Investing in the Finer Things in Life: Wine

1860

Drinking wine is an age-old tradition. One of the first great western civilizations, ancient Mycenaean Greece, owed much of its success to the cultivation and creation of wine.  For investors this is an ageless investment regardless of the current era. Let’s invoke the spirit of Dionysus, the Greek God of wine, and see the possibilities that await new wine investors.

There’s a certain type of satisfaction when investing in something you enjoy. Imagine buying a bottle of cabernet for $40 and holding out knowing that this small investment will be worth much more in the future.  One of the first things to keep in mind is why you are getting into wine investing; are you a budding fine wine connoisseur? If that’s the case then if you decide to drink some of your collection along the way than that’s just all right. But if you would like to assemble something to sell years down the line, there’s a few ways to go about it.

Wine Investment Basics

Wine investment is usually done through two different avenues. The first method is either buying and reselling single bottles or cases of a certain type of wine. The amount of wine usually will be sold in a set of 3, 6, 9, or 12. The other method is going to be purchasing shares in a wine investment pool.  For the inexperienced investor this may be a promising way to invest.  There are thousands of wine producers all around the world, given this fact there are only roughly a few hundred producers that produce the sort of elite wines that fits the standard of being called a fine wine or for that matter a financial investment.

Around ninety percent of fine wine for investing is produced in the Bordeaux area of France.  Certain types of vintages from renowned vineyards have the possibility to sell for thousands per just one bottle. The distinction of being considered a fine wine starts at the $50 price point.

Fine wine is considered a Veblen good.  Simply put this means that as the price rises the demand will increase as well. Fine wines are a status symbol. The reason being is because everything that went into a certain wine can never be replicated. Certain weather conditions, year produced and production methods cannot be duplicated, all of these factors add to the allure.

Buying & Storing Wine

For storing regular wine you’re going to drink within a couple weeks, you can put it in a wine rack somewhere in the home. Although, if you’re going to be storing wine for years at a time, it is imperative to make sure to store your collected wine in optimal conditions. A room that is too hot will speed up the time it takes a wine to mature, which is something you don’t want nor do you want a room that is too cold, as the wine will produce crystal flakes.

The best place to store the wine is in the basement or darkened closet. But for serious wine investors with the space to for it, it’s best to purchase a wine cooler. There’s a great selection online for purchase.

In addition to buying the equipment and having enough space for the wine cooler, you’re going to need to factor in electricity costs for running the wine coolers. Before buying any wine cooler look at the energy ratings and electricity use before buying one. This information can easily be passed along to the electricity company and you can budget how much this will cost for your overall investment.

Similar to jewelry, expensive wine is considered a valuable item. One of the first things to do is to also talk to the home insurance company about how your collection will be covered. Wine insurance is a great way to cover your new investment if anything should happen to them. It’s best to shop around to see how much different insurance deductibles amount to.

There are other ways of storage to consider if storing at your home is not a feasible option. Online databases of different warehouses show the wine storage location and special offers they have.

Alternative investing in wine can be risky, but that is why it is important to weigh out all the costs that come with procuring and storing fine wines. Be prepared to drink whatever you don’t sell, or better yet toast to your new successful sale.

Researching Price Conditions for the Wine Market

There are two important indicators out there to look for when researching wine’s current and predicted value.  These two indicators are scarcity and rating. Wine critics out there rate wine of a scale of 1 to 100. Wines that are in the ninety-five plus range are of superb quality.

Predicting scarcity is a harder thing to do. A wine that is in limited production is a good sign that the wine will maintain its scarcity. Research different wineries that are of interest to you and they will have a list of past price points. These different types of prices can be utilized to predict what the future will bring for a certain vintage.

There are ranges of many different websites that help out small time wine investment newcomers. Just as there are indexes to track stocks and other alternative investments, there are many indexes for fine wine. These indexes help track the value of your own collection as well as future purchases.

Liv-ex is an online trading platform and is used by professional wine merchants. Investors are able to utilize the website to check prices on almost any type of fine wine out there. The website offers a small amount of free price checks per month. If you want to have unlimited access for price checks, it is a subscription fee of £5.99 per month.  Wine Owners is a similar website that is directed towards the private investor. It is a similar service to Liv-ex. Potential wine buyers can enter the details of their collections and track changes in value based on past auction prices.  This is a great way to check out your holdings in the form of different charts and graphs, similar to how an online stockbroker website would function.  When you are ready to sell a wine, you put the price that is acceptable for payment, as a seller. On the other end is the buyers indicating how much they are willing to pay.

If you do not have the wine in physical possession then the trade will be done online and the shift of ownership will occur after going through a couple different types of checks and balances between the wine brokerage.

Getting Ready to Sell & What to Expect

Buying and storing the wine is only the first leg of the wine investment journey. On average a lot of wine investors hold their wines for a minimum of five years. This gives it time to mature into its full bodied flavor as well as gain a prestige around it. One of the common methods of selling wine is done through auction houses. When dealing with an auction house you are going to run into commission fees.

It’s best to look out for different online auctions, as they will charge different fees.  This information can be found on each individual website. Brick and mortar auction houses will need to be contacted through phone in order to receive more information. This serves as another way to compare price points for a certain type of wine. If one online auction site lists a case at $5,000 and another $10,000, this is something to take into consideration regarding commission fees.

Noteworthy Fine Wine Prices

  • Domaine de la Romanee-Conti, commonly abbreviated to (DRC), is one of the world’s most expensive wines and often considered one of the best. The wine hails from Cote De Nuits, France. An average bottle will sell for around $15,000. Some of these bottles have fetched prices  that neared $200,000 per bottle.
  •  Château Mouton Rothschild, is another wine that comes from the Bordeaux region of France. It is well known and has the distinction of first bottling the wines at the harvest rather than shipping it off of the estate.  A 1945 bottle was sold for $114,614 in the late nineties. They still consistently put out wine that is increasing in price everyday.

These prior examples are just some of the many successful sales of varying types of wines. If it was not evident already, investing in wine is a long term alternative investment that lacks liquidity.  Different years and different bottles have varying price points that have been turning a profit for years. At the same time the elite market is always looking for the next best wine to drink or even collect for themselves.  There are always other options for investing in wine through other roundabout ways, similar to other commodities and alternative investments. One of these ways is through investment funds.

Alternative Wine Fund Investing

For investors not too keen on actually buying or investing the wine themselves, there are funds out there that allow for investors to distribute capital to the fund in exchange for exposure to different wines throughout the world.

One of these funds is Wine Source Fund: a fund that is backed up by the Wine Source Group. They are global wine merchants that are registered under the European Union and diversify themselves through not only wine, but other spirits as well.

Another interesting fund created a few years back is The Bottled Asset Fund. Originally it was launched with a $9 million investment and gained substantial returns. The idea is to focus on wines mostly created in Italy.  Many fine wines hail from the Bordeaux reason of France. That doesn’t mean other areas should be neglected. Italy and Napa Valley are other hotspot destinations that produce many fine wines. As the international taste palette for new wines grows, so will the allure and investment in wines spreading throughout other parts of the world.

The possibilities and selection for a great wine collection are endless. Equipped with the right information and knowledge, a wine connoisseur can be on their way towards buying wine that is going to be an excellent investment many years down the line.

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Mike Colagrossi is an analyst at ActivistStocks.com covering activist investors and major deals at hedge funds. He also regularly contributes to SeekingAlpha.com and has a strong interest in alternative investments and emerging markets.