This post is the first in our series “Is Wine a Good Investment?“.
Wine Investment is an alternative investment (AI), like investing in Art, Antiques, Coins or Stamps. Simply put: it is the purchasing of a finite commodity, a case of wine, then realising the gains after the price of the commodity has risen. While that definition is succinct, it doesn’t thankfully cover all of the intricate nuances that makes Wine Investment such a rewarding challenge for those who want to look beyond the FTSE or the S&P 500 and diversify their portfolio.
Why Fine Wine?
Fine Wine has several advantages over other AI’s:
- Consistent decreasing supply through consumption - whilst someone may buy and enjoy a Picasso or a 1955 Jaguar XK Roadster, a bottle of Mouton Rothschild 1982 is gone once enjoyed, and the car or the painting can always be resold.
- Ageability – Fine Wine matures with age, improving and is often more pleasurable to drink, over time; thus commanding a premium.
- Vintage Variation – Given the nature of the marginal climate in which the best wines are produced, the quality of the wine varies quite substantially year on year; so too the price. For instance 2005 is a sought after Bordeaux vintage, while 2007 less so.
- Influential Critics - Respected industry experts like Robert Parker Jr or Allen Meadows have trained palates and judge new vintages and rescore old ones year on year. With this score variation, so too does the price change. The most stark, recent example was in February when Robert Parker rescored the 2009 vintage, giving 15+ wines a perfect 100 point score and causing those wines to jump in price.
- Historically Proven – Anecdotally, top wines have always commanded a premium. There are writings from Pliny the Elder in 60BC, where Falernium from the fabled Opimian vintage of 121BC was opened in honour of Julius Caesar’s recent Spanish victories.
The Nuts and Bolts – Buying and Selling Wine
The actual system of buying and selling wine has always been your traditional retail model:
- Buying – In the past the only way to buy wine was to go to a wine merchant, either a stock-holding Trader or a Broker. Both types would often have exclusive arrangements with regards to supply and availability of wine and explicit price control. Vinetrade now allows members to buy wine from other members at prices set by the sellers.
- Storage – As Fine Wine merits impeccable storage, as soon as your case of wine has been purchased it should remain in a bonded warehouse. The U.K. has several major players all with similar structures and brokers can often arrange storage on your behalf.
- Selling – As with buying, traditionally the only way to sell your wine was through a merchant who will charge commission anywhere in the range of 7%-20%. So whilst your wine may have increased in value by 15% over time, you may lose 10% whilst trying to realise that gain. Platforms such as Vinetrade now allow members to list their wines for sale at a price they like – providing wine investors with more flexibility and the ability to cut out the middle man, achieving a better price for both parties.
- Unregulated Market – Unlike equities or bonds, investing in Fine Wine is not regulated by the Financial Services Authority. The simple implication of this is, you’re buying a physical case of wine that might gain or fall in value and there are the pros and cons as listed above.
As you’ll see in our follow up post, wine investment like any AI is subject to market forces and the prices can fall as well as rise. We hope you’ll continue to follow our series and see why in our next post Wine Markets – A Recent History.