Wine Investment: Getting Started
For those of us who have a nest egg, trying to find a worthwhile investment to nurture it in these volatile times may seem a real headache. Ideally, you would be looking for an investment that is relatively risk-free, will bring (at the very least) a reasonable return, and one does not require months or years of studying or hands-on experience to get to grips with. Investing in fine wines can fit the bill admirably, and has a gilt edge: At the end of the day, you can always enjoy a small part of your investment over a meal with friends. That’s something you can’t do with stocks and shares or government bonds!
Fermented grape juice may, initially at least, seem a strange thing to sink your money in. But as an investment area, it has stood up well to the recent global ravages and crises in the financial sectors, and it’s something that more and more people are realising makes sound economic sense, while allowing you now and then to have a quality tipple at your fingertips.
At the heart of wine investment is the classic law of supply and demand that you learnt a long time ago at school or college. If there is a demand for the wine, and the supply of the wine is finite, then as the supply reduces, demand will increase and the price will go up. Applying this to wine: Is the wine that you are thinking about investing in, one that will be popular in a few years’ time? Will it keep until then? Will it taste even better in a few years? How do I store it? When is the right time to sell?
When a highly prized and highly desirable vintage wine reaches maturity, people start consuming it. As soon as a cork is popped on one of these bottles, the value of all unopened bottles immediately increases, since there are fewer to go around. But how does one decide which wines are worth investing in? One way is by looking at the wine’s rating. Professional wine tasters/critics provide a score based on a wine’s characteristics, including the bouquet (the smell or “nose”), its visible appearance, and of course its taste.
It’s not possible to talk about scoring wines without mentioning the infamous (well, in wine circles) critic, Robert Parker. His wine scoring system has a profound influence on a wine’s value. He’s been known to raise a bottle’s price by thousands of dollars all with the score he granted it. While there are other ways of choosing a good wine to invest in, Parker’s score cannot be ignored. There’s an often quoted example. A bottle of 2003 Scarecrow (a California wine) earned a score of 98 out of 100 from Parker. This score alone sent the bottle’s value from $100 per bottle to $1000 per bottle. That sort of return is the exception rather than the rule, but an eagle-eyed investor can make good relatively low-price purchases on a wine that will later come to maturity and be in high demand.
To start investing in wine is rather simple. The first thing to get out of the way is storage. I’d be very surprised if you had a cellar that can be easily converted to hold your investment bottles of wine. The good news is that you don’t have to store them yourself. Retailers or other sources will hold your wine while it matures or until you wish to sell it. The cost of this is not exorbitant, and sometimes is included in the cost of their services, if they are going to help you choose and buy your wines. To start off, contact and develop a relationship with a retailer who imports wine from a desired winery. This way, when you wish to resell that particular wine, there’s no question of its provenance. Make sure it is a wine importer that has been in business for a number of years.
Another way of finding investment-worthy wines would be the Internet. Many websites sell cases and bottles of quality wines for collectors. Just like other sites on the internet, you need to be cautious with this strategy, because there have been times when websites try to sell fakes or poorly stored/spoiled wine to well-meaning collectors.
A third way is by using auction houses such as Christie’s and Sotheby’s. Everything they auction will be 100% kosher, but there will be a premium for buying through them.
Futures are another popular way to invest in wine. In wine parlance, futures is basically wine that has not yet been bottled or presented to the public. It’s a sure way of buying wine at its cheapest price – but you need patience. It may take two years to even get your hands on the purchased wine.
However, if you’re buying futures from a vineyard with a reputable product, then you should be in a good position 5 to 10 years later when the wine has matured and restaurants and consumers are looking to buy it. When you have your hands on a valuable and highly sought-after bottle, you are selling it at a price that is comfortable to you. If the price is not right, than you have the right to hold onto the bottle until you find a buyer willing to pay a price that you agree with. So you are in control. Ultimately, if you don’t think the price is right, you can always drink the wine, and pat yourself on the back on the quality as you sip from your wine glass.
In conclusion, this is not an investment to stumble into blindly, but if you take time to look around the internet, read up some articles, and make contact with a wine retailer/importer, then you’ll have taken the first steps to what many have found to be an interesting and profitable home for your investment money.
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