You’ve heard me talk about people who “invest” in wine, only to indulge in the new taste of that wine after patiently sitting in a wine cellar for a few years. There’s no real trading happening, therefore the term “wine investment” is only used as a figure of speech… until now. Today, it is being used literally in many parts of the world.
In the past 5 years, the value of Bordeaux wines grew by 100%. During that same time frame, the Dow Jones lost 50% of its value, only to get back even.
Wine investment is quite unorthodox, but it does attract more and more investors. It carries an unusual advantage that stocks and life insurance do not have: if the wine market crashes, we can still comfort ourselves by consuming the investment – with moderation of course : ) But if the reports are correct, this dire scenario will not happen any time soon. This phenomenal and appealing growth appears to be constant, so what are we waiting for?
Nicolas Capeyron, a French wine merchant from the Bordeaux region, gets his wine from various winemakers. Last year, Nicolas purchased 200 cases of Château Lagrange. With close to 300 acres of vineyards, Lagrange is one of the largest wine domains of Médoc. After a long period of mediocrity, Château Lagrange was purchased by Japanese liquor giant Suntory in 1983. Large budgets from Suntory allowed Marcel Ducasse (CEO and Winemaker of Château Lagrange) to invest in the remake of the vineyards and cellars, and led to a successful revival of the domain. The wine produced from this domain supply emerging markets such as China and Brazil, always ready to pay the big bucks to “quench their thirst”.
Nicolas has always purchased grands crus and fine wine for retail purposes. Today, he also does it for investors, and to give his clients the opportunity to speculate. They are people who invest in wine via the internet, just as they would invest in stocks and funds. According to Nicolas, “This process allows people to start an investment with a budget of 500 Euros ($650) per case. This is evidently speculative, but it gives them the opportunity to start investing with small to moderate funds.”
Wine was once a commodity reserved for the connoisseur. Today, this very unusual investment is seducing people of all kind. Those people have purchased wine without ever seeing the bottle. The traditional portfolio is getting replaced by a virtual cellar, waiting to be filled with fine wines like Château Angelus, Château Montrose, or even Château Beychevelle. The wine is stored in secure air conditioned cellars, where it will have to wait a minimum of 3 years before being sold again.
Investing in fine wine is becoming extremely popular in many parts of the world. Companies offering this type of service have multiplied in the past few years. In no specific order, here are some well-established organizations:
• Cave d’Épargne (www.cavedepargne.com)
• La Bergère Investment (labergereinvestment.com)
• Patriwine (www.patriwine.fr)
• Cavissima (www.cavissima.com)
• Patrimoine Grands Crus (www.patrimoinegrandscrus.com)
Investment modalities remain identical throughout the various companies. The broker takes care of everything for you, for a price that averages 5% of the ROI, plus an additional annual fee of 3%. Franck Nogues – CEO and Founder of Patriwine – shares his main goal by saying “We must rotate cellars efficiently as wine gains value rather quickly. We buy the wine only to sell it later, and eagerly invest in new growths.”
This gentle stampede pertains almost exclusively to the best wines. And those who invest in lesser wines, like second and third growth Bordeaux, are assuming a much greater risk, according to Jamie Ritchie, head of the Sotheby’s North American wine department. “We’ve seen investors who wanted to make money, and they’ve done very poorly. They bought less good wines in the hope that they would appreciate greatly, and they haven’t. The safest area of the market is in the first-growth and top producers.”
In light of that, the simple and more traditional way to “invest” in wine – and eventually drink it – continues to be a profitable approach, not to mention extremely rewarding. Buy what you like and store it in your own wine cellar. Consider the example of John Costello, an old-guard collector and former chief global marketing officer for Yahoo!. He bought a 1982 Château Margaux, one of the great Bordeaux from one of the most famous recent vintages, for less than $300 a bottle 12 years ago; it is now worth around five times that amount. “I saw collecting as a great way to ensure the availability of my favorite wines.” he says. “And I find the price appreciation on a first-growth Bordeaux to be a very nice side benefit.”
Here are a few important points to remember before you start investing in fine wines on your own:
• investment-grade wines are limited
• very few wines will tolerate keeping (even less actually improve)
• only an even tinier minority of wines accrue any value as they age
• bottles need provenance to interest auction houses and buyers
If you are interested in selling investment-grade wines, you should contact a local wine broker or a wine auctioneers who handle wine. Remember, auction houses generally charge a seller’s commission of anything up to 18% of the value of the hammer price, and wine brokers operate on similar or higher margins. Use our useful wine value estimator (top of this page) to find out how much your wine is worth.
If the wine appreciates in value, you make money. And if the price falls, well, you can always open up the bottle and drink it. It really is a win-win situation. Well advised investors have observed a 20% gain in average. But be warned, speculating on the value of fine wine can be inebriating. So let’s not get carried away, invest wisely and with moderation in order to avoid a financial hangover : )