Investing in Burgundy Wine Yields Higher Returns Than the Stock Market

Wine collectors like to proclaim that "all roads lead to Burgundy," but they forget that when they first started their hobby, they didn't always drink the best reds from the region. In North America and Australia, the gateway to the world of wine is heavy, alcoholic wines that taste of plum or blackberry. They carry the mark of vanilla or mocha from oak barrels and should be drunk within a few years of bottling.

As you gain experience, you naturally begin to seek out French options with lower octane ratings, such as Cabernet Sauvignon from Bordeaux instead of Napa Valley in North America; Rhône Syrah instead of Barossa Shiraz from Australia. But when you value complexity and delicacy over power, your destination takes you to Burgundy.

Encyclopedic knowledge of wine in Burgundy is highly valued in the wine world. The French region is divided into hundreds of vineyards. In turn, a myriad of producers have specific lines within each vineyard, from which they all make unique wines. This leads to an annual production of a few thousand bottles of wine at most.

In addition, Burgundy red wine is made from Pinot Noir grapes, a grape with a maddening aging pattern. After a few years of storage, this grape tends to "shut down" and lose its flavor, then blossom after a few decades. But sometimes it never "wakes up" from its slumber, which makes this grape even more challenging.

Burgundy's rise began with a decision in China

In the past, Burgundy's complexity and small production relegated it to a niche market. Bordeaux, which produces fewer different wines in larger batches, became popular in Asia and prices skyrocketed. But in 2012, when the Chinese government banned luxury gifts, the wine bubble burst and sales to Asia declined dramatically.

Thus, as Bordeaux's popularity declined in Asia and the West, Burgundy reds gained prominence. However, the vast range of wines from this region, with rarities as scarce as 300 bottles per year, makes price data difficult to find. Among the hundreds of beautiful Burgundy reds, the Liv-ex global market, for example, includes only 11 in its regional price index. In other words, a combination of low production, vast variety, and limited knowledge leads to a steady rise in the prices of Burgundy wines.

In financial terms, the value of Burgundy red wines for producers has grown rapidly over the past 20 years. Between 2003 and 2018, Burgundy red wines returned an average of 497%, compared to 279% for the S&P 500 (US stock market) and 214% for Bordeaux red wines and Champagne. Of course, these comparisons are always open to criticism, but what we want to show is the evolution of the financial return on investment in Burgundy red wines. The Burgundy index has also been less volatile than stocks, although this may be a flaw in the methodology used to calculate it.

It is difficult to understand how Burgundy can maintain such appreciation. Many people can afford to buy a $300 bottle. But at $3,000, the market depends on the whims of the wealthiest. Even if stock market prices tend to rise, it will be difficult to beat the financial returns of red wine producers in Burgundy. As an example, the luxury conglomerates Kering and LVMH, whose owners bought vineyards in Burgundy, had a return on investment of 958% between 2003 and 2018, compared to a 2% return on dividends paid by the conglomerates in recent years. That said, we can conclude that the best way to make money in Burgundy is probably to make wine, not buy it.