If, while doing your daily browsing rounds, you come across the Live-ex website, you might be forgiven for thinking that it’s just another trading site. All the clues are there: charts, graphs, prices, soaring green lines and plummeting red ones.
However, the Live-ex marketplace only measures one commodity, and it’s a tasty one at that: wine.
When you uncork a bottle of wine, you’re probably thinking about colour, clarity, aroma, taste, finish and maybe what food you can pair it with. Investors think about that as well, but they will also consider whether it’s a wise investment or not. History is on their side because wine has become an increasingly popular investment.
Insiders will tell you that compared to volatile stock markets, wine is an attractive and tangible asset. In fact, prices of fine wines rocketed, especially from 2009 to 2011. They then hit a brief slump but started rising steadily, maintaining a good momentum.
What makes wine such an attractive commodity is that it is in finite supply. Which means that if you are the lucky owner of a Chateau Mouton Rothschild 2005, its value will only go up given that the number of bottles can only diminish. Once a bottle is opened, there is one less of it, so the remaining ones acquire more value.
So how do you go about investing in wine? Well, owning a couple of good bottles doesn’t make you an investor. To build a market-worthy and diversified portfolio, you need to spend thousands on well-chosen cases of wine.
Knowledge of wine is also very important. Of course, you don’t need to be a world expert, however, you need to be conversant in the top investment-quality wines, especially those from the regions of Bordeaux, Champagne, Tuscany, Burgundy and the Rhone.
If you’re planning to make a significant investment, rope in a specialised wine merchant to help you build your portfolio and to advise you on provenance and on when to buy and sell. A wine merchant will also help you in deciding when, for instance, you should buy en primeur, which is the practice of buying wine before it is bottled and shipped.
You also need to have other assets. Putting all your money into wine investment would be very risky and should be part of a strategy that includes other assets.
Also, investing in wine is not enough and there are other associated costs. Since wine is a very volatile and delicate asset, you need to have the right storage for it. Other expenses include insurance, broker fees and subscription to trading exchanges such as Liv-ex.
A good review from a world-class critic such as leading US wine critic Robert Parker Jr can send prices soaring
As with any other investment, there is an element of risk and the market may suffer a slump. From 2003 to 2011, prices for the world’s most desired wines rose by an estimated 250 per cent, bolstered by new demand from the Chinese market. However, when the Chinese Bordeaux market tumbled, everyone suffered.
Moreover, wine prices are affected by unpredictable factors such as negative reviews from respected wine critics. On the other hand, a good review from a worldclass critic such as leading US wine critic Robert Parker Jr can send prices soaring. However, don’t expect immediate price growth. An investment in wine should be seen as a long-term one and experts advise that the minimum term should be five to 10 years.
Fraud is also a possibility. In 2012, in what decanter.com called “the scandal of the century”, 35-year-old Indonesian-born collector Rudy Kurniawan was arrested for allegedly flooding the market with counterfeit Bordeaux and Burgundy wines in the early 2000s. Kurniawan sold huge volumes of fine wines – in two auctions alone in 2006, he sold €25m worth of wine.
Yes, there are risks in investing in wine, and the learning curve for new investors is steep. However, it’s an interesting opportunity to explore a different market. And anyway, if you want to give up on your investment, you can always drink it.