When it comes to investing, knowledge is power and it pays to do your research. As the old adage goes ‘there is no free lunch’ and you must run as fast as you can from anyone silly enough to suggest that there is, especially when it comes to an unregulated asset class such as the fine wine market. While it might be romantic to think that the bottle of wine which you bought whilst travelling through the French countryside 20 years ago will now be worth a pretty penny, this is most likely not the case and there is more to investing in wine than biding your time.
Before we even enter the realm of parting with money for investment in wine there are a number of things to be considered and researched by the investor. To have the greatest possibility of a reasonable return it is imperative to understand the market and factor these elements into the investment. Now to say that there is no free lunch is not to say that there is not money to be made, however one must be extremely frugal in such an environment and trust only well respected wine merchants.
The investment should focus on the top wines from the top vintages. Just as it is likely that the first investment one would make in equities would be in a company listed on the ASX, the FTSE 100 or the Dow Jones, when investing in Fine Wine it is advisable to begin with Bordeaux. Dating back to 1855 Bordeaux wines have been classified into five categories ranking from the cream of the crop known as the ‘first growths’, closely followed by the ‘super seconds’, and then on to the third, fourth and fifth growths. The wine is classified on its ability to mature, the longer life of the wine to maturity, the better the quality. Wines in the ‘first growths’ category generally take 15-20 years to mature, if not more. The track record of Bordeaux wines demonstrates a consistent product from the region that investors can see as a benchmark. While there is always risk involved in investing, with Bordeaux wines there is at least a history, which can help the investor to understand the product more intimately.
Fine Wine is generally sold through an auction house directly to a wine merchant. Throughout the USA investment grade wines are almost exclusively sold at auction in Chicago. The prices set for the rest of the world take place at London auctions, which are used as the benchmark worldwide. To determine the appropriate price one should pay for a case of a particular vintage of Bordeaux it is important to research the prices obtained at these auctions as well as the current retail pricing for the most popular wines. As all markets fluctuate, to truly understand the value of the product it is advisable to follow the prices on the market. Auction Fine Wine Prices can be found at a number of sources including WinePrices.com (http://wineprices.vinfolio.com).
Storing the wine correctly is imperative to retaining the value of your investment. Wine must be stored at 14 degrees Celsius and constant which is generally not possible in a home cellar. Storing the investment wine at home also runs the risk of a very expensive dinner party, especially if you have thirsty friends. The ability to prove the storage history of the wines will be advantageous on price when it comes time to make a profit. Professional storage however is an additional cost and should be considered in the entire investment as a whole, so not to erode ROI unknowingly. If the wines are purchased in Europe and stored ‘in bond’ or in a professional warehouse they are considered to be ‘wasting chattel’ (something that will ultimately deteriorate in value) and therefore you will not have to pay capital gains tax.
One of the most highly respected wine critics in the world is Robert Parker Jnr. The US wine commentator gives wine scores out of 100. Anything that is scored above 90 is likely to be worthy of considering as an investment grade wine. His website is at www.erobertparker.com.
Have a happy Easter and until next time have a glass for me! Alex Mac
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