A safe way to invest in fine wines

Never have so many seriously rich people walked the earth. From Latin America to Russia and the Far East, a new set of obscenely wealthy entrepreneurs are making their presence felt.

Take the market for fine wine. This year the Liv-ex wine index is up 35%. And some top quality wines have outperformed gold. All because a generation of newly-minted millionaires are stockpiling rare wines as symbols of their success.

And there is no reason why you can’t participate as well. You may not want to shell out £15k on a bottle of vintage claret for your Sunday roast, but that doesn’t mean you can’t afford to get involved in this market. The truth is that, if you follow a few simple rules, it’s actually a lot easier to invest in wine than stocks.

Today I’d like to show you a safe way to invest in fine wine. And how these rules could help you pick the pocket of the biggest spenders in Russia and China.

This chart says it all

Last year UK wine sales dropped for the first time in decades and Champagne sales were down a hefty 31%. But for the top wine estates - and I’m talking about serious wines here - things have never been better. The prices of the top chateaux are captured in the Liv-ex 100 index of fine wines. And these wines have tripled over the last five years (the red line).

 

 

 

Liv-ex is a platform for trading fine wines. Having paused for breath at the depths of the financial crisis the market is now back into serious bull market territory.

The Liv-ex 100 has even kept pace with gold’s blistering run. And that’s probably because it shares some key characteristics. Unlike paper money, you can’t just create more fine wine. The prime estates of Bordeaux can’t be replicated or expanded. And you can’t just magic a bit more juice out of those old vines either.

Unlike other assets, wine also tends to appreciate with age. It just isn’t like other ‘alternative assets‘. With antiques and arts, very few pieces are ever the same, and fashions change quickly. But with wine, one bottle of 1996 Lafite de Rothschild is the same as another (providing you’ve got provenance). And fashions rarely change in this game.

The bottom line is, you can always get a price for your wine and you can always sell it.

But like gold, wine pays no interest. In fact, it’ll cost you money to store and insure the stuff. So this is a play on long-term capital appreciation. And I think there will be plenty of that in the months and years ahead.

Why one side of my brain shuts down a bull market

The Liv-ex wine index is up 35% over the last year and the chart is looking strong. And strong bull markets should never be ignored. When I look at a bull market, I try to ignore the rational side of my brain that’s telling me the market’s too expensive and it must be overheating. The funny thing about both a bull and a bear market is its ability to keep on going and going.

The fact of the matter is that there’s money chasing this market and this money doesn’t care about expense. What you’ve got to remember is that this index is the crème-de-la-crème of the fine wines. We’re talking about trophy assets here. Guys that pay £15,000 for a bottle wine so long as it’s got the right label.

Demand from the obscenely rich is pushing the market up and up. Hundreds of millions of dollars take time to squander - and wine passes the time very nicely. Remember the City traders that spent £44k on a few bottles of wine at Ramsey’s Petrus restaurant? What better way to make inroads into their City bonuses and pass a pleasant afternoon?

You’d never spend £20k on a mixed case from Majestic, but a £20k punt on a case of Petrus may be just the way to make a few bob off the back of tomorrow’s uber-wealthy.

Only deal with the top brokers and top wines

You’ll often be told that wine investing should be left to the professionals. But if you follow the rules, it’s actually far easier than investing in stocks. This is a game you can definitely do yourself.

You may be offered wine investment funds. But I urge you to steer clear. There’s no point. The costs are way too high and they’ll give you no more value than a decent broker. All they’ll do is eat up fees.

As I mentioned before, fashions don’t change much in the wine market. We know which wines will be popular in ten years’ time, because it’s the same that are popular today and have been popular for the last 200 years.

To find out more about the investment side of things, I’d recommend visiting a reputable broker such as Berry Brothers. Their ten tips for investing in fine wine is an excellent place to start. They are by no means the only reputable broker, but I’ve used them before and I’ve been happy with their service.

Remember you can compare prices on liv-ex (though this is a platform aimed at professional merchants) to make sure your broker is competitive.

Stick to the ten tips and you won’t go far wrong. My advice is the same as for all alternative asset classes. Only invest in things that you’re interested in and give you pleasure. That way you can enjoy learning (about wine, antiques, art or whatever) and hopefully lay down a cracking investment at the same time.

Whilst last year’s 35% return on the index looks great, you can’t count on that going forwards. But then again, with the money printers set to kick off again and the seemingly inexorable rise of the East, I’d say we’re going to see another double digit performance for the fine wine index next year.

• This article was first published on the 18th October in the free investment email The Right side. Sign up to The Right Side here.

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Your capital is at risk when you invest in shares – you can lose some or all of your money, so never risk more than you can afford to lose. Always seek personal advice if you are unsure about the suitability of any investment. Past performance and forecasts are not reliable indicators of future results. Commissions, fees and other charges can reduce returns from investments. Profits from share dealing are a form of income and subject to taxation. Tax treatment depends on individual circumstances and may be subject to change in the future. Please note that there will be no follow up to recommendations in The Right Side.

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2 Responses

  1. 10/11/2010, Uday wrote

    Peter Lunzer on OpalesqueTV tells about Liquid Investments — All about investing in wine http://www.opalesque.tv/youtube/Peter_Lunze/1

  2. 16/11/2010, Richard wrote

    Fine wine has in fact been doing very well in the market, specially with Chateau Lafite as the top wine. As earlier mentioned be sure you deal with top brokers/portfolio managers from reputable companies. Here’s an advice

    http://www.wineinvestmentadvice.com/premium_liquid_assets_promo/

Commenting on this article closed

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