Wine as an Investment, Really?!
“Wine as an Investment” and “Investing in Wine” are phrases that are more often than not, met with a rising of the eyebrows followed by sheer skepticism. “Invest money in a bottle of wine? That’s Preposterous!”… a sentiment echoed by a many purely because the concept of wine as an investment is not completely understood.
What is an Investment?
First of all, we need to clarify the definition of “Investment”. According to investopedia.com, an investment is defined as “In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.”
There are different types of investments, as well as good and bad investments, usually judged by the level of risk involved and the expected potential returns. There are traditional investments like stocks and bonds, and commodity investments such as gold and oil which have shown consistent returns over the long term. However, even traditionally stable investments like real estate can backfire, as was seen in the financial crisis of 2008, when the housing market played a major role in the global financial meltdown.
As diversification is crucial for success in any investment portfolio, there is an increasing interest in alternative investments such as fine wine, diamonds and the like; the possibilities are endless, the only requirement being a reasonable rate of return coupled with justifiable risk.
Wine as an Investment – Breaking it Down
So how is fine wine an investment? First of all, one must understand that the wine in question is not your average drinking wine. You will not find investment grade wine at your grocery or even liquor store. Most restaurants will not supply these wines as they are far too expensive; hence the term “luxury wine”. It is essential to understand that the investment wines in question are the most exclusive, expensive and top quality wines in the world. There are thousands of Bordeaux wines being produced year after year, yet only a handful of top wines from selected vintages make the cut, and stock selection is absolutely crucial.
Based on the individual requirements like investment term, risk level, investment capital etc. a selection of appropriate stocks is added to the investor’s portfolio. This entails sourcing the wine at a competitive price and in perfect condition. As one cannot simply knock on the door of the chateau and request a bottle of their finest, selecting and procuring these luxury wines is half the battle. Using our broad network of chateaux, we purchase the physical wine (usually an original wooden case – OWC of 6 or 12 bottles) and verify its authenticity and provenance.
Provenance and Authenticity of Wine
Since there are an increasing number of fake wine bottles infiltrating the fine wine industry, one must take the utmost care when procuring these high quality wines. Most chateaux will deliver their stock with a certificate of authenticity, and if the case has changed ownership or traveled around the world, this will be documented. Provenance plays a major role in the investment value and therefore we only deal with European stock, in pristine condition.
Once the wines have been procured and verified, they are shipped to our bonded storage facilities, in Austria, France or the UK. Upon special request we are able to ship the wine anywhere in the world however, this is discouraged as it may decrease the value of the stock. Once the wine is stored in a special, temperature controlled warehouse, clients are issued the according certificates and documents of ownership, and are free to view or even claim their stock. For our international clients, or if it is logistically improbable, we can issue photographs of the wines, if required.
Now that the investment portfolio contains physical wines professionally stored in a warehouse under bond, the wines are allowed to mature and appreciate in value over time. Again, this is where market research is absolutely crucial, because choosing the right time to sell (or buy) is crucial for maximum profit; the old adage applies ‘buy low, sell high’.
Due to the nature of this investment (wine is a wasting asset), the profits obtained from investing in wine are absolutely tax-free. Moreover, as fine wines are not an income bearing investment, one is absolved from income tax. Read this page for more information on the tax benefits of wine investment.
Wine Investment Past Performance
Once the concept of wine investment is clear, why is there still reluctance to invest in fine wines? Primarily because it is a relatively new market in the world of finance; wine investments have only taken off in the past 20 years. As with any unexplored terrain, the first steps are always tentative and cautious; as the financial institutions start picking up on this lucrative opportunity it will surely move into the mainstream of alternative financial investments, and ultimately gain widespread acceptance.
If the benefits of wine investment are not convincing enough, there are irrefutable examples demonstrating the profitable nature of luxury wines. Following we have several actual examples of wines we have dealt with in the past.
|Lafite Rothschild||1982||FEB/2010 @ €32,000||MÄR/2012 @ €49,000|
|Petrus||2001||JAN/2012 @ €16,350||DEZ/2012 @ €21,500|
|Pavie||2009||NOV/2011 @ €2,100||DEZ/2012 @ €3,200
Click here, for more data on stock performance.
Wine Investment in the Media
Due to the highly lucrative rewards and elite status of these world class Bordeaux wines, more and more media outlets and financial institutions are taking notice.
CNBC: Investing in Wine
As the media coverage grows and more and more consumers are informed about this increasingly popular investment, it can only bode well; as the demand for these fine wines steadily increases, prices will most definitely be inching in the right direction.
Bordeaux Traders - The Fine Wine Investment Brokerage GmbH
Kaerntner Ring 5-7, 1010 Vienna
Phone: +43 1 20511 60 1241
Fax: +43 1 20511 60 1008