June 30th, 2014
Many people find the idea of investing in fine wine appealing. For some, it’s a unique way to diversify their investment portfolio. Other people are wine connoisseurs, and like the thought of investing in something they enjoy and find interesting. If you’re considering entering the world of fine wine investment, here are some tips for beginners.
When you are getting started, do your research and locate two or three reputable, established wine suppliers that you trust. Make certain that they have a good trading history, and check references if you can. Once you find them, build your relationship with these people over time. You may be a relatively small buyer for them, but once you have been dealing with them for a while, you will have a stronger position. This is advantageous for you, compared to spreading your activity across a larger number of suppliers.
Buy blue chip
Your best chances of success come with buying the established “blue chip” investment grade wines. These are the top wines from Bordeaux, and you will find that they cost quite a bit to purchase. Costs notwithstanding, these are the wines most likely to appreciate in value, so be prepared to pay. Many of the wines that tripled or quadrupled in value during the past decade were relatively expensive blue chip wines.
Not all types of wine from the Bordeaux category are “blue chip” wines. Some of the best wine comes from first growths – Latour, Lafite Rothschild, Mounton Rothschild, Haut Brion, Margaux – and non-classified Grand Crus, namely – Cheval Blanc, Petrus, Ausone, Le Pin.
Diversify a little
The top Bordeaux chateaux are regarded as producing the best fine wines for investment, and that makes a good core for your wine portfolio. As with other investments, diversification can be a good idea, but don’t take this too far with wine. If you search for some of the top wines from California, Tuscany, Rhone, or Burgundy, you could find some gems to add to your collection.
Selling vs. buying price
There is always a gap between what you pay to buy a wine and what you could sell it for. That’s just the way the market works. If you buy a certain wine at $1,000, you could probably sell it again right away for $800 or $850. This means that you have a period where the wine has to catch up with the price you paid, before you can recognize any profit. For investing in wine, you need to have a long term view.
Manage your storage
To maximize the value of your wine, it needs to be stored in a bonded warehouse which provides perfect storage conditions for your wine. Once again, do your research when selecting a provider, and verify that the bond company you’re using is financially sound. It’s best to use a single provider for storing your wine, and deal with them directly rather than going through a third party. This makes it easiest for you to move products when you want to, rather than relying on someone else.
Consider en primeur
En primeur has fallen a bit from favor since its high flying days, but it is still a strong possibility for wine investors. The prices you pay may be high, and there is some uncertainty with buying futures like this, but the potential for investment returns is there. En primeur wine is a good option when it lets you buy wines you can’t purchase any other way, or when you can get into it for a reduced rate.
If you’re looking to invest in fine wine but you’re a beginner, you should turn your attention to “liquid wines”, such as wine with enough volume of supply and liquidity. If the wine portfolio has wines with decreased financial liquidity the risk of ending with plonk increases. Last but not least, the company you’re choosing to invest in must have a genuine office, and not a virtual one. Their services should be available face-to-face, and they should be willing to help in case you have problems understanding various aspects of the market. If things go south – because wine investments come with certain unexpected risks – you can always drink the wine and try again.