Wine: it's for drinking, not investing in

published 3 October 2008

There is nothing like fear to get the experts over-hyping their products. And so it is with the wine market. A couple of recent examples. "The financial world is melting down, but it has not been affecting the high-end wine market," says Sergio Esposito, director of the Bottled Asset Fund in the Financial Times."Fine wine is easy to understand. It's a tangible investment, which tends to go steadily up in value," says Joss Fowler of wine merchant Berry Bros & Rudd in The Daily Telegraph. Both these comments, true as they might be, seem to remind us of something. What? The comments coming from the many interested parties in the property market last year. Remember when you couldn't lose with bricks and mortar, what with property being an easy to understand and tangible investment?And when, thanks to the endless supply of rich idiots in the UK, the price of prime London property would never fall? Quite.

Last year the Liv-Ex Fine Wine Index returned 42.2%. And last week The Daily Telegraph reported that, "the wine industry is celebrating one of its best weeks ever", with Berry Bros & Rudd on its way to record the best sales year in its 310-year history. We guess it's going to be the best sales year for some time to come. Liv-Ex Fine Wine Index's growth rate slowed to 9% in the first half of the year and there's no reason to think it won't keep slowing, given that the world's biggest wine buyers the financial community aren't going to be in quite the buying mood this Christmas as they were last year.

The FTsuggests that any slack in the market will be picked up by the Chinese, Indian and Russians, "as those countries' financial elites acquire a taste for fine wine". But the world's nouveaux-riches aren't immune from the global slowdown. The Russian stock market has fallen 50% since July as internal price fixing accusations, the credit crunch, falling commodity prices and the war with Georgia take their toll, leaving Russian oligarchs "nursing paper losses of $42bn," says Jason Corcoran in Wealth Bulletin. That's bound to have an affect on their appetite for expensive outlays over the coming months. Not good news either for those holding an investment that offers no income if prices aren't going up, wine investors aren't making any returns at all.

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And even when they are going up, the expenses of holding wine are so high that many people still see no real return. If you are storing your own wine you'll need a cellar with carefully monitored humidity and temperature levels for example. Then there are the practicalities of buying and selling. Top-grade investment wines tend to be handed out stingily by vineyards, usually to professional wine brokers, making it hard for ordinary buyers to get a look in. But even if you do get your hands on good stuff you can face further problems when you come to sell: the buyers are the very same brokers. "It is a little like swimming with sharks," says Chris Taylor in the Financial Times. All this means that the best way for small investors to buy in if they must is via a fund. But these come with their own problems, namely illiquidity. "Your cash is locked up in actual bottles, as opposed to equity shares that can be traded in seconds through an online broker," says Taylor. So wine funds tend to only allow redemptions once a quarter not good if the market is falling.

Wine keeping can make a great hobby and it comes with some tax advantages there is no capital gains tax on any profits you might make and any IHT due on it is due on the purchase price, not the current price of the bottles. However, it is hardly worth holding for these advantages alone indeed the fact that Gordon Brown doesn't tax gains on wine suggests that he barely considers it worth the bother, which should, we think, tell you something.

The most expensive wine ever

The most expensive bottle of wine ever sold was a 1787 bottle of Chateau Lafite. The bottle was believed to have been owned by the third president of America Thomas Jefferson. As a result it sold for an astronomical £105,000 when it was put up at auction in 1985. The authenticity of other bottles from the same supplier have since been called into question but the record-breaker itself was never able to have its origins tested. It was taken to New York and displayed under such bright lights that the cork shrank and fell into the bottle, ruining the wine.

The most expensive bottle of wine never sold was a 1787 Chateau Margaux, which was set to be auctioned in 1989. The wine merchant also claimed the bottle had also been owned by Thomas Jefferson. He wanted $500,000 for it. However, unfortunately the bottle was smashed in a collision with a tray at a dinner where it was on display, before it made it to the auction room. Insurers paid out $225,000.