Wine: a desirable liquid asset

Wine cannot only be passion but also an investment opportunity
Chateau margaux

The property and stock markets have been highly volatile in the past few years, but the value of fine wine has been much less susceptible to changes in the economy. Fine wine amazingly generated annualized returns of around 15 percent a year — and much more for some certain wines and vintages. 

To a great extent it is simply related to the elementary rule of supply and demand. Wine is only available in limited quantity each year. The world only has so much 2010 Chateau Margaux and even if in great demand, the chateau cannot go back and produce more bottles of this highly desirable vintage. As such, wine is in more limited supply compared to gold or other natural resources which can all regenerate with new finds or crop seasons. Wine has not this chance.


 Fine wines have significantly outperformed the stock market over the past years

Chart investment

 

Supply is also stressed by the ongoing consumption that regularly reduces the supply of fine wines. This has been recently intensified by the rising wealth and consumption in the emerging world – particularly China, Brazil, Russia and India – where more and more buyers are chasing an exceedingly limited amount of wine and driving the price up.

The majority of the global wine trading occurs in London, where an index - the Livex 100 Fine Wine - tracks prices of the top wines, which are mostly French (Bordeaux). The index has significantly outperformed the stock market has illustrated below. Even if there were some market corrections in 2008 and in 2011 – with the burst of a bubble caused by wine prices being inflated by Chinese speculation- those corrections were followed by a sharp recovery.


 

If you decide to become a self-styled wine investor, this is what you need to know: 

Investment grade wine

Less is more when you are buying to invest and you should focus on the most famous châteaux. And that universe mainly spins around the very top end of the Bordeaux market. Atop the list are the five Premier Cru (first growth wines): Lafite Rothschild, Margaux, Latour, Haut-Brion and Mouton Rothschild and Chateau d’Yquem, the first growth Sauterne. You can also add to the list the other most-sought-after collectible Bordeaux which are not on the official first-growth list, which dates back to 1855. That includes names like Petrus, Ausone and Cheval Blanc.
Other wines can represent some good investment opportunity like many of the Bordeaux second- through fifth-growth wines such as Lynch-Bages, Palmer or Pontet Canet. Some Burgundies are also investment-worthy notably prized names such as Domaine Romanée-Conti, italian tuscans (Masseto, Gaja, Solaia) or spanish reds (Alvaro Palacios L’Ermita, Dominio de Pingus).

Great vintages can be kept longer and should perform better on the secondary market.

The wine selection will drive your return so it is highly recommended to seek the advice from wine professionals who can tell you which wine and which vintage the market will always look for.

Buying and storing wine

Where you buy is as important as what you buy. You should always deal with an established, reputable merchant so that you can be ensured about the authenticity of the wine and that you were the only owner. With rocket market prices more and more wine bottle of the most exclusive labels are counterfeit. In China there are already five fake Chateau Lafite circulating for every genuine bottle. Never buy when you are not completely sure of the provenance. You should also keep all records of your wine purchases and keep all this documentation until you sell your wine.

To age properly wine must be stored under certain conditions of temperature (12-13 degree centigrade), humidity (70 to 80%) and of course with no light or vibration. Wine is a very sensitive live product, too much heat will spoil it quickly and cork will inevitably shrink in a dry environment resulting in the wine to evaporate.

In most cases, it does not make sense for investors to undertake the construction of a private wine cellar and store your wine at professional facilities. You should check that storage costs also include insurance cost.

Storage conditions are important as you can generally expect to keep your wines for a minimum of 5 to 10 years before considering selling.

 

Selling wine

Liquidity can be an issue when investing in wine. However, there are still several ways to sell your wines:

-Wine merchant and trader: you should ask the person who sold you the wines in the first place and check if they would be ready to buy it back at market conditions. They may also direct you to other persons or companies that would be looking for such wines.

-Auctions: a number of companies organize regular wine auctions. Auctions are more and more conducted on-line and in real time internet simulcast so you can propose your wine to a large number of potential buyers.

-Private sale: you can also try to sell your wine yourself by offering your wine on different on-line platform or in specialized wine magazines.

You should note that unless you achieve to sell the wine yourself, you will have to pay a seller’s commission that normally range between 10 and 20% of the transaction.

Wine prices can go up as well as down so it is better to invest wisely. One advantage with wine is that you can always decide to drink those wines that have not performed well on the market.

Wine performance