Why Timing is Crucial when Investing in Wine
Timing is absolutely crucial – in life, as well as in the arena of financial investments. As mentioned in previous articles, the fine wine investment market is steadily moving into the mainstream of alternative financial investments.
When is the right time, and why?
When investing for financial profit, not only in luxury wines and similar goods but in almost all forms of investment, timing is absolutely key. Even though fine wine offers a stable and consistent return on investment, it is always possible to make expensive mistakes, especially when exploiting the market for short to medium term gains.
Timing is of the utmost importance when your portfolio contains fine wine assets, because the investment potential of the wine is dictated by a series of factors; Robert Parker tasting notes and scores, reviews and ratings from other renowned wine critics, price and vintage scores (past and present), production statistics, grape harvest and weather analyses, market situation and financial climate, and many, many other aspects. A host of information and data analysis is required to gage the true investment potential of a fine wine, and to correctly apply that knowledge to make a profit.
Let us examine the valuation history of Chateau Lafite Rothschild 2005.
As one can see, during the bull market in 2007 the value of the esteemed Chateau Lafite 2005 shot through the roof. Over the course of less than 12 months, this luxury wine appreciated in value of over 100%.
After the collapse of the Banking powerhouse Lehman Brothers, coupled with the subprime-mortgage crisis in 2008, valuation of said wine started dropping heavily. Many investors scrambled to sell their “souring” investment only to regret the decision later. 2 years on and the wine was being traded at record-highs in the global fine wine market.
Since the beginning of the Euro crisis, certain fine wine prices have shown a slight drop; is the price drop justified or simply a fluky flutter? That is where we come in; as competent wine asset managers specializing in luxury wine, our forte lies in knowing the right time to buy, and more importantly, the optimum time to sell.
Had we recommended to you to supplement your portfolio with cases of Chateau Rothschild 2005 at the outset of 2007, a sale in 2011 would have yielded a return of over 200%, hardly an insignificant capital appreciation of your asset.
As one can deduce from the above graph, this particular asset seems to demonstrate a positive correlation to the stock market, even though luxury investments, especially fine wines, are usually recession proof, and show a negative correlation to traditional investments. Please bear in mind that not all fine wines possess the investment potential of the Lafite Rothschild 2005. Specific wines will behave differently under market conditions, and every single investment grade fine wine fluctuates at its own rate depending on the previously mentioned factors; hence, fine wine is classified as a commodity investment.
Why is Now the best Time to Invest in Fine Wine?
“Buy when there’s blood in the streets”
This famous line was coined by Baron Rothschild himself, a prominent member of the Rothschild family who’s legacy spanned generations, into our present day and age. This phrase was similarly adopted by Warren Buffet, the wealthy businessman and highly successful investor.
Savvy investors know that this famed mantra is imperative when investing on a professional level. Literally it means to buy (invest) when markets are down. You cannot always bet on the winners otherwise the game would be far too easy.
This adage does not only apply to the stock market; to successfully invest one has to take a small degree of risk. If every single financial institution and investor wagers on the exact same investment, it simply cannot be a lucrative decision.
The fine wine market is showing sure signals of consolidating in the global market, again, somewhat visible from the above graph. That is why now is a very good time for medium to long term investors to take advantage of fine wine assets. Not only is the wine market looking to grow over the next 5 years, it is a smart way to dilute the level of risk in your financial portfolio.
Traditional investments like gold, oil etc. are showing record breaking drops and stutters, yet nobody can explain why. Investors are losing money with foolhardy investments on a daily basis, and to top it off they are then plagued with taxes and fees. Instead of bleeding further, now is the time to diversify with luxury fine wine assets; give the market a try, and let the numbers convince you of the sheer potential of wine investment.
Bordeaux Traders - The Fine Wine Investment Brokerage GmbH
Mooslackengasse 17, 1190 Vienna
Phone: +43 676 490 51 19