How To... Get involved in the fine wine markets
How To... Get involved in the fine wine markets
As the Asian wine markets boom, here's your beginners guide - the basics everyone should know
After a staggering year in 2010, the fine wine market is continuing to grow. Expertsagree that it looks set to go from strength to strength in 2011 andthe world's leading wine auction housesarealready reaping the rewards with wine sales making$26 million since the start of the year alone.
More and more bottles are being consumed, and as the rarity of certain vintages increases their prices are starting to skyrocket; the Asian market which now dominates world wine sales shows no sign of slowing down, as buyers begin to diversify from the Lafitte that hasproven so popularin recent years.
These factors all point to another busy year for auction houses and investors, and now could be the perfect time to get involved in the wine market.
Why invest in wine?
The first question you might ask yourself is this: why invest in wine? From the outside it can look complicated, but the bottom line of the wine market is supply and demand. The production of most investment-grade wines is strictly limited, but the demand for them is currently booming (due in large to the surging Asian market which was responsible for around 60% of global sales in 2010).
This demand increases over the years, as wines improve with age, and during this time the supply becomes more limited as bottles are drunk. This creates what is known as an 'inverse supply curve', which is rare in any form of asset, and means that fine wines can be an excellent mid to long-term investment.
The basic principles are simple, and with good advice (and a little luck) you can take full advantage of a market which has consistently out-performed traditional stocks and shares over the last few years.
In fact, according to Exchange Magazine between December 2010 and January 2011 the value of the wine market rose by 45%. Compare this with the FTSE 100, which rose by just 9% over the same period, and you can start to see why so many investors are moving their money into the wine market.
A collection of fine wine can prove an excellent long-term investment
Know your stuff - do you research
As with any investment, the most important first step is to do your research. Diving head-first into the market without knowing something about how it works is a recipe for disaster, and you may need the bottles you've bought to drown your sorrows with.
Two important sources of information for beginners are the Liv-ex 100 Index and the American wine critic Robert Parker. The Liv-ex Index is a list of the 100 best-performing investment-grade wines as calculated by the London International Vintners Exchange, and is regularly updated. This can give you an insight into how the market as a whole is performing, and which areas look the strongest.
Robert Parker is the world's most influential wine critic, and his 100-point scoring system is renowned for setting wine prices (particularly newly released Bordeaux wines). His reviews are published in his newsletter 'The Wine Advocate', which should be required reading for anyone looking to invest in wine for the first time.
Any wine which he scores between 98 and 100 should be seriously considered, as research has proven there is a strong correlation between a wine's Parker score and its performance as an investment.
Networking with merchants and investment firms...
It is important to build a relationship with an experienced wine merchant or investment company, as their inside knowledge can help you buy the right wine at the right time. Any buying regularly from a merchant can often bring you preferential service, particularly when it comes to getting your hands on the most limited wines (for which there is usually a waiting list).
There are several ways to enter the market; you can buy directly from a wine merchant or broker, use a wine investment company to create a specific portfolio, or put your money into an investment fund. The key to any of these methods is simple; always use an established, reputable source with a proven track record.
It is important to shop around, as the prices can vary from merchant to merchant. So too can the services on offer; some have range of investment services including portfolio management, cellar plans and advice on investment.
Investors can also vary their level of involvement, and companies can build a portfolio based on a client's specific tastes. If, however, you want to leave it strictly to the experts, most companies will build a portfolio based purely on the amount you're willing to invest and store the wine for you until you're ready to sell.
Safe and secure - the importance of storage
The correct storage is vital to ensure the quality of your wine does not deteriorate. Most wine investment companies offer storage services with a set amount charged per year for each case stored, and this is often the best way for new investors to build a portfolio without having to store it themselves.
Temperature and humidity are both vitally important to consider when storing wine: bottles should be kept between 50-55 degrees Fahrenheit with minimal fluctuations. Humidity should be maintained at around 65-75%, as the cork requires this to remain moist and sealed corectly.
Bottles should also be stored where there are no vibrations or direct sunlight, as both these factors can drastically change the condition of wine; vibrations will break up the alcohol and acid chemical bonds which give aged wines their "bottle bouquet", and the U.V rays in sunlight will badly affect a wine's composition.
Unless you happen to live in a castle you're unlikely to find a ready-built wine cellar beneath your living room, so dedicated storage warehouses with regulated temperatures are usually the best option. If you do happen to live in a castle, you've probably got a few bottles down there already.
Bordeaux wines are currently the strongest performing and most sought-after on the market
Buying 'en primeur'...
The term 'en primeur' refers to the practice of buying wine in advance, while it is still maturing in the barrel. Samples are tasted by industry experts and a percentage of the year's production is sold in advance for a lower price, usually a year or two before it is ready to be bottled. Once the wine has matured it is then sent out to its new owners.
Buying wine in this way can sometimes be a risk, as the true value and quality of the wine is not yet known. However, with research and advice it can sometimes be possible to predict the quality, based on factors such as growing conditions for the previous year.
'En primeur' can be an excellent way to invest in highly-limited wines, as often these can sell out completely before a single bottle is ready. The most important offers come from Bordeaux, as the majority of these wines are classified growths and therefore limited in the amount that can be produced. They are also the most sought-after, and the strongest investment-grade wines on the market.
As with all areas of investment, there are risks. But there is a wealth of information available for those willing to do their research, and a little bit of expertise can go a long way.
The best advice for anyone looking to get involved in the wine market is this; read all you can and then read some more, keep up to date with the latest news and market trends, make friends with an expert and always enjoy abottle or two, as some wines were definitely meant to be drunk.
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