Investment Grade Grapes
In today’s market, despite these times of crisis, there is a lot of money looking for a safe home. Given low global interest rates, depressed stock markets, and collapsing property values, fine wine is undoubtedly an interesting investment, and as the top “New World” (Chile, Argentina, Australia, South Africa, New Zealand) wines continue to improve and compete with the previously dominant Bordeaux and Burgundy wines, there are an ever-increasing range of options. As with any investment, one needs to be aware of the risks and possible traps and take qualified counsel. So here are some basic guidelines to wine investing, some rules that anyone thinking of investing in fine wine should pay close attention to:
· Don’t invest more than you can afford to lose – prices do go down as well as up, so wine should represent only a small part of a balanced investment portfolio. “Irrational Exuberance” is not confined to stock, currency, bond, and property markets. For instance, following the exceptional Bordeaux vintage of 2005, there followed an ordinary 2006, and a downright mediocre 2007. However, carried away with the ´05´s success and rocketing yields, plenty of amateur investors got their fingers burnt paying over-the-odds for both the ´05´s and the mediocre later vintages.
· Shop around for the best prices. Sounds obvious, but plenty of investors fail to heed this advice and lose out as a result.
· If you are buying through a specialist investment company, take a good look at their historical returns, and be clear about commissions (fixed or percentage) charged. Also be aware that the best prices are generally offered “en primeur”, basically the wine is sold in advance about 2 years before being bottled – however, a wine that scores top points en primeur, may flatter only to deceive as it later evolves in barrel and bottle, so there is a certain risk attached.
· Store your wines in the appropriate conditions, and know the wine’s “service history” before purchasing. Even the top Bordeaux from the best vintages (such as 1982) will turn to vinegar if inappropriately stored.
· If you’re buying exclusively for a capital return, it’s recommendable to have a significant part of one’s wine portfolio in Bordeaux from the top years. Buy wine from the best years/vintages – this is of especial importance with Bordeaux and Burgundy, which varies massively in quality from year to year – mainly due to the vagaries of climate in the top “Old World” winemaking regions. In the New World (Australia, Chile, Argentina etc) there is generally less qualitative difference between vintages, although this is not to say that all are the same and the wines will evolve equally year-to-year – there is still a risk of pre-harvest rain and, principally, hail, that can wipe out an entire producer’s vintage as well as human factors.
· Wine doesn’t generally attract capital gains tax as it is considered a perishable good – though it is worth checking with your relevant local authorities.
Serious investors might be interested in subscribing to www.liv-ex.com, the London International Vintners Exchange, which tracks the value of the top internationally traded wines, and through which a large amount vintage wine is traded. A disproportionate amount is vintage Bordeaux – of the top 10 traded wines on Liv-ex in 2008, nine were Bordeaux (of which the top 5 were the ever present Bordeaux West Bank 1st Growths, Latour, Lafite-Rothschild, Latour, Margaux, and Haut-Brion, followed by Petrus, Cheval Blanc, La Mision Haut-Brion, and Carruades de Lafite. In tenth place came the sole Burgundy, the super-exclusive and massively limited production Domaine de la Romanee Conti.
The most widely traded new world wines include the Penfold’s Grange, from Australia and the Opus 1 inspired by the late Robert Mondavi in Napa, California. Amongst the Latin American wineries, pride of place goes to Catena, Achával Ferrer, and Viña Cobos from Argentina (with a nod to Weinert for their excellent although not widely traded 1977 Malbec), and Lapostolle and Almaviva from CONCHAyTORO in Chile. My personal favourites are the Vina Cobos wines made by Paul Hobbs (of Hobbs winery fame in California) which will evolve brilliantly and at some stage may achieve 100 point-scores, with corresponding increase in resale value, likewise the top single-vineyard Achávals and Catenas, which are already competing with top-end Bordeaux in terms of quality, though this is yet to reflect itself as demand in the international wine market.
Historic investment returns from Argentine and Chilean vintages are almost impossible to present, as Latin American wineries have only in the past 15 years started to seriously compete with their European competitors, following wave upon wave of investment (in technology and foreign and local expertise) from the mid 1990’s to date. In the case of Bordeaux there are records going back centuries, with consistent proof of the special ageing properties and development of these wines – which to a large degree explains the active market for these wines that has developed over time. Based on a combination of vertical tastings going back decades, one can accurately chart the likely future evolution of the top Bordeaux and Burgundies.
With these new wines coming from the New World their future evolution, although likely to be similar, is also partly a matter of “wait and see”, and reflected as such in the illiquidity of these wines in the resale market relative to Bordeaux. On the other hand, opportunities galore exist to pick up some of the world’s top wines at knock-down prices – though to invest more than one is willing to lose doesn’t make sense, this is likely to represent a paradigm-shift in the wine world of the future, as well as a great buying (and drinking) opportunity for true wine lovers.
About the Author
Nigel Tollerman is a professional sommelier and wine consultant based in Buenos Aires, Argentina. As well as running his website, he works on tasting panels for local publications and actively consults to a number of wineries and foreign investors.
www.alternativelatininvestor.com
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