Financial Markets – Wine

Financial Markets - Wine

Financial Markets – Investing In Wine

Investing in wine can earn you big profits. It can be for the long or short term but, if you’re on your game, there are big wads of lucre to be made.

Based on where you get your information, the world fine wine market is valued at over $55 billion a year.

In the US in 2002, Sotheby’s did $22 million (£12m) auctioning wine. During the 2003 Bordeaux Futures promotion, one UK company did 10 million in 6 weeks. A leading European bank is opening a €40 million investment fund in wine.

There is serious interest in the leading wine labels around the world. The following are some of the reds and whites that have made a fortune over the years.

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For starters

A case of Château Latour 1996 sells at £1800 today but on release, it was valued at £360 a case. Le Pin 1998, a renowned vintage for Pomerol, can be sold for £8,000, almost 500% upon its release price. Italian wines are brilliant sellers, too: a case of Solaia or Masseto from 1997 costs £1,800, up almost 400% on their release price. And if you happened to get your hands on a case of Petrus 1982 at its release (around £600) your kids can now flog it for 10 grand! So, large gains can be made (by you in your dotage, or by your offspring) from buying wisely – and being patient.

A lot of the skill is in finding the wines and the volumes at the right price in the first place. Trading bottles of wine is unlike trading shares on the Stock Exchange – you can’t simply call your broker and do the transaction. You must do your homework on where to find a seller or buyer for the wines on which you want to gamble. As well as that – and it’s a good thing too – people drink the stuff, even if a bottle of Romanée Conti 1990 costs more than £5,000 in a restaurant. As a result, certain wines become increasingly rare. You can’t simply increase production because the punters want more; there is a limited supply. And as a certain vintage’s rarity increases, so does value.

To take advantage of this gambling wine adventure, there are two main routes: you can DIY, or do it through professionals.

If you do it yourself, you need to be really on the ball and have contacts in the wine industry, because the market can change very quickly. If a top critic gives a perfect score to a certain bottle, its price can double in a day and quadruple in a week. So if you like his opinions but don’t read what he said until the weekend, the likelihood is that you’ve already missed out on the early, snappy profits.

Proficient wine investment businesses, for example, Wine Portfolio Management, based in France track the market on a day-to-day basis and know what is about to happen thereby making sure their customers get the best deals. As a rule, they’ll charge you around 15 to 20%, which isn’t much compared with your potential gains. As well as this, they’re convinced that they know where to get the wines at the right prices – and where to sell them.

At the back of the garage

For example, you may have been attracted to the Masseto 1997 (the wine of the vintage in Italy) or Le Pin 1998 (one of the finest vintages ever for this garage, or tiny production, wine) or Cheval Blanc 2000, the wine of the celebrated vintage ever in Bordeaux.

So what goes on? Masseto 1997 started at £35 and as soon as the respected American journal Wine Spectator gave it the thumbs-up and sent it rocketing to the top of the charts, this wine was being sold several days later at three times that price in the UK.WS gave Le Pin 1998 comparable scoring and thus this already hard-to-find wine became liquid gold. Cheval Blanc 2000, an exceptional St Emilion, was named a no-brainer wine of the vintage by top critic Robert Parker and the price went mad.

Playing the market is also crucial. Masseto 1997, while selling at £150 in the UK, was being snapped up by US buyers at £220. Certain garage wines such as Le Pin, Valandraud sells at a higher price in Asia or the US than in Europe, as do the cult Burgundy producers. So, purchasing it in this country and making a sale over there can seriously affect the value of your wine portfolio.

Be critical

Subscribe to the critics. These experts make the difference between a good investment and a bad one. Critics can bring eminence to a particular wine a winemaker, a vintage. However, critics can also be the downfall. Get a copy of the Wine Advocate from Robert Parker, the Wine Spectator and Clive Coates (for Burgundy). They are powerful even more so than Blair.

Consider your buying strategy and the amount you want to gamble or invest. Like any type of gambling, you have to be ruthless. Wine has an almost romantic quality about it, notably the great names. An Imperial (six-liter bottle) of Château Margaux 2000 down the cellar may lead you to become somewhat attached to it. However, you should take note, bought as a future in 2001 at £2,000, it will certainly be worth double that by 2007. You must also consider whether you want a quick profit or in for long-term, regular saving. In our experience, the wine almost always makes far higher returns than any other form of investment, so we would advise that it’s worth consideration as part of your financial scheme.

Basically, to make decent gains you should think of investing at least £5,000 – but the sky’s the limit. Some of the greatest collectors have cellars valued at millions of pounds. Nonetheless, the biggest gains tend to be made in trading rather than stockpiling. Wines alter with every vintage, and newcomers arrive on the market every month. To get the best out of the new releases, the astute trader will invest or gamble regularly.

Put a cork in it

Professional advice is essential rather than educated guesses. Specialist dealers are able to get details of the finest quality, largest quantity and most competitive prices of stock. There are several wholesalers in the UK. However, you should consistently compare prices, as they vary depending on the vendor – some source their stock from cheaper, Continental wholesalers.

The best way to broaden risks is a commonly practiced strategy and this is to buy older vintages, the values of which are less volatile. They display an established firm, and the prices have a history. While their value doesn’t ebb an flow as much as that of less well-established products, you have some safeguard against their losing value. After all, as that certain vintage grows scarcer through the odd bottle being consumed, the remaining stock appreciates in value.

For the risk-taker, huge profits (and losses) can be made in futures – buying and selling on the expected value of vintages yet to be bottled. Their value is much more erratic, so the opportunity to make quick cash is there – as is the likelihood of ending up with negative equity if you bought at the wrong time.

What about tax? Specialized management firms store wines in bonded warehouses in which they are, in effect, ‘on hold’ – VAT is not due until the wines leave the warehouse. If you do gamble on wine, this is a convenient way of minimizing your capital outlay, leaving you with more cash to invest until the profits start rolling in.

Auction stations

One of the best ways to trade wine is via international auction houses, such as Christie’s or Sotheby’s, which hold sales every few days.

If you fancy taking this route, the goods have to be inspected before the sale, so you will be asked to deliver your wines six weeks in advance of the hammer falling. Payment will be about four weeks coming through after the auction, out of which comes the auctioneer’s commission and any other costs.

Basically, the pre-sale estimates are cautious but, as with any auction, you have the option of a reserve price to guard your investment.

Several online auctions also specialize in wines, but if you prefer not to take that route at all, the wholesalers can do the work for you. They will offer their own clients first refusal and take a cut of 10-15%. Numerous warehouse specialists hold their clients’ stock in bond, so by simply switching owners, the vintages don’t leave the warehouse.

There are other benefits to consider, as well. In the UK, wine – but not a port – is categorized as a food product and therefore its value depreciates. So your sporadic buying and selling incur no capital gains tax. That’s the theory – but a financial adviser should be able to help you out with this.

It’s also worth remembering that it may take time to sell stock at the right price. With any market, there will be instability, good and bad, which should be taken into account when managing a wine portfolio. You should also examine your portfolio manager’s credentials and insurance, as well as their transport methods, before entrusting them with your cellar. You must ensure your bottles will be replaced, instead of having to accept financial compensation, should anything go wrong.

Careful gambler can make money by investing wisely in wine. The finest labels have shown remarkable stability over the last 15 years. In our judgment, if you buy the right vintages you can generally expect to double your investment in two years. However, the key to success is having the knowledge of which bottles will make the highest returns – so do plenty of research first.