinTech companies disrupted the space and the internet continued to democratize access to information. There are more marketplaces, there are more participants. Technology concentrates knowledge and builds investor confidence.

Thanks to Vinovest, we’re investing in wine now.

OUR TECHNOLOGY PLATFORM PROVIDES
A smarter way for people to access these opportunities, enabling greater participation and wealth creation

https://www.vinovest.co/about-us

Vinovest Overview

This is the part where most other websites restate everything listed on a provider’s website. I will keep this brief.

Vinovest provides a platform that will algorithmically buy and sell wine for you over long time horizons. Vinovest provides value by abstracting the researching, buying, storing, aging, selling, and transportation of wine for a 2.85% management fee on their entry-level plan requiring a minimum investment of $1000. The business has access to deep liquidity provided by market access and knowledge that is unobtainable by a layman. Vinovest deals in investment-grade wine and stores it in bonded warehouses. The wine is fully protected and insured and, should you so desire, you can have your wine shipped to you for a fee.

The kicker: Vinovest typically provides double-digit returns and claims that wine significantly outperforms the S&P 500 on a historical basis.

Investor Profile

Who should invest in Vinovest?

There are a few other websites out there providing “detailed” yet generic reviews of Vinovest. I get it. Most of the internet is filled with faceless websites promoting products in exchange for kickbacks. Vinovest probably isn’t compensating these bloggers. Such websites write reviews of Vinovest just to get more traffic and build reputation. As I understand it, the referral/affiliate market for products in the personal finance/investing/fintech space is absolutely insane. It makes sense that these guys want you to stick around on their websites.

I mention these sites because they usually don’t tell readers what I’m about to tell you. That’s that alternative investments shouldn’t be touched unless you plan to max out all of your tax-advantaged accounts for the year. That’s $25,500 between your IRA and your 401(k). Alt investments are usually less liquid, have more risk factors and dimensions of risk not found in equities markets, and are generally harder to understand. All of these things apply to Vinovest!

Vinovest doesn’t require you to be an accredited investor. You just need $1000 to fund your account. One can assume that this accessible price point is provided because the firm has a vested interest in boosting signups and AUM.

The ideal type of investor for this opportunity is one who is maxing out taxable accounts and feels he is overexposed to the S&P 500. If you get to the point where you’re fortunate enough to set aside 15, 25, 40 grand per year toward investing in non-tax-sheltered accounts, it’s natural to look beyond traditional securities. My image of this type of investor is someone on their 3rd or 4th promotion who has no debt and has a long runway before retirement.

Another investor well-suited for this opportunity is the aforementioned baron, or, in modern parlance, an ultra-high-net-worth individual (UHNI). As extra income provides no marginal value, you’ll just want to deploy it somewhere. When there’s an asset class that is unique and managed by a company that can make everything seamless, it’s a magnet for family offices and those who have what many would deem “too much money.”

There’s also the “lifestyle” aspect. Wine is culturally prevalent and has a deep generational appeal. Simply, it’s cool to say you invest in wine just as it’s cool to have a massive wine cellar. Wine is a practical alcoholic beverage. When paired properly, it enhances our enjoyment of food. Even as the prices rise beyond the grocery store’s top shelf–people buy expensive wine chiefly because they want to drink it.

From NBA players to restauranteurs to individuals looking to celebrate that special moment, wine has clout. There’s a subset of potential investors from all walks of life who are simply interested in wine. It’s a hobby. Vinovest can help grow your appreciation for and knowledge of wine while earning you some money. That’s quite a rare quality.

In all honesty, if you don’t have much discipline in your personal finances and you just want to do it, go for it. I’m not an advisor. It’s probably better than spending the money on sports betting or the lottery or the next Wall Street Bets darling stock.

The Big Questions

In this section, I’ll work through some of the ‘hard’ questions. These are questions that are often posted online, asked by friends, avoided by generic bloggers, and even that I asked Vinovest myself. If any one of these questions ends up making or breaking Vinovest for you, I’d highly suggest clarifying with their customer support team, in case I’m wrong or things have changed.

How much control do I have over what gets purchased?

If you have less than $50,000 invested on the platform, you have very little control over purchasing. All of the selections are algorithmic. You can force a sale if you want to liquidate your position, but you can’t say “Hm, I really like champagne!” In their words, you’ll have an “algorithmically-selected portfolio.”

If you have more than $50,000 invested, you’ll have better market access and “customized portfolio construction options.” I have less than $50,000 invested, so I can’t speak on any of the premium plans.

So, what’s the guarantee that my cash won’t sit in my account for three months while the AI waits for a buying opportunity?

It seems like liquid funds are typically automatically spent on new wine in less than one week. Now, part of this might involve the procurement and sale finalization process. I have no idea how it works. But those investors who are extremely discerning will note that there always seems to exist a buying opportunity. This doesn’t bother me, there’s a ton of wine out there. I do wonder how this will scale–what happens if Vinovest becomes the market?

If I’m using auto-invest, can I generally expect that my buying power will be exercised before the next monthly investment?

In my experience, yes. Vinovest won’t hold out to make a big purchase hoping that your auto-investment comes through next month. If you invest $500 in July, I’d expect that to be spent by the time August rolls around. There are likely exceptions on the extremes of the spectrum. If your auto-invest amount is very small, it might take months before any purchase is made. Likewise, if your auto-invest is massive, you might see it be spent much more gradually.

I am a small fish in this pond. If you’ve had a radically different experience, let me know.

What exactly is “investment-grade” wine?

Gotta give it to them, they answer this question directly in a blog post. That said, it’s a pretty generic definition when talking about collectibles. “has a chance of increasing in value” and “after around five years” could be applied to a lot of things. One complaint I’ve seen online is that “wine people” criticize Vinovest for stretching the definition of “investment grade.” We’re not talking about buying Yellow Tail here, but some of it may be dubious, in the long run.

Fine wine that has a chance of increasing in value after around five years is known as investment-grade wine.

https://www.vinovest.co/blog/investing-in-wine

Can they sell my wine whenever they want and leave me with unexpected gains taxes?

Yes.

Caveat: “We will never sell wine in under a year unless the user elects to sell.”

Though none of my wine has been algorithmically sold, it eventually will be. Whenever that happens, I’ll have to pay taxes.

Can I hold my Vinovest portfolio in a tax-advantaged retirement account?

Not to my knowledge.

If I force a sale, how quickly will the case sell?

In the wine world, there’s no such thing as a market order. When I spoke with Vinovest, I was told that, generally, a forced sale would be executed within two weeks but it could take up to four weeks. I think this is totally reasonable considering we’re talking about cases of wine. This seems consistent with what’s listed on the website.

If I force a sale, will it actually sell for the stated value?

Great question. I was told that sale prices, even prices for forced sales, track within a low-single-digit percentage of the stated price. Though there is no way for me to confirm this, I believe it. This is the leap of faith. If forced sales track closely on average then it means that the portfolio management team sometimes undervalues and sometimes overvalues wine. If you can sell then it means they aren’t wildly or arbitrarily inflating values.

How do I actually force a sale of wine through Vinovest?

Even though Vinovest has an article on the website literally titled how to sell wine, there are no explicit instructions as to how to actually liquidate a portfolio on Vinovest. Not only does it not seem to be a part of the dashboard, it’s not really mentioned anywhere on the site. This is an important psychological move, because:

What happens if many people panic sell their wine?

This creates a massive headache for Vinovest. At the end of the day, they only have so many employees and so many distributor/marketplace connections. If so much wine is sold that the market becomes saturated, that’s a problem. If the market becomes saturated and the sale prices which historically have tracked pretty close to the claimed values no longer track claimed values, customers are going to be really angry. Let’s be real: if wine actually is an alternative investment that defies the laws of investing, then we should be seeing billions of dollars pouring into the space.

If I sell my wine, what if it ends up being fake, it gets ruined in transit, or if the buyer is difficult?

Vinovest offers guarantees in which the seller is fully protected. In the case of a buyer being some type of con artist, your guess is as good as mine. I’d imagine that if a sale did fall through, you’d see yourself still owning the wine until a new sale was completed. If–somehow–Vinovest had to provide a refund or other concession, I’d imagine that the seller (you!) would never know about it, since you have no involvement with any aspect of the actual sale.

Does my Vinovest portfolio only go up in value? Has anyone lost money on their investment yet?

When people are non-ironically posing questions like these, it’s natural to be suspicious. In all my trawling of the internet, I could not identify anyone who claimed to have lost money using Vinovest. There have been quarters where wine tracked downward, however.

The intended lockup is for several years. The company isn’t that old. There are still many aspects that aren’t proven. To believe in this company, you have to convince yourself that there are wild inefficiencies when it comes to high-end booze sales.

Does each price move in my portfolio correspond to a real event or is it a projected return smoothed over time?

I didn’t have a chance to ask this. Since sales are infrequent and blocky, I’d expect more of a sawtooth pattern than the smooth price moves shown in my portfolio overview. So, is something being faked?

No. I do think that there is an upward-trending smoothing factor based on wine aging that is applied to all bottles. Beyond that, there are probably vineyard, vintage, grape, style, region, price-range and country-specific indicators that could reasonably be expected to influence the price of a wine held in storage. Even though your specific bottle of wine might not be sold on a regular basis, it’s likely that similar ones are. This forms the largest part of price tracking. How does it work under the hood? Your guess is as good as mine. And, when I say that, I mean I definitely know more than you but thanks for asking.

Upon sale, are shipping/handling/import fees assessed against the value of the item?

To my knowledge, all fees related to the sale of wine in your portfolio are passed off the the buyer or are covered by Vinovest.

How do you pay management fees if all your money is in wine?

Vinovest holds some portion of your total portfolio value in cash in order to pay management fees. It seems like they typically reserve several years worth of management fees. I don’t think it’s particularly useful to think about what would happen if your management fee reserve ran dry. They’d probably just message you and say hey, we need a little more money.

What is the typical quantity of wine that the AI will purchase for me?

My knowledge is fairly limited but it seems cases of 6 and 12 bottles are most common. I’d imagine that there may be single-bottle sales at higher price points.

Can I have my wine sent to me? How?

Yes, you can ask Vinovest to remove the wine from their custodianship and ship it to you for a cost. This will remove it from your portfolio. Once removed, you can’t place it back in, since they’ll have no way to verify that the wine has been stored to their standards after being placed in private hands.

Can I ask Vinovest to remove one bottle from the case and just ship me that bottle?

My guess is that they get asked this every once in a while and that the answer is probably not. Seems like breaking open a case and then selling an odd-numbered case would detract from the investment-grade aspect of the sale quantity.

Is this a circular Ponzi Scheme? Will my liquidated bottles be sold to other Vinovest customers?

Phew, that would be impressive. When I asked this question, I was told that under no circumstances are Vinovest customer holdings sold to other Vinovest customers.

Could the wine be sold to a distributor and then sold to other Vinovest customers? Well … maybe a good use case for a new blockchain? There’s no way to confirm that there aren’t some circular sales even by several degrees of separation. However, at the current time, Vinovest is such a small overall player in the market that this isn’t a real risk factor.

Can this be a scheme in which Vinovest is compensated by vineyards and large suppliers to offload certain quantities of less-desirable wines?

Yes, this could be a component of the service. Do I think that this is done nefariously or explicitly? No. Here’s another way of looking at it: Vinovest has these “great relationships” with suppliers. It’s conceivable that some of those benefits are stemming from the ever-increasing volume traded by Vinovest. I’m not suggesting there are kickbacks or that you’re getting vinegar instead of wine. Just that when the company is forthcoming about this being a good-ol-boy, relationship-based business, it merits critical analysis.

Long-term Risks

Historically, wine has been a great long-term investment. Vinovest claims it beats the S&P 500! However, there are so many risk factors that I haven’t seen discussed anywhere. Let’s work through some of the risks you might consider over the next 15 – 30 years.

Corporate Governance / Funding

Over the next 15 – 30 years, do I seriously believe that the founder(s) of Vinovest, who claim(s) to be (a) serial entrepreneur(s), will still be at the helm? No. Remember, when you are investing in an alt investment with a special company acting as a custodian, you are investing in that company. You’re exposed to risk factors related to that company. Oftentimes, these firms have only a few key players steering the ship.

Now, I’m not afraid of Vinovest exploding overnight while the founders exit through a hidden tunnel. If that happens, you still own your bottles. You have a claim to whatever you’ve purchased. Some rogue employee isn’t going to drink your wine.

It’s realistic that Vinovest could get bought by another company that comes to dominate the alternative investing space. It’s also possible the company gets purchased by a private consortium or even a traditional auction house specializing in wine, such as Christie’s. Your bottles are still going to be there.

None of this is inherently bad! But, you could surmise that once it becomes about dollars and cents, there’s nothing stopping the new overlord from raising your fees, forcibly selling some of your wine, or basically just wreaking havoc on the entire asset class.

Your wine is guaranteed, your returns are not.

Another question is, simply, is the company profitable today? If a startup runs out of money or runs low on money, crazy things can happen. Bad employees can get hired. Good employees can leave. The firm raised a seed round in September 2020. Based on when I first started seeing ads, I’m assuming that this money was used for advertising and probably to hire a few new employees. Each round of funding can change the founders’ outlook. At first, it’s about the company mission. Over time, it might be more about hitting KPIs set by investors and conducting all future fundraising at higher valuations.

Competitors and Price Discovery

Here’s the real risk. If wine is really that good of an investment, other players are going to enter the space. Some are going to start Vinovest-competitor services. Others are going to try to democratize access to the data. If all the data gets out there and it becomes easier to buy and store and then sell wine, more people will do it!

With more people doing it and more people doing it on their own terms, they’re going to be comfortable accepting lower returns on investment. The profit margins would get cut down for everybody. Over the very long term, it would degrade the value of Vinovest if the fees are “high” relative to competitors.

Geopolitical Risks

The world will change dramatically over the next three decades. In some ways, wine might be the beneficiary of geopolitical shifts. However, valuations could fluctuate based on large changes in import duties. Markets that drive demand for wine today could end up suppressed or closed off from regular marketplaces. More strict laws could creep up in the US that restrict importation or possession. Who knows?

This stands in contrast to investing in a basket of American companies. Diversified across all asset classes, you still pretty much just have to worry about America. Getting involved with Italian wine stored in France that will be purchased by an exporter in London who will supply it to a restaurant group in Florida is a little more complicated.

Changing Tastes

The general sentiment suggests that more people are enjoying wine and that demand is gradually increasing across the world. At the same time, there are frequent reports of more people giving up alcohol together. Personally, I used to spend thousands of dollars per year on alcohol. Now I don’t drink at all.

Wine demand is chiefly based on demand to store and eventually drink it. Sure, people hoard it like anything else, but most wine is being cellared with the intent of being drunk. Do people end up paying more than they want to when they buy wine at restaurants? Generally, yes! If nobody wants to pay restaurant premiums anymore, that could bring prices down.

Sci… Science?

There are two scientific aspects that endanger any wine investment and the industry as a whole.

The first risk factor would be an abundance of independent studies that more accurately map out the harmful effects of alcoholic beverages. Currently, a ton of research in this space is directed, altered, or silenced by the alcohol lobby. Scary, right? Once we better understand the human brain, we’ll be able to say things like “your reaction time slows by 20 microseconds for every 7 times your BAC goes over .1.” Once we better understand other body systems, we’ll have access to a scary amount of data approximating the harmful effects of alcohol on the brain, liver, heart, and even general muscular systems. This could be powerful enough to change popular sentiment about frequent low-quantity drinking being harmless (but who am I kidding?).

The next thing is more of a futurization of wine. Call it science fiction. Apparently, we can grow cow’s meat in laboratories now. Will we ever be able to become formulaic masters of fermentation and aging of alcoholic beverages? Theoretically–theoretically–the answer is yes. We should be able to create the exact taste, scent, textures, viscosity, everything that makes a bottle of great wine. Then, maybe a decade later, someone will figure out how to scale this process. At some point, we’ll get pills that adjust what our tastebuds communicate to the brain. One day we’ll just have microchips in the brain that simply release dopamine…

The point is that there will be a future, probably after I die, in which bottles of wine aged for half-a-decade start to lose their mystique because someone has figured out a way to replicate and accelerate this ancient process. There will be a novelty value as well as some residual based on the legacy of each brand.

Wine Industry Scandals

Much of the demand in the wine industry is driven by critical reviewers who rate wines on 100 point scale. As alleged in the book Billionaire’s Vinegar, a prominent wine critic had conspired with wine fraudster Hardy Rodenstock to scam people out of millions of dollars. Both parties are now deceased.

I feel this is important to mention because similar scandals could damage the prestige of a critic’s rating. If it was ever revealed that a large quantity of a certain wine had been adulterated or forged(?) by someone with malicious intentions, that could cause the market to cool and crash in unpredictable ways.

My Position, Performance, and Outlook

I started with Vinovest back in October 2020 and I don’t think I checked it one single time after my account was funded. I was on a ski trip in January and a friend asked me about some of the crazy investments I was involved with. I mentioned Vinovest, thought to check my return, and I legitimately could not believe what I saw. Neither could my friend.

From there, I started investing more aggressively. Sure, I haven’t realized the returns, but the platform works beautifully and I’m happy to adjust my exposure to the S&P 500. I’m a strong believer in wine as an investment class and if nothing else, it tends to be a great conversation piece.

I’d love to build a position of $50,000 with Vinovest. I think this would make sense to push for if I was near $1,000,000 net worth. Safe to say that I’m not there yet! The difficulty in the 2021 environment is that there are plenty of risky options for outsized returns and many of them are competing for my attention and limited cashflow.

My current plan is to invest $7,500 per year on the platform. My returns have been fantastic, completely in line with rates quoted in the quarterly reports.

Summary

It’s a really exciting time to have some extra money to play with. Vinovest is a fascinating alternative investing platform offering outsized returns in investment-grade wine. It requires no input or activity from the customer. The website and all investor reports are beautiful, the customer service is excellent, and you can even schedule a tour to see your wine in person. Investments like this used to only be accessible to the very rich and my hope is that by signing up for this platform you can accelerate your path to joining the aristocracy.