Advice on fine wine investment
Wine investment news
An investor's publication has suggested that now may be a good time to invest as prices for First Growth Bordeaux wines are falling,
A review of 2013's auctions suggests that emerging markets such as Brazil and Mexico are increasingly developing an appetite for fine wine.
Although there has been a dip in values of First Growth wines, some have been bucking this trend.
Far from declining, a recent auction at Sotheby's suggests that Asian interest in fine wine is alive and well
Asian interest in fine wine is not limited to China
- Fine wine viewed as relatively stable commodity
- Wine investment takes research and patience, experts suggest
- Liv-ex suggests wine investors should consider price versus points scored
- What are the influencing factors when buying fine wine?
- Figures suggest mixed fortunes for fine wines in Asian market
- India's interest in fine wine should not be underestimated
- India, Russia and Greece hailed as emerging markets for fine wine investment
- Is white wine going to take over from red on Asian market?
- Can you bank on Asia's investment in fine wine?
- Can Petrus retain its exclusivity and popularity?
- Red Obsession is tale of Asian wealth taking over fine wine
- Is there any point in investing in wines beyond Bordeaux's Premier Cru?
- Asian interests switch from Bordeaux
- How weather and individual tastes can affect the wine market
- Araujo Estate owners pay tribute to Chateau Latour's innovative attitude
There are a lot of sources for information on wine investment. There are also quite a few companies that specialize in it, some wine investment funds and a lot of wine investment brokers. We don’t aspire to be either of them.
Rather, we are traditional fine wine merchants. A place where you can buy investment wine at a great price. Where you can get wine investment advice, without additional services like performance overviews, management reports etc. And also without the fees that go with those services, whether it’s a management fee, performance fee or a entry/exit fee.
Bottom line: you will be able to purchase investment grade wine from Ditton Wine Traders at a price that is very hard to beat. In fact, a vast number of investment brokerages and fine wine traders around the world purchase from us.
A lot of private collectors that are investing in wine highly value our opinion and expertise. These are customers that generally speaking know their wines and the market well enough to form their own opinions. They are confident enough to manage their own portfolio, but do benefit from wine investment advice to determine the right time and the right wines to buy or sell.
It’s for this "do it yourself" category of customers that we thought it would be of interest to read about some of the do’s and don’ts of investing in wine. Rather elementary, not at all scientifically, but information straight from the source.
We also comment on the fine wine market in our wine blog. Here, we share the insights that can only be gained by trading investment grade wines on a daily basis. We produce analyses and market updates, in the hope that our readers and customers can make better informed decisions.
Since we buy and sell every day, we know exactly which wines are moving, which wines have already moved and which wines have just started to (obviously the category you want to be involved in). So, here goes:
The singlemost important feature of Fine Wine Investment has to do with the basic law of supply and demand. On the supply side, Fine Wine is a finite product. There are only so many bottles made in a vintage. Furthermore, the push for ever increasing quality has led to Chateaux producing less and less bottles, relegating more grapes to their second labels. What’s more, these bottles get drunk over time so Fine Wine is not only finite, it’s also diminishing. Presuming demand is stable, the increasing shortage of supply will drive up prices. This is what has been happening for centuries, really.
On the demand side, Fine Wine and particularly investment grade Bordeaux has always seen keen demand. The level of interest does go up and down but generally speaking, demand has increased over time. In the last 3 to 5 years however there have been some major changes in demand.
Firstly Asia, and particularly China are now big buyers of top wine and since this is such a massive continent, there has been a major impact on prices. Interestingly, this demand is primarily for the most expensive wines. The best and most famous wines, in status and also in pricing, now have a firm position in the luxury goods market.
Secondly, a much larger percentage of wine is now being consumed early in its life, as compared to the tradional habit of building up a cellar and only drink your prized possessions on special occassions and when they are fully mature. For some Chateaux, this change had led to a shortage of even young wines.
And thirdly, the Fine Wine market has seen a lot of investment money coming in, driven by returns that recently have easily outperformed almost any other investment class.
To summarize, it’s fair to say that demand handsomely outstrips supply. Supply can only diminish, so as long as there is demand (more on future demand further on), there is a very strong and sound case for investing in Fine Wine. It’s what makes it stand apart from other, more traditional investments.
Because of the above mentioned fundamentals, it is highly likely that the best, investment grade wines will increase in value, given enough time. Pricing of these wines is only very lightly correlated with the health of the economy. There will always be enough people with enough money to be able to and to want to buy these iconic wines. The category "investment grade" consists of Lafite Rothschild, Mouton Rothschild, Margaux, Latour and Haut Brion. You could add Cheval Blanc, Petrus and Ausone to this list, but we prefer not to as they are less core and less tradeable,
The shorter your investment horizon, the more risky the investment. Since you have less time, picking the right wine and choosing the right moment become increasingly important. At the same time though, a shorter investment horizon also opens the door to trading i.e. buying to sell on with a profit in a relative short period.
Whilst we firmly believe investing in wine will be highly profitable in the longer term, predicting what will happen in say the next 1 to 2 years is much more treacherous. The fundamentals will not change – China will keep on buying and most probably at even an increased pace. And these wines will largely vanish from the market place as they wil be drunk. Everything is in place for the bull run to continue. However, 2010 has seen some quite extraordinary price increases:
Maybe it would be healthy if 2011 would see a slightly more modest picture. Maybe not. After all, we all thought that Lafite was out of control a year ago, only for it to accelerate further in price. Our best bet is that demand will stay very strong indeed but there will be other wines coming to the fore. Picking those wines will be key to success and picking those wines is what you need a merchant like Ditton Wine Traders for. A merchant that buys and sells daily, to private individuals and to merchants, for investment and for drinking, in the UK and in Asia – and is very happy to share its wine investment advice.
If you had correctly anticipated the surge in demand for second labels of the First Growths, early in 2010, you would have made an unbelievable return. Since Carruades de Lafite had already shown us what is possible, it was on the cards this would happen.
For example, Le Petit Mouton 2008 back in February 2010 would have cost you 400 pounds for a case of 12 bottles. Now, in December 2010 is sells for 1,400 pounds. That is a 250% return in just 10 months. As early as November 2009, we wrote on our blog that this might well happen.
Petit Mouton was not the only one. Pavillon Rouge 2006 (the second wine of Margaux) for example, in the same timeframe, saw a 370% return on investment. Whilst Petit Mouton was – in our view – an almost sure thing, Pavillon Rouge was more unusual. The reason being that Mouton itself was very popular whereas Margaux was not. Lafite Rothschild led the way for Carruades, Mouton led the way for Le Petit Mouton but Pavillon Rouge somehow took charge by itself.
Does that then mean that Margaux is now decidedly cheap as compared to Pavillon Rouge? And if so, is now a good time to buy into Margaux? At what price level would Margaux be fairly priced in comparison to its peers? Why is Le Petit Mouton more expensive than Pavillon Rouge whereas Mouton is more expensive (in most vintages) than Margaux?
What will be the next thing after the second labels? When should you go out of second labels and into the new stars?
It is by answering these questions correctly that you can do very well in the short term. And it is these questions that we at Ditton Wine Traders ask ourselves every day. Not just so we are able to advise our customers properly, also because it is our business. After all, we are wholesalers/traders, not a wine investment fund.
We believe in transparancy and we strongly prefer long term relations and success over short term profits. That is why we offer one price for all, be it 100 cases for the trade or 1 case for a private customer. That is why we are always very happy to share the knowledge that comes from trading every day. If you like that approach, do get in touch – we would love to help.
Picking the right time to invest will increase your chances of making money. Even when buying wines that, in 20 or 50 years time will be legendary. Buying Lafite 2008 when it was released at 1,500 pounds rather than 1 month later when it was selling at 2,000 pounds makes quite a difference, even if your eventual selling price in let us say 2020 is 30,000 pounds.
Lafite 08 now sells for about 14,000 pounds. Do you sit on it to double in price over the next 10 years? Or do you cash in and turn to the next opportunity? History tells us wine prices move in waves. They go up quickly for a while , then plateau and – usually when they reach their drinking window and hence supply decreases, go up in value once more. But then again, that was before customers started to drink top Bordeaux when they are only 3 years old..
When you buy with a view of turning over your investment more quickly, buying and selling at the right time becomes even more important. Each year, there are windows of opportunity that are predictable. For example, merchants always need cash after a Primeur campaign, just before they have to pay their bills. Come March/April, merchants very likely will want to free up cash for the next Primeur campaign.
Demand in HK and China peaks in the month before festive events, most prominently the Chinese New Year. This is where you want to sell and definitely not buy if you can help it.
Another moment in the year that presents opportunities is the time when the latest vintage becomes physically available, after having spend roughly 2 years in the barrel. This is when buyers that do not buy en primeur become interested, the resulting increased demand likely to drive up prices. It is also the time when the trade might decide to release some of their stock, so it is not a given that prices will go up.
We know these moments. Ditton Wine Traders can help you choose the right time to buy and sell. Being traders, that is what we do. True, each time you buy you willl have to pay your supplier a margin and each time you sell you will relinquish part of your profit. Which is all the more reason to work with Ditton Wine Traders as we work on low margins.
In order to get the best price for your wine, it needs to be in impeccable condition. The cases need to be original wood (OWC), with a lid. If the bottles came in paper wrappers, it is best to still have them like that. Labels need to be pristine – uncoulered, unstained and without tears or marks. Levels need to be as they should given the age of the wine. Capsules need to be intact and without signs of movement of the cork or worse, seepage.
Your wines are most likely to be in this condition if they have been professionally handled and stored. Without interruption. Sadly, the Fine Wine industry still lacks a system that would allow to track a case of wine over its lifetime, thereby potentially ensuring perfect provenance. In lue of that, and although not fool proof, making sure that you know the condition of the wine when you buy and making sure you store it professionally over the time you own it is the next best. This basically rules out storing it in your own private cellar, no matter how good that cellar is.
In the UK, there a good number of highly regarded professional, bonded warehouses. Apart from having the right conditions, the bonded status also means that excise duty only needs to be paid once the wine leaves the warehouse. This, together with the knowledge that the wine has been stored correctly, will make it more tradeable and therefore command a higher price. Fortunately, professional warehouses become more widespread in other countries as well, sometimes even bonded. There are also numerous options to transport your wines in the right conditions although we would recommend letting your merchant take care of that.
It is quite straightforward to open up your own account in a bonded warehouse. See here for some that we work with and can recommend. Rates do vary so shop around. Alternatively, we are happy to assist you with your own personal account at London City Bond. We can offer trade rates which are basically half of what you would pay for a private account. Please get in touch if you would like to know more.
Don't be a victim
The WSTA has published a "wine investment guide". It is "published and maintained by the Wine and Spirit Trade Association. Its contents were drafted in consultation with a number of reputable UK wine merchants, retailers, brokers and law enforcement agencies. It is aimed at consumers who are considering investing in fine wines. It provides tips on how to protect yourself against becoming the victim of fraud".
"Fine wines can make a good, relatively low risk long-term investment. However as with all types of business, there are rogue wine traders who are intent on conning people out of their money. Whether you are a wine enthusiast starting your own fine wine collection or someone looking to build up an investment portfolio, this guide provides some tips on how to protect yourself from becoming a victim of wine fraud".
We urge you to read this, to ensure sure you make the right decisions.