The Liquid Asset: Investing in Wine
Nowadays, if you’re talking investments at a cocktail party, the talk may center around the cocktail itself—or more accurately, that fine Château margaux you may be drinking, which has appreciated in value. There’s a steady stream of people who are interested in wine for more than consumption alone.
Investing in wine, which has been popular in europe for many decades, is increasingly gaining favor in the united States. (investing in wine is so acceptable overseas that in 2006 the u.k. allowed pension funds to invest in fine wines.) fortunately, as it turns out, investing in wine can turn you a tidy profit— fetching annual returns in the range of 8 percent to 12 percent.
Of course not any old wine off your local grocery store shelf will appreciate if you hang on to it long enough. On the contrary, only about 5 percent of wines offered globally are recommended for investment. Some examples: Australian, French, Californian and Italian wines all tend to be what’s known as “well-commented,” meaning that international wine critics—including Jeremy Oliver, Robert Parker Jr. and James Halliday—give favorable comments and ratings about the wines, using a standard—and strict—formula that is followed by all serious wine critics.
Investing in fine wines can be a somewhat costly endeavor. In addition to buying the wine itself, storage costs in the thousands can cut into your potential profits, since fine wines must be carefully stored in a temperature-controlled environment. However, buying wines offers benefits you can’t get with paper assets like stocks and bonds: There’s relatively low risk even if you don’t make a profit since chances are you’ll enjoy your investment regardless.
So how can you invest in wines? There are three primary ways.
En Primeur Oftentimes, people who invest in wines never take inventory or even see the bottles of wine they’ve bought. Instead, they buy wine futures, that is, they get the wine straight from the barrel. If you buy wine this way, it typically takes 18 months or so before en primeur wine (i.e. wine still in the barrel) will be bottled. This lets you take advantage of a cheaper price for the wine before it’s bottled and released.
The Secondary Market At other times, you can buy wine through the secondary market which is comprised of auction houses, independent wine dealers or wine exchanges. The largest exchange is an electronic trading platform for fine wine called the London International Vintners Exchange, which began in July 2000. The Liv-Ex 100 index, considered the benchmark for the price of fine wine because it tracks 100 vintages, is up 42 percent in 2007.
If you purchase wine at auction, the wine goes directly to a warehouse facility for safe-keeping and storage. Auction houses like Christie’s or Sotheby’s keep very detailed records about the history of the wines they sell, because provenance—who owned the wine and for how long, as well as how was it kept, and so forth—actually help determine the value of the wine. Just beware that auction houses charge hefty commissions, on the order of 20 percent to 25percent.
Fine Wine Funds A final way to buy wine, which is now popular throughout Europe, is to purchase so-called “fine wine funds,” which operate much like mutual funds. For instance, the Vintage Wine Fund invests directly in rare and vintage wines, allowing your investment to grow as the wines age and are later sold, typically in 10 or 15 years, to restaurants or exclusive retailers. Other wine funds invest in companies that produce high-end wines, so you actually own shares in these companies and profit when their stock rises.
For value, according to Mahesh Kumar, author of Wine Investment for Portfolio Diversification, the top wines of impeccable quality are: Bordeaux, Burgundies, Champagne, Tuscan wines and wine from the Rhone Valley. One reason these are highly sought after wines is that Bordeaux and Burgundies have a shelf life of more than 100 years, unlike many newer wines. So longevity can also impact a wine’s value. But performance track record also matters—you want to invest in wines that have consistently demonstrated high demand and high return, not wines that have very wildly fluctuating prices.
Remember many other things can cause your wine investment to go sour: Improper storage, bad maintenance of wine, natural disasters or just purchasing a poor vintage can all result in wine that depreciates, rather than appreciates in value. If you invest in a company that promises to store wine, make sure it has insurance coverage for leakage or broken bottles. And it goes without saying that the company should properly store the wine at the right temperature—typically between 10 and 15 degrees Celsius.
And in case you’re wondering, Forbes.com reported that the most expensive bottle of wine that you could drink today is also the most expensive bottle that has ever been sold in America. The wine: a Montrachet 1978 from Domaine de la Romanée-Conti, sold at Sotheby’s in New York in 2001. The lot of seven bottles went for a total of $167,500, or $23,929 per bottle.
for more information on investing in wines, check out these web sites:
Decanter.com has a Fine Wine tracker where you can chart wine prices (much like stock prices) for the past three decades—clear back to 1978.
InvestDrinks.org is devoted to showing you the other side of investing in wine, namely the risks and pitfalls involved in wine investing that proponents may not mention.
vintagewinefund.com is for those seeking an offshore fund through which you can invest in wines.
uagrp.com Universal Assets Investments, an international company with offices in Singapore, Sydney, hong Kong and Shanghai, has wine seminars, and they promise to teach investors how to generate annual returns ranging from 12 percent to 40 percent.
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