Investing in wine
Have you considered keeping wine long enough to make a profit? Buying your favourite Bordeaux and selling it a few years later might mean that you can drink for free on the profit.
TIP: Buy port – it’s a stable, long-term investment. A good bottle of port should last 70 years, but because this is essentially a slow market, it should be held for at least 10 years. Brands to look out for are Fonseca, Taylor’s and Graham.
Paul Bowker, former head of wine at Christie’s auctioneers and now on the wine advisory board at Vinopolis in central London reckons if you buy well, you can realistically see returns of 30% a year. Of course, like stocks and shares, wines can fall in value too, but at least you can always drink the negative equity.
Demand for fine wine exceeds supply and is strictly controlled. No house in the world will sell direct to the public, so you have to buy through a merchant. The best ones tend to be the most visible and well known. Your broker will be your mentor, so choose the one you feel most comfortable with.
Whether you simply hand over a cheque or want to spend hours discussing tannins and vintages, brokers should not charge you a consultation or buying fee. They will, however, take 10% commission when you come to sell, so factor this in before buying. Steven Spurrier, chairman of the wine advisory board at Vinopolis, has been a wine educator, retailer and investor for 35 years. He says four of the best merchants are Farr Vintners (0207 821 2000), Berry Bros & Rudd (0207 396 9600), John Armit (0207 727 6846) and Corney & Barrow (0207 251 4051).
Less is more when you’re buying to invest, so get hold of the top wines from the top vintages. The usual investment unit is one case of 12 bottles. If you’ve got £1,000, buy two £500 cases rather than five at £200.
Since 1855, Bordeaux wines have been classified into five ranks. The crème de la crème are the first growths, closely followed by the super seconds; further down come the third, fourth and fifth growths. Fraser Jamieson, broker at Berry Bros & Rudd, says the better the wine, the longer it takes to mature: first growths will take 15 to 20 years.
If you can afford more than £1,000 per case, Bowker tips Château Lafite, Château Latour, Château Mouton-Rothschild and Château Margaux. Although they have not yet been bottled, Jamieson says 1998 Pomerols and St Emilions have been excellent. They can be bought en primeur (before being released on the open market) from £200 a case. The hot summer of 1996 produced good vintages which are now coming onto the open market; the wines of 1995 are softer and for early drinking.
Just as your first stock market investments are likely to be FTSE 100 companies, your first wine investments should be Bordeaux. This is the seat of the finest red wines and has a track record for bottling the most outstanding produce.
Jonathan Stephens, director of Farr Vintners, says: ‘Bordeaux produces more wine than any other region, so it is a sustainable market.’ There is also limited supply and high worldwide demand for the really top-notch stuff, which is what makes it an investment.
Unless you want to stroke your wines every night, store them ‘in bond’ in a warehouse. If you store them at home, or want to release them to drink, you will have to pay an import fee of £13 a case plus 17.5% VAT on the purchase price. To store in bond you need to set up an account with a broker and pay an annual storage charge of about £6 a case. Again, factor in this cost before buying. As the Inland Revenue views wines as a ‘wasting chattel’ – an old tax term used to describe something which will ultimately deteriorate in value – you will not have to pay capital gains tax on the profits you make on your cellar.
According to indices in the specialist magazine Decanter, wine prices have risen steadily over the past 20 years. In 1978, the Bordeaux index stood at 100. By 1998 it had grown more than tenfold to 1,034. At a Christie’s auction in September 1997, cases valued at a total of £3.5m sold for £7m. However, when the Asian crisis bit the stock markets a month later, wine prices crashed. In 1998 many wines lost 20 to 40% of their value, but things are picking up again now. Berry Bros & Rudd’s Fraser Jamieson says: ‘We are in a rising market, but don’t expect the phenomenal returns of mid-decade.’
Wines are priced at three different stages:
en primeur, on arrival into the country two years later, and on maturity. Wines from 1998 can now be bought en primeur. This is risky because the wine has not yet matured, but by taking the gamble you will be able to reserve stock which may be scarce when comes onto the open market. You will also be able to secure it at a cheaper price.
If you become really savvy, cut out the middleman and buy at auction. Steven Spurrier of Vinopolis says: ‘The trade buys at auctions and this is where investors who know a dozen or so wines inside out can pick up real bargains.’
TIP: Wines become a commodity when people start writing and talking about them. Pay attention to the whims of American journalist Robert Parker, who gives wines a score out of 100. Anything bearing a Parker score of 90-plus is sure to be a sound investment. Parker produces a bi-monthly magazine, The Wine Advocate. Subscription costs $85 (£56) a year. It is not available in the UK, but to subscribe direct from America call 001 410 329 6477.