Michael Burry has turned from water to wine.
The star of “The Big Short,” who made waves for investing in water after calling the collapse of the mid-2000s US housing bubble, explained why he’s betting on fine wines in a Substack post on Thursday.
Burry, who pivoted from running a hedge fund to writing about his personal investments almost a year ago, told his subscribers that fine wines could be a “terrific diversifier” for their portfolios.
He wrote that “just about every single case of fine wine sitting in a London bonded warehouse can be a short position on the US dollar, a global hedge against fiat currency, and a ward against global financial systems’ vulnerability to the various hellscapes possibly wrought by future iterations of AI and quantum computing.”
Burry said that if new technologies threaten the digital financial system, the greenback “could accelerate its ongoing loss of reserve status to real assets.”
One beneficiary could be fine wines, as the Liv-ex Fine Wine 100 index has been negatively correlated to the US Dollar Index across overlapping five-year periods, he said.
Burry said fine wines could function as a hedge against the “colossal train wreck” he expects for the dollar over the next five to 10 years, as the “bills of fiscal irresponsibility come due.”
He was referring to the US national debt, which has roughly doubled since 2010 to a record $40 trillion, and the government’s interest payments, which account for more than $1 trillion of its roughly $7 trillion annual budget.
Making the case
Burry described how fine wines are highly differentiated and have a set drinking window, so “every bottle of wine consumed anywhere on earth shrinks the inventory of that exact asset forever.”
“Supply destruction is both continuous and a bullish supply dynamic that spirits, watches, and art can never match,” he added.
Burry pointed out that the finest wines — including Pétrus, Margaux, and Mouton Rothschild — cater to the ultra-wealthy, so they “inspire resilient demand in good and bad times.”
However, their hefty price tags likely restrict this trade to investors who can afford to spend five figures on wines and have them only account for 10% or less of their portfolios, he said.
Burry, a value investor, said a key reason to buy into fine wines now is that prices have tumbled by around 25% to 30% from their October 2022 peak.
He also emphasized the appeal of gaining easy access to exceptional wines to drink and gift to others.
Moreover, he underlined the “sturdy value of bonded fine wine as we face what could be a technological paradigm shift for the ages alongside a decline in the dollar’s status as a reserve currency.”
Burry cited a study that found fine wines delivered an annual net real return of 4.1% between 1900 and 2012. He said that investors today stand to make four or five times their money over the next 20 years, as they’re buying into a depressed market and could profit from a weakening dollar.
He also found that European fine wines show virtually no correlation to the S&P 500 over the last 25 years, making them a “near-perfect diversifier” that performs similarly to the US stock market over time.
However, he urged readers to “wait for the best wines at the best prices,” noting that he considered around 700 wines this year but only bought around 40.
Burry said fine wines, along with other real assets such as gold and real estate, appeal to him “given the future we face, both financially and technologically.”
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