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The Wine Investment Outlook for 2014

POSTED ON 01/03/2014

A recent article appeared in a British national newspaper extolling the virtues of investing in wine. To back up its case, it gave four examples of great investments. There was a case of 1978 Romanée-Conti that sold for £286,000 at Christie’s auction house in 2013, three bottles of 1869 Château Lafite that fetched £146,232 in 2010, and six magnums of 1945 Château Mouton-Rothschild, which sold for £182,700 at Christie’s in 2006. Not forgetting, most laughably, the 1787 Château Lafite that sold for £105,000 in 1985. Why do I say ‘laughably’?

These examples were given to make the reader’s mouth water, to make them believe that they too could achieve spectacular profits by investing in wines such as these. While the results are spectacular however, they are the exceptions that prove the rule. The rule is that if you’re going to invest in wine, caveat emptor, or buyer beware.

To succeed in wine investment, firstly you need to understand the market as intimately as the dealers and traders who spend their time in front of their computer screens every day, and secondly you have to be aware of the pitfalls of investing in wine. As one person on Twitter (our answer to Weibo) put it recently: “Just received a PR email 'Check-list for investing in fine wine'. Here's mine: 1. Don't do it. 2. Don't do it. 3. Don't do it. 4. Don't do it.”

There are some who take the moral angle and say you shouldn’t invest in wine because wine is meant to be drunk rather than invested in. They cite rogue traders and wine investment funds as the worst examples of wine investment. You might equally say that gold is meant to be worn as jewellery or that paintings are made to be looked at rather than invested in. It’s a point of view but fails to appreciate that in the real world, if demand exceeds the supply of a valuable commodity, then it has an investment value.

If you accept that everything has a value and your expertise is in wine and its value, why not take advantage of that expertise and experience and invest? So while I agree that wine is for drinking, I don’t agree that investing in wine is morally wrong. I am not a fan of wine investment funds however and the recent failure of several wine investment businesses has raised the alarm and dented confidence in this arena.

Assuming for one moment that you are going to be investing in wine, what are the advantages and how should you go about it to avoid the pitfalls? The advantages are obvious. If you buy the right wine at a sufficiently good price, often at an early stage of its development, you can reap the rewards later on when supply has become more limited and demand pushes the price up to a level that will give you as good a yield on your investment as property, gold or any other similar investment.

And the pitfalls? There are many because wine is a perishable product, requiring good condition and provenance to maintain its value. Without a cellar of your own, you will incur storage charges and further charges when it comes to disposing of your wines through the usual channels of the auction house or broker. And let’s not forget, the scandal of the convicted fraudster Rudy Kurniawan has tarnished the wine investment scene by raising doubts over the authenticity of many older wines in particular.

How to buy the right wine? Bordeaux has always been the yardstick of wine investment. It fulfils the criterion of having a good number of grand châteaux making wine in sufficient quantity for the creation of a secondary market as stocks become depleted and demand for the particular wine grows. There are some 30-odd château today considered worthy of investing in.

They start with the five first growths, the so-called blue chip investments, of Haut-Brion, Lafite, Latour, Margaux and Mouton-Rothschild, continue with the Left Bank châteaux of Cheval Blanc, Ausone, Pétrus, Le Pin and more recently Angélus and Pavie. Then comes a tier of so-called ‘superseconds’ like La Mission Haut Brion, Léoville Las Cases, Palmer, Ducru Beaucaillou, Cos d’Estournel, Lynch Bages and more recent members of the club that have outperformed the market such as Pontet-Canet and Léoville Poyferré.

The problem with investing in Bordeaux at the moment is twofold. First of all prices set for the top wines of the great 2009 and 2010 vintages were so high that they have to date lost their value. The second is that there have been three average Bordeaux vintages in a row in 2011, 2012 and 2013, none of which have been worth buying en primeur, or, as futures.

Since 2011, wine collectors and investors have been turning to Burgundy with the result that the famous name of the Domaine de la Romanée Conti (DRC) has become the darling of the auction room. This success has raised the profile of a handful of Burgundy growers such as Armand Rousseau, Roumier, Dujac, De Vogüé, Leroy, Lafon, Leflaive and more recently Cathiard and Fourrier. Burgundy however is an intricate and complex region of small growers and to back investment-grade ‘winners’ is far trickier than Bordeaux.

There are even signs of investment life in a few names in Champagne such as Cristal, Salon and Krug, in Rhône with Chave, Guigal and Beaucastel and in Italy with Ornellaia, Sassicaia and Gaja, even if none have the critical mass of Bordeaux. Yet as long as wine is drunk and demand exceeds supply, there will be wine investment. If you want to get involved and avoid having your fingers burnt, know the market like the back of your hand, be fully aware of the potential dangers and above all, remember: caveat emptor.

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