Making the Most Out of Your Wine Investment Portfolio
“This crisis is perfectly rational. It was even foreseeable. The day I saw in Time magazine a photograph of a bank vault with a bottle of Lafite in it, I assembled my staff and told them: ‘the crisis has started.’ Indeed from the moment when you start to think of wine as an investment and not as something to be drunk, that’s the end.”
Baron Elie de Rotschild of Chateau Lafite-Rotschild as told to “The Winemasters” by Nicolas Faith
For lovers of fine wine, to purchase wine for the purpose of profit and not pleasure may seem pedestrian. But the truth is, fine wine investment has been going on since the Roman times. The wine trade itself is known as being based on “speculative” hunches. In Bordeaux, for instance, the practice of buying “sur souches” or while the grapes are still on the vine has been a common practice. Any investment is a risk. That is even more true in the case of wine. Aside from the usual considerations of knowing exactly where to put your money, you also need to know the product and the producer a little bit more. One must be aware that wine is subject not just to market forces but also to variability in weather. Recently, even the source or provenance of these fine wines has come under fire with the billion-dollar fraud case of Rudy Kurniawan. Simply put, investing in wine is a more “involved” process. But the risks are worth it, if you know exactly what you’re getting into.
Timing is important in any investment. First of all, it is good to know WHEN to buy. It’s basic knowledge that purchasing in a buyer’s market is the best time. This is a period when an investor can take advantage of lower market prices (i.e. mid 1970’s following the crisis in Bordeaux). Fine wine investment is a long-term investment. It should give the investor, after a reasonable time frame, a good return on his initial cash outlay. In the fine wine trade, a five- to ten-year term is suggested by experts. But there are those who would even go as long as 20 years. It is possible to make short-term gains in wine but it should never be considered a norm.
Knowledge is key. Buying wine to drink now is very different from purchasing wine for investment. It’s important to know if a wine you are considering to invest in actually has the potential, not just for ageing, but for ageing well. In simpler times, the finer the wine, the better it will age and the longer it will stay great during its period of maturity. However, times have changed. It is important to be aware of and interpret the current trends of individual properties and chateaus. Reading up on the ageability of certain great wines, keeping yourself updated on the pronouncements of reputable wine critics, and following vintage guides every year can help you make informed decisions as a first-time wine investor.
Knowing your options will also help you make the most out of your money. If conditions are right, there is no better or more attractive method of purchasing wines than thru the “en primeur” system (this means buying before wine is even bottled, therefore, getting the most out of your hard-earned cash). Buying wine at auctions is also another method but you need to know exactly how the wine was stored and also be aware of how much more money you are going to be shelling out because of the presence of a “middle man” (i.e. the auction house). Regardless of the method of purchase, wines should be bought in their complete, original cases in bond in order to avoid paying duty or value added tax.
Skill is another great asset to have when investing in wine. While almost everything there is to know about vintages, chateaus and wines are available with the click of a button (or the search function on Google), there is something to be said about the ability to assess and evaluate trends devoid of any external influences. Sure, this skill takes time to build but unlike a “newbie” that must base his decisions on a chateau’s established reputation when investing in wine, a skillful investor has the advantage of being able to know lesser-known wines and producers that have a potential to gain in value. You spend less initially yet have the potential to earn more than somebody who is simply going with the crowd.
Having optimal storage conditions for wines you have just spent a fortune on is very important. Even the best wines meant to age for decades will die an untimely death when stored improperly. Make sure that you have access to a professionally maintained, bonded and temperature-controlled warehouse to safeguard your investment. It is also important that these wines are fully insured at replacement value. Extreme care and thought have gone into these investment-worthy wines and so it is only proper that they are given the same amount of care and thought once they are yours.