What does passion mean to you? Is it, that strong, barely controllable emotion that you feel when you see a new lover? Is it when you try to explain your convictions to someone who doesn’t share your opinion? Perhaps you’re passionate about something completely different – art, football, knowledge, wine. I’ve even met people who are passionate about themselves and do you know what? All of these people, regardless of the reason for their passion, were interesting. Because that’s what passion is – interesting. So it makes sense, to me at least, that if you are an interesting person, with interesting hobbies, you’ll be looking for something interesting, ergo passionate, to invest in.
What Is Passion Investing?
Under the umbrella of alternative investments, some of the most covetable are passion items, aka collectables. Whether it’s 17th century Dutch Masters, cases of Lafite-Rothschild, vintage Ferraris, limited-edition sneakers or luxury handbags, investors are adding collectable assets to their portfolios faster than you can say Yeezy. Collecting these collectables offers a diverse way to have, and perhaps more importantly, to hold, the things they love the most. Collectors gather these tangible assets because they love them. Investors hang onto them in hopes that they’ll increase in value over time. Collectors want them, investors have them. It’s win-win on both sides.
And believe me – if you have the right goods, there are people passionate enough out there to want them. A pair of Michael Jordan’s Nike Air Ships – his earliest game-worn sneakers, which he wore in his fifth NBA game – set a new world auction record when they were sold by Sotheby’s for US$1.5 million last year. That’s a lot of money for a pair of second-hand shoes.
Benefits of Passion Investing
In an age of stock market negativity and financial volatility, investing in something solid seems very enticing. When you invest in a product you understand, can relate to and are passionate about, you add a whole new emotion to the investing experience. Investing becomes a far more enjoyable, positive experience. The satisfaction that these passion assets give is far, far greater than a random amount of shares in a company you’ve ever heard of.
Of course, the major benefit of passion investing is that it does not have a direct correlation to traditional stocks and shares. Tangible goods do not have the same rates of rising and falling as the stock market, so having these passion investments, or alternative assets, in your portfolio helps to hedge against unforeseen fluctuations.
With the growing number of investors, notably younger Gen Z’ers, who have far greater wealth than their previous generations, the investment industry has had to up its game in order to satisfy demand. The introduction of NFTs and cryptocurrency opened the digital doors to methods of investing intangible assets that had been hitherto unobtainable, a trend which looks set to vastly increase in the next decade.
Another great advantage of passion investments is that they transcend geographic boundaries, with certain markets taking up a major stockholder with increasing interest. According to the famous Knight Frank Wealth Report, fine wine delivered a huge 16% return in 2021, one of the highest returns of the year. This new data cements fine wine as a top-performing luxury investment, equalled only by collectable watches (which saw the same 16% ROI over the same 12-month time period). This interest has clearly been fulled by interest from notably Asia and where investors have historically had a higher predilection to hold tangible assets.
With 2020s turbulent financial market coupled with the boom of younger generation investors who value the experience as much as the ROI, you’re no one if you don’t have at least one passion investment in your portfolio.
Cons of Passion Investing
But, there is a but. This type of investment is speculative – meaning that your item can go up as well as down. Take for example the case of the Beanie Baby – a line of stuffed toys created by Ty. Created in the early nineties, these soft toys originally retailed for between $5-20, depending on size. Following a boom in 2018, some of these were being sold at auction for astronomic sums – with one full set of Beanie Babies fetching over $600,000 (yes, really). The following year, the same collection was almost worthless.
Because of their very tangibility and attractiveness, passion assets are frequently subject to fraud. Take for example the wine business‘ biggest rip off to date. Rudy Kurniawan, an Indonesian citizen of Chinese descent, began selling fake wine to US collectors in the early 2000s, passing off inexpensive Burgundy wines as rare and collectable first growths. By ageing the bottle labels in his basement, he was able to pass off younger wines as the real deal. But Kurniawan-gate is not an isolated incident. Chinese fraudsters famously sold 30,000 bottles of fake wine per hour, posing as En Primeur during the En-Primeur peak of 2017. Empty bottles of certain wines – mostly Bordeaux First Growths but also big names such as Henri Jayer, Petrus, and the burgundies of Domaine de la Romanee-Conti – sold for up to $1,000 each and were then re-corked and re-sold to unknowing buyers on the black market. That’s enough to give your sour grapes.
Thus investors must do their homework before splashing their cash on a 1947 Romanee Conti. We have produced a superb article on the points to look for in wine fraud here so we won’t go into it again, but ensuring authenticity, legal ownership and provenance is a must.
What’s more, given passion assets’ niche appeal and often high-ticket price, it can be a waiting game for the right buyer to come along – as you hold a physical asset in your hands (or hopefully, a climate-controlled warehouse in the case of fine wine), then it can be hard to liquidate your assets overnight as you would on the stock exchange.
What Is a Winning Strategy in Passion Investing?
There can be no doubt that investing in alternative assets that you are passionate about is a no brainer for any savvy investor. However, it should be considered as only part of your portfolio, rather than the lion’s share. According to The Times, “the first rule is that luxury investments, such as wine or art, should only be considered as part of wider wealth management and financial planning strategy. That is because these types of passion investment can be volatile – meaning the price moves up and down a lot – as well as illiquid (yes, even the wine), meaning they can be difficult to sell quickly when you need cash.”
Additionally, passion assets, such as wine, Beanie Babies and limited edition sneakers need to be looked after correctly in order to maintain their value. Wine for example needs to have optimal conditions of light, temperature and humidity if it is going to keep its worth. And not all passion investments perform at the same rate. Fine wine however was not only the joint number one riser in 2021, but has historically performed very well over time.
Wine as a Passion Investment
When people talk about the fine wine market (or in fact any market) going up or down, performing strongly or weakly, they are referring to market indices. These are basically a traceable summary of the market. This type of data allows us to build a picture of how the market is performing.
Liv-Ex were the first to track indices within the fine wine market, and they remain the gold standard if you want to view and understand data on the history of fine wine. The commodity has seen an upward rise since the 1970s, bar a few lapses such as the financial crash in 2008, the huge fiscal stimulus in China in 2009, and the EU referendum decision (Brexit) in 2016. The market recovered with speed on each occasion. The market has remained on a steady upward curve since 2016.
But let’s be clear. While fine wine is undeniably an excellent addition to anyone’s portfolio, as a tangible asset buyers must be aware. There are many small details to look out for when purchasing from an unregulated source, from the quality of the label to the kind of sediment in the bottle. As Vindome only works directly with Chateaux and producers, we guarantee the provenance of all wines on our platform. We also seal all our cases with an NFC (Near Field Communication) tag. This tag contains a microchip with a detailed information record of the case contents, and the transaction history and ensures that your wine is traceable at all times. Furthermore, all wine trades are recorded on blockchain, guaranteeing safe, secure and discreet transactions for both buyer and seller.