DIY Guide to Fine Wine Investment

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Following my blog on “˜China: Time to be taken seriously’ , I have had several comments asking me to outline the mechanics of investing in wine. This blog will outline a guide on how to invest instead of dispensing advice on which wines to buy…

I am probably not the first to have started off a wine cellar with a case or two of First Growths that after 5/6 years I used to raise capital to buy the next “˜vintage of the century’ or for the drinking part of my cellar or to buy two cases of a particular wine – one to keep, the other to flog later on.

After a while I was making a tidy sum by just owning First Growths for investment and drinking the lesser growths for pleasure. Especially as First Growths always seemed to outperform second growths except for the “˜wine of the vintage’ which by pure chance I would end up owning, or in most cases, not… This was even more satisfying as up to now, Her Majesty’s Revenue and Customs has not blinked an eyelid yet, although it is possible that this may change soon in light of the Government’s deficit reduction plans and following HMRC’s tightening down on IHT on wine: click here for more information.

So what are the tools required for a successful wine investment strategy?

1. Time Scale: wine investment is like private equity investment – time is required for these to mature, 5/10 years is the usually investment horizon. Wine prices jump usually at bottling, when Robert Parker or any other wine critic re-rates or when the stock of a popular wine starts to be consumed.

2. Quality: After defining the amount you are ready to allocate to your portfolio, focus on liquid (no pun intended), investment grade wine to start off with – mostly Bordeaux. These wines are produced in finite quantity and are easier to sell in case you want to monetize your investment. I would even go as far as focusing mostly on First Growths or Super Seconds that have proven investment track records and have not yet reached their peak yet. Once you get your hang of it you could specialise in to personal preferences.

3. Size: Don’t go for any bottle sizes beyond magnums, anything larger will prove difficult to sell in future, except for auctions few brokers are happy to trade odd shapes and sizes. Also ensure your wine is in original wooden cases (OWC).

4. Provenance: very important – Chinese investors paid four times over the market price for Lafite kept in the Chateaux’s cellars. Therefore buy your wine In Bond from a merchant with a long standing reputation. Goedhuis & Co have developed their relationships with the chateaux, domaines and négociants for over 30 years and could therefore be able to source the wines for your portfolio. If you buy off the secondary market or in auctions, steer clear from Duty Paid wine – as there is no guarantee how the wine has been kept nor how the wine has been transported.

5. Storage: as important as provenance. Given that your portfolio will be kept In Bond at a bonded warehouse, you will have to store these in optimum conditions for over 5 years. Nowhere else in the UK is wine better kept then at Private Reserves, PR’s service is unequalled and its quarterly valuation services are always handy – for more details click here. In Hong Kong you can use the services of Crown Wine Cellars and Grand Cru Storage in France. Usually the “˜carry’ cost is worked in to the price of wine going forward, making the cost of owning a case “˜free’.

6. Trading: Apart from keeping an eye on Jancis Robinson, Robert Parker and Wine Spectator’s websites for up/downgrades, www.liv-ex.com – a trading platform set up to encourage inter wine merchant trading, is good for valuations. Many merchants have their own brokerage arm, at Goedhuis, Mark Robertson has built a strong broking reputation over the years and is always ready to give advice.

Also do not forget to develop a good relationship with your salesperson – you never know when that comes in handy during allocation negotiations for sought after en Primeur wines or ultra rare wine placements…

For those lacking the time to do it themselves or prefer the help from a specialist, Goedhuis & Co offer a Wine Cellar Plan service – run by David Roberts MW, his plans have consistently beaten the stock market indices over the past 5 years (for more details click here to contact David).

Finally I would recommend you to speak to an Independent Financial Advisor or Financial Institution as there are some aspects that need to be taken in to account with e.g. Capital Gains Tax, Inheritance tax, SIPPs and good old investment advice.

Karel Röell