Key facts
- Michael Burry believes fine wines can serve as a "terrific diversifier" and a hedge against US dollar devaluation.
- He suggests that fine wines can protect against financial system risks potentially caused by AI and quantum computing.
- Burry noted that the Liv-ex Fine Wine 100 index has shown negative correlation with the US Dollar Index over five-year periods.
- He expects the US dollar to face a "colossal train wreck" in the next five to 10 years due to fiscal irresponsibility.
- Burry highlighted that fine wines have a set drinking window, leading to continuous supply destruction.
- He cited a study showing fine wines delivered a 4.1% annual net real return between 1900 and 2012.
Michael Burry, the investor famously depicted in "The Big Short" for his prescient call on the mid-2000s US housing bubble collapse, is now advocating for fine wines as a strategic investment. In a recent Substack post, Burry explained his rationale for viewing fine wines as a compelling alternative asset and a hedge against potential economic turmoil.
Burry suggested that fine wines could act as a "terrific diversifier" for portfolios, offering protection against a potential decline in the US dollar and the systemic risks that could arise from future iterations of AI and quantum computing. He posited that if new technologies destabilize the digital financial system, the dollar might accelerate its loss of reserve currency status in favor of real assets. The Liv-ex Fine Wine 100 index has historically shown a negative correlation with the US Dollar Index over overlapping five-year periods, according to Burry.
He anticipates a "colossal train wreck" for the dollar within the next five to 10 years, attributing this outlook to what he describes as "fiscal irresponsibility," referencing the US national debt's doubling to $40 trillion since 2010 and significant interest payment obligations. Burry highlighted the unique supply dynamics of fine wines, noting that consumption permanently reduces inventory, a characteristic he believes spirits, watches, and art cannot match. He also pointed to the resilient demand for high-end wines, such as Pétrus, Margaux, and Mouton Rothschild, from the ultra-wealthy, even in challenging economic times.
Burry's investment thesis is further supported by a recent 25% to 30% price drop in fine wines from their October 2022 peak. He also cited a study indicating that fine wines delivered an average annual net real return of 4.1% between 1900 and 2012, and suggested current investors could see returns of four to five times their investment over the next two decades. Additionally, he noted that European fine wines have shown minimal correlation with the S&P 500 over the past 25 years, making them a potentially "near-perfect diversifier."