Investing In Wine: How To Invest In Wine For Profit
By Chris Schaefer, Money Morning
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At a time when the only thing consistent in the stock market is volatility, investing in wine offers you steady profit growth – with a more fun, tasty experience than your typical investment opportunity.
You can’t buy a share of Google and have close friends over to drink some of it. You can, however, have good company over to taste your 1989 Bordeaux. David Sokolin, a highly respected wine merchant with years of experience, states that IGW should return between 10 and 12 percent annually. He also says that they will do this with lower volatility compared to stocks and bonds. For example, from 2002-2007, Coca-Cola’s stock went up 9.72%. If you were to buy a case of 2005 La Mission Haut Brion back in 2008 for $7,800, you might expect it to be valued at $30,000 in the year 2018, a 284.6% gain!
That’s pretty impressive for a bunch of fermented grape juice.
So now that I have your attention, let us begin to discover the many ways on how to invest in wine.
Pay Attention To Where The Wine Comes From
Much of what goes into the cost of a bottle has to do with where the wine is grown and produced, says Melissa Smith, founder of Enotrias Elite Sommelier Service in Oakland, California.
Have you seen the cost of an acre of land in Napa Valley? she says. Between that, French oak barrels starting at $800 a piece and a celebrity winemaker, you can see why a bottle of cabernet might cost $100 per bottle.
To find quality wines at a lower price, Smith seeks out regions that dont have a culture of using fertilizers or pesticides in their vineyards, such as Europe , North Africa and the Middle East .
She also looks for wine from countries where wine is part of their daily meals and where even older children and teenagers are offered a small glass. Such is the case in Greece, Spain, Italy and France. A lot of wine in those countries is made in co-ops, where the grapes have passed certain standards and vineyard practices, and in large quantities, keeping the prices low. In other words, classic table wines.
Another thing to be aware of is that wine production is generally labor intensive but even more so in some parts of the world. For example, machinery cant be used in vineyards with steep hills or narrow terraces, so those grapes need to be harvested by hand. Youll know if this was the case if the label says hand picked grapes or hand harvested.
Enjoying Wine Beyond The Monetary Gain
You should be aware of the risk for fraud when investing in fine wines. Given sparse regulation, most of the responsibility for;quality control rests with the asset owner.;Wine investors canât be too careful when verifying the pedigree;of new purchases and safeguarding;existing collections using proper;storage techniques.15
Lastly, as a potential investor, it is important to remember that the value of a bottle of wine is ultimately derived from someoneâs desire to drink it. As Korn advises all his clients, âIf you like Pinot Noir, donât invest solely in Cabernet because itâs popular. If the market shifts and you are stuck with a cellar full of wine you had planned to sell, you should ideally be able to enjoy drinking some of it.â And as most wine collectors would probably admit, there is more to investing in wine than pure monetary gain. After all, you canât eat a bar of gold or a Picasso, but you can always drink a glass of Merlot.
1 Zimberoff, Larissa. âInvesting in Fine Wine Is More Lucrative Than Ever.â Bloomberg.com, Bloomberg, 19 July 2018.
2 âStrengthen Financial Planning with Fine Wine.â The Financial Times, 12 May 2017.
3 Interview with Brian Ward, Director of Wine at Winston Art Group. 27 Sept. 2018.
4 âComplete Guide to First Growth Bordeaux Wine, Vineyards and Chateaux.â The Wine Cellar Insider, 2018.
5 Interview with Clifford Korn, Managing Director of Sales, Acker Merrall & Condit. 27 Sept. 2018.
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How Wine Is Priced
Its common that buyers equate quality with cost. Surely, a $35 cabernet is better than one that comes in under $15, right? Not necessarily. Wine is priced using several variables.
Pricing reflects the cost of materials and labor, and also volume. A large vintner like Kendall Jackson produces millions of cases of chardonnay annually. Patz & Hall, another Sonoma County, California, winemaker, produces considerably less.
Depending on the year and style, a Kendall Jackson chardonnay can be had for less than $15, sometimes as low as $8 on sale and at big-box retailers. Plan to spend about $45 for a bottle Patz & Hall chardonnay. The boutique winery releases about 15,000 cases of chardonnay a year. Size does matter when it comes to pricing.
Is the 2017 Patz & Hall chardonnay better than the same vintage of Kendall Jackson? Maybe, maybe not. Sometimes the pricing can be chalked up to perceived value. But the only perception we are concerned with here is how to get the best cheap wine.
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How To Invest In Wine Futures
Heres what to expect when you invest in wine futures:
Your first step is to find a trustworthy retailer or negociant. Always pick a retailer who has a fair refund policy for futures orders. No matter how dedicated your retailer is to getting you the finest bottles, futures sales can still fail. The winery might decide to sell fewer bottles than they expected, or the wine could spoil before reaching the bottle. When this happens, make sure that your retailer looks for replacement bottles, or gives you a full refund on your order.
You should also only buy from retailers who have direct contact with the winery or distributor. They can negotiate the best price, and you can verify that they actually placed a futures order with the winery. Never take your retailers word for it; ask for proof of the sale.
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Futures & Wine Investment
Buying wine en primeur or as wine futures can be a prudent investment practice – the initial release prices are usually the lowest at which the wines will ever be sold . The Bordeaux 2000 vintage was highly profitable for futures and en primeur investors; the wines were in great demand, but were initially priced too low. Even those who bought at the second or third tranche prices saw the value of their wines rise quickly.
Table 1: Bordeaux vintage 2000 price data
As with all investments, however, nothing is certain. The 1997 Bordeaux futures prices, for example, were pitched too high initially, and actually declined slightly over the following few years.
How To Invest In Wine Futures Online
Are you considering investing in wine futures? Lets be real: wine and investing are two things that can be very confusing.; Putting the two together could be even more confusing, right? Wellyes and no.
There are a lot of uncertainties in the world of wine investmentnot least of which is vintage variation.; For this reason, buying what are called wine futures, or en primeur can be a daunting experience. Just like buying rare wines, you need to do your homework before diving in.
If you are wondering what wine futures are or considering getting into investing in wine, the following will be a good introduction to the world of en primeur or wine futures:
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Investing In Wine Can Seem Intimidating For Newcomers Learn What Constitutes A Fine Wine And How The Market Operates
Wineâs historical and cultural mystique can make it an intimidating investment prospect compared to, say, gold or real estate. Some of this mystique is well-founded: the learning curve for wine investors can be steep, involving seemingly obscure details such as the value of specific vineyards and vintages, or how best to store delicate bottles.
Despite these barriers to entry, fine wines can sometimes offer investors better risk-adjusted returns than more traditional portfolio diversification strategies. The secondary market for fine wine speaks for itself, currently sitting;at around $5 billion.1;Observations of;the Liv-ex Fine Wine 100 Index, which;tracks the price movement of 100 of the;most actively traded wines in the world,;showed returns over a 10-year period exceeding that for FTSE and S&P 500, with lower volatility than;gold.2;;The first step towards participating in this market is understanding the differences between a Friday night treat and an asset worth preserving.
Five Reasons To Buy Futures Wines:
The Futures system was created more than 200 years ago by the British and was only available for the negoce. It is only since the 1980s that it has been open to private customers. This system enables the estates to sell their wine through allocations before the wine has been bottled. The readily available funds from these sales are then used for operational and production expenses for the next year.
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What Makes This Years Wine Futures Unique
The coronavirus has injected unprecedented uncertainty into the financial markets. It has also created unique opportunities for investors. Put simply: 2020 wine futures will be priced substantially lower than previous years because of the coronavirus.
Heres the slightly longer explanation.;
A wine future allows buyers and sellers to lock in a price for a given asset. The contract has a set expiration date and price that both parties know in advance. The futures contract provides the winery an immediate return on their investment. In return, investors have an exclusive opportunity to earn money if the price goes up.;
Most of the time, wine futures are the lowest price that a wine will ever be. The price is slightly higher when the wine hits the market a few years later and typically rises with time. En primeur prices have increased all but one year since 2013.;
The current return on investment for Bordeaux en primeur wines since 2013 are:
- En Primeur 2013: 162.74%
- En Primeur 2017: -4.04%
- En Primeur 2018: 8.24%;
The coronavirus disrupted the normal flow of the futures market. Buyers and sellers havent been able to connect through their traditional channels. As a result, wineries have large stocks of unsold wine. They need the working capital to harvest for this fall and are willing to discount their current prices to make that happen.;
The result? Wineries dropped prices as much as 50 percent from the previous year, and investors had a field day.
Billing And Delivery Of Bordeaux Futures
Upon placing a Bordeaux Futures order, your credit card will be charged a deposit equivalent to the wine, shipping & handling and the applicable taxes.
Prices do not include any U.S. import tariffs that may be in effect and due upon arrival.
Wine.com absorbs the cost of shipping to our warehouses from overseas. Your shipping costs will reflect the regular Wine.com shipping charges at the time your order is placed. If you are a StewardShip member at the time of purchase, you will not be charged for standard shipping.
Once we have received the wine in our warehouse, we will contact you to confirm your shipping address and schedule delivery, as well as resolve any applicable tariffs.
Due to the exceptional nature of securing and importing these wines, cancellation of a Bordeaux Futures order will be subject to a fee equal to 20% of the wine.
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Stay Away From Trendy Wines
Wine, like all things, goes through trends, according to Mathew Woodburn-Simmonds, a UK-based freelance sommelier who runs The Plate Unknown, a website celebrating world food and drinks.
To pick up a bargain, avoid the trends, he says.
Rather than a New Zealand sauvignon blanc or Argentinian malbec, look for an Argentinian cabernet franc or New Zealand pinot gris, he says. They will be the same price, but a higher quality, because popularity isnt driving the price up.
So yes, you can find an Argentinian malbec for $15 but its likely that the $15 cabernet franc while be better.
The same applies to lesser-known Eastern European wine-growing countries like Greece, Slovenia and Hungary, all of whom are currently turning out great quality wine at pocket-friendly prices, Woodburn-Simmonds said.
Wine Futures: The Case For Buying Burgundy Up Front
Making a downpayment on wine while its still in the barrel allows you to make savings, and gets your foot in the door on rarities like great burgundies
You may imagine that I buy a lot of wine, and possibly also that I have a huge cellar and regularly buy en primeur. Sorry to disillusion you, but I dont, on either score. Or, to be exact, I didnt until, egged on by a friend, I decided to dip a toe in the en primeur water with the 2018 burgundies, one of the best vintages in recent years.
So whats involved? Well, essentially, it means that, on the basis of how the wines are tasting in barrel, you make a downpayment in advance, then pay the balance that is, the tax and duty when they are finally released, which could be anything up to 18 months later .
The obvious advantage is the saving, which works out around 20% on the eventual per bottle retail cost. More importantly, so far as burgundy is concerned, its a question of getting hold of any at all. Unlike bordeaux, burgundy is made in tiny quantities a merchant may get just a couple of cases, for example and good reds are particularly scarce.
Against that, however, youre not tasting the finished article, plus you have to buy it by an unsplit case and you have to wait for it, as Ive explained. You also need somewhere decent to store it when it arrives, particularly if you want to age it for any length of time.
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Are There Risks In Buying Wine Futures
There are, as with any investment risks inherent in buying wine futures.; 2010 and the years immediately following are a good example of this. Prices reached astronomical new highs and buyers did not see the return on investment that came to be expected over the last few decades; many said the bubble had burst.
In general, it is recommended to only buy futures in the best vintagesthese are the vintages that will be age-worthy and increase in value as they are cellared.; As weve seen, however, it can also be increasingly hard to find good value in such vintages, even in futures.
One way you can mitigate your risk is to understand the quality of a particular vintage. Wine professionals take great care in assessing and reporting on each year’s crop. Factors like the weather can have a major impact on the quality of wines coming from places like Bordeaux.
You should find a reliable report to review before deciding to invest. Here is an example of a vintage summary from Sotheby’s.
Where To Find The Safest Pre
Youll avoid barrel mishaps and years of waiting when you choose pre-arrivals over wine futures, but even this type of sale isnt foolproof. Just like futures, buying pre-arrivals from the wrong retailer can increase your risk of fraud, but it can also make you wait longer for your bottles to arrive. If your retailer isnt familiar with shipping laws in your country or state, you could wait months longer than your peers for your bottles to arrive, and sometimes, those bottles arrive in poor condition after sitting in a shipping warehouse for too many weeks.
The good news is that you can handle your pre-arrival purchases much in the same way that you handle your normal, ready-to-drink wine purchases. First, research wine stores or wholesale retailers, preferably close to your home, who handle pre-arrival sales. Before you get to their pricing or negotiate specific bottles, verify that the bottles youre buying are indeed pre-arrivals, and not futures. Sometimes, wine retailers will use the term pre-arrival when they really mean future, so it is important to ask whether the wine has already been bottled. Next, ask about the condition of the wine; has it been stored properly, and if so, where? How do they plan on shipping it to you? If your retailer struggles with answers to these questions, or seems generally unfamiliar with the process, you might want to choose a new retailer.
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Buy Wine Futures From A Trustworthy Source
You cant control the quality and market risks when you buy wine futures, but you can decide where you buy them. To buy wine futures, you need to contact a negociant directly, or deal with an importer who has negociant contacts. This is the safest method to ensure that the wine futures you buy are authentic, however, finding an importer who works directly with collectors is rare. Most importers choose to sell bulk futures to retailers instead, which raises the cost of the futures and makes it harder to authenticate the wine. You can expect to pay as much as 200 to 250 percent more for futures sold by a merchant compared to an importer or negociant. To find a trustworthy merchant, search for sellers online, or call your local wine shops to ask if they sell futures, or know someone who does.
Before buying from a wine store that claims to sell futures, research the merchants customer reviews. If you dont see a long history of satisfied customers, consider shopping with another merchant. Never buy wine futures from the first merchant you find. Shop around for the best price, and consider negotiating those prices with your merchant candidates. However, as we have seen with the Premier Cru fraud accusations, price isnt everything. If a retailer is selling futures at a deep discount compared to his peers, it might not be worth the risk. With great negotiating skills, you might shave $100 off the price of a fine Bordeaux, but dont expect to get authentic vintages at half price.