In our series “Is Wine a Good Investment” we’ve looked at what specifically wine investment is, a recent history, the factors affecting the market, En Primeur and also where the wine market looks to be going; all with a view to answering that question. In this our final post we look to answer that question specifically as well as summarise the previous posts in the series. To whit:
- An investment, but a good one? – Points to consider.
- Which wines? – Longevity ≠ Popularity
- Selling Wine - The crucial exit.
- Should I invest in wine?
An investment, but a good one?
As we discussed in the first post in the series, Fine Wine makes a very attractive case for inclusion in any investment portfolio, as it is a fungible, tangible, finite, tax-exempt (in parts), sought-after and a historically proven asset class. There are several key points worth considering:
- What is the cost of the investment?
- What are the risks?
- Buyer Beware.
- What are the returns?
Firstly the cost of wine investment, beyond the initial outlay, are the financing and storage costs. Financing simply is how much capital you’ve got tied up in the wine, and also whether you’re paying interest on that capital. Storage costs are thankfully much easier to calculate and most bonded warehouses or storage companies will charge around £12-18 pounds per case per annum, including insurance.
Secondly, the risk is the condition of the wine you’re buying. One should always check the condition before you buy; that is, make sure the case is in-bond, in it’s original wooden case (OWC), that it doesn’t have foreign import-strip labels like US strips, and that the levels in the bottle are all into the neck. Thankfully Vinetrade only deals in such high calibre stock, so the main risk of the investment, other than price variation, is mitigated.
Thirdly, one of the less savoury aspects of wine investment are being offered stock by an unknown or an disreputable source. There are cold-calling companies and boiler-rooms that will try and force overpriced wine on unsophisticated customers at 20-50% over the market price. Leaving you with a wine that’ll never be realisable at the price you paid.
Finally, what are the returns? Ultimately that depends upon which wines you choose, how long you hold them for, and when you sell?
Paramount to any investment should be research and due diligence. It is all very well going to Bordeaux saying that you’d like to invest in wine, only to end up with 100+ cases of Château Maucaillou 2008 (certainly not a bad claret as it will improve with age, but definitely not investment grade). A term often passed around in the trade and media are “blue-chip wines”, with regards to Bordeaux these are the top 50 or so Châteaux, and more importantly the First Growths (Châteaux Haut Brion, Lafite, Latour, Margaux and Mouton), that have the pedigree, high critic score and volume of trade, as well as agebilty and track record, to be called investment grade.
Outside of Bordeaux, and whilst they’re less readily available they are by no means less popular: the top Cote Roties and Chateauneuf du Papes from the Rhone valley, the likes of Domaine de la Romanee Conti and Domaine Armand Rousseau to name two from Burgundy, the wines of Aldo Conterno and Antonio Gaja from northern Italy, and Cult Cabernets of the Napa Valley like Dominus and Ridge Monte Bello, all merit inclusion in the set of “investment grade” wines.
However, as previously mentioned the role of the critic is a very important factor to consider when choosing your wine, as too is the vintage. Pichon Lalande 2005 is a classic example of both an excellent pedigree Château and a stellar vintage, but unfortunately showed badly in the eyes of Robert Parker, with a meagre score of 86 points, and so too in terms of investment performance. Thus the returns that one can make on wine investment all comes down to choice and timing. Taking a recent example, Château Lynch Bages 2009 was released En Primeur at around £900, upon physical release two years later, and rescoring by Robert Parker, the demand and price jumped to £1300, making it a 30% increase over two years. Such sizeable price increases over such a short term are rare and the more common increase is usually less than 5% YOY, it does however entirely depend upon which wine you choose and, arguably, whether it is in vogue or not at the time.
Selling Your Wines
Possible the biggest vexation of any wine investor is realising the returns on their portfolio. Historically the only place to sell your wine was at auction, and in those days there was less of a market, or need to. With the rise of the brokers and Wine Funds on the scene, a huge increase in market liquidity has taken place and whilst it is much easier and faster to sell your wine, it isn’t without problems, primarily due to antiquated nature of the market.
Furthermore before the rise of the ubiquity of the internet, it was very hard for sellers to ascertain whether they were getting a good price on their wine from their merchant or broker, and although these days every merchant puts their price list on-line, a seller is still liable to lose 10-20% of the value in commission. Thankfully Vinetrade charges a minimal fee by comparison and allows you to list the price you’d like the case to sell for.
Should I invest in wine?
Although this blog is, of course, naturally biased towards the affirmative, we believe that with careful choice, an investment in wine is essential to any diversified portfolio. Both in terms of potential for gain and sheer enjoyment of this alternative investment, the wealth of history, content and information that’s available to be discovered. Ultimately if you’ve found your way here and have read this series of posts then you either do own fine wine, with an eye for investment, or you’re ready to. The key points to remember are:
- Always buy from a reputable source and check that what you’re buying is in acceptable condition (Vinetrade offers both of these services).
- Wine investment does not, currently, offer a quick return. Expect to speculate for 5 years or more.
- Only invest in wines that are investment-grade, the best thing to do if you’re unsure is ask.
- Due to storage fees and logistics it makes more sense to invest in fewer higher value cases than a large number of lower value cases, unless intended for a quick return.
- And the truism that all wine investment guides say: “the worst thing that can happen with your wine investment is that you end up drinking it.”
Investing in Wine on Vinetrade
Investing in wine via Vinetrade is very simple and can either be done entirely online or with the help of our Sales & Marketing Manager.
- Decide how much and for how long you want to invest, as well as how risk-averse your portfolio will be.
- Credit your Vinetrade account on-line.
- Start bidding on the wines you’re interested in.
- When your bids are successful, we’ll handle all the storage and logistical side of your wine investment.
- You can track the value of the wines using our Watchlist feature.
- Either upon advice, or when you feel the time’s right, you can place your wines up for sale, at a price you choose.
- When they sell, we’ll then credit your account with the funds, that you can withdraw whenever it suits you.