Pu’er, a family of teas from Southern China traditionally packed into dense cakes and bricks, has a bit of a cult following within the specialty tea world. The tea, often aged for years, is musty, mushroomy, and rich. The aging process traditionally involves storing the tea in a high humidity environment and cultivating bacteria and fungus on the tea’s surface, which consume sugars and other chemicals in the leaves, and completely change the flavor.

Because pu’er is aged for a long time, and because older pu’er can at times command incredibly high prices, it has often been described as a potential investment asset. But there is a lack of analysis on whether or not this tea is a good investment, and if it is, what the right strategy for investors interested in pu’er might be.

First, a few caveats — this post is not intended as financial advice or guidance, and is for informational purposes only.

Additionally, pu’er tea is delicious. It’s worth buying good tea even if it’s not always a good investment.

For pu’er to be a good investment, there has to be a real market for it. While pu’er fanatics are fanatical, there aren’t that many of them, especially outside of China. While we’ve examined how prices for pu’er change as the teas age, it isn’t clear that someone could sell pu’er at the scale needed to truly consider it an investment asset, unless they operated as a wholesaler or retailer.

But still, despite these relatively obvious limitations on becoming a casual investor in pu’er, discussion of long-term investment in pu’er continues to pop up.

To start the project of evaluating the investment potential of pu’er, we need to define what a good investment is, and then examine how pu’er performs against that definition.

How do we identify if pu’er is a good investment?

For pu’er to meet our criteria, it ought to:

Provide better long-term returns than an index fund in a stock market, Have an obvious or easily established value, and Have a clear market for sale.

Additionally, we should look at the evidence that pu’er will grow in popularity in the future. Since this is a longer term asset (you’d want to hold it for at least several years), we would want evidence that there will continue to be demand for the tea. Finally, for pu’er tea, which varies from tea to tea in quality, there are questions of which particular teas might increase in value, and which might fall flat. While aging might improve many teas, there is some consensus that predicting which teas will age well is very difficult. So, a smart pu’er investor, instead of betting on specific teas, might choose a diverse portfolio of teas, and age them all.

Pu’er historical performance

The first step in evaluating pu’er pricing is to look at the historical performance of pu’er teas. Pu’er tea famously went through a major bubble prior to 2008, which brought prices down significantly. Since 2007, there has been significantly more demand in the West for pu’er tea, with vendors like Yunnan Sourcing , White2Tea, and Tea Urchin designing packaging to more explicitly appeal to Westerners.

So today, prices are tamer than they were historically. We took a look at the current retail prices at 12 reputable vendors of hundreds of aged sheng pu’er cakes and bricks produced between 1996 and 2010, and standardized the prices. Then, we built an aggregated price estimate for a random tea from a given year in US dollars per gram of tea. When we graph these prices, we see a clear trend, though it starts to fall apart with older teas (figure 1).