Fine wine gaining potential for serious investors?

[Robin Garr]

I've got my doubts here ... wine is an even more fragile and unpredictable commodity than pork bellies. Would you feel comfortable investing your retirement fund? This looks a bit like a PR placement by the London Vintner's Exchange to me.

A rather liquid investment
Internet platforms provide greater clarity for the wine investor
By Sarah Turner, MarketWatch
Last Update: 12:30 PM ET Jul 30, 2006

LONDON (MarketWatch) -- The Internet has yanked the cork out of wine as an investment class, with trading volumes bubbly and some index values up 40% to 45% in the past year or so, market professionals say.
Web-based electronic trading platforms mean investors can buy and sell wine anonymously with much the same ease as other investment assets.
The Internet has also made research into pricing and availability easier for would-be investors.

"More people are investing in wine. It's not such a niche, closed market like it used to be," said Anthony Maxwell at The London International Vintners Exchange, an electronic trading platform for fine wine, which launched in July 2000.

See full story here

"More people are investing in wine". But there again more people are watching big brother and celebrity love island. I wonder if they're the same people.

Personally I dislike the concept of wine (i.e. bottled wine) investment. Their sole aim is to make money - aiming to make wine enthusiasts such as ourselves pay more for what we enjoy. If we're lucky (and there's a every chance of this), they get it horribly wrong and end up flooding the market with cheap wine (a la Heritage wine investments in Australia). If they get it right, then we have to pay more if we want the wine - or more probably we end up ignoring the "blue chip investment" wines and seek out better value wines elsewhere.

regards

Ian

I'm with you, Robin. I can't fathom rolling my hard-earned 401K into Bordeaux futures. I harbour enough disdane for the Dow, Nasdaq, and S&P as it is. I love to drink wine, and I also enjoy wagering on the ponies from time to time,but I'll never consider that an investment, either.


CHEERS!


Art

Interesting article, Robin. A couple of observations.

There are two distinctly different investment "opportunities" here.

The first is the Cayman Island investment fund. Note that "returns" -- it's not entirely clear how they are computed -- have varied from 2 to 12 percent in the past four years. The load is pretty high -- 2.0% plus 15% of any gains -- that would reduce your "yield" to 1.7% to 10%. Liquidity is a problem -- quarterly, on 60 days notice. And, the minimum investment is 100,000 British pounds.

My general impression is that folks that would take a flier on this sort of investment might have other interests beyond the return on an increase in the asset values. And, the 100,000 pounds should be a small percentage of their investment assets. People I know who would participate in this sort of speculative investment would want a reasonable chance at achieving 30 to 35% return on an annual basis.

The second "opportunity" is really just a wine exchange. Certainly the folks who put the exchange together can make some money, depending on how many collectors and business types pay the annual fees and the transaction fees. Otherwise, potential yields are going to depend on speculation and "insider knowledge". One thing the internet has accomplished is extensive sharing of knowledge, and less opportunity for windfall profits.

It would be interesting to compare returns for folks selling wines on the exchange versus those who sell by auction. $18 million in turnover is pretty small potatoes, but might be quite a nice income for the folks who run the exchange itself.

In any event, just some initial reactions -- not of any interest for me. I'm into wine for pleasure, not for the money.

Regards, and thanks for posting this article.

Bob

One interesting feature of this article: the monthly reports by the Vintage Wine Fund; the June article can give you an idea of which older Bordeaux may be bargains today, based on the 2005 prices. Kind of old news, but interesting nonetheless.

For anyone who maintained doubts concerning the potential for the fine wine
market to appreciate significantly in price from current levels , the 2005 en
primeur campaign has served as a very sharp jolt back to reality. Despite the
major chateaux setting prices well above the top end of expectations there was
no shortage of enthusiastic buyers – and given the prices now commanded by
the very best fully mature vintages , that really should have come as no
surprise. The en primeur release price for top vintages has just taken a
permanent quantum leap upwards and drinkers and collectors have shown they
are willing to pay the price. The Fund happily took up its significant direct
allocations but made very few secondary market purchases for while the
market was focusing on 2005 we were shopping elsewhere....


What is interesting is that on the basis of the usual influential annual reviews,
several post campaign articles, not to mention our own tasting opinions, there
is nothing to suggest that the top wines from 1996, 2000 and 2003 are not the
equal, or perhaps even the superior, of the best wines from 2005. With the
knowledge that en primeur release prices (for top vintages) are at a higher and
sustainable level for the fores eeable future, it is inevitable that buyers will
focus on the value to be currently found in other relatively recent and truly
great vintages; it is in these vintages that some of our most sig nificant
positions are to be found. It is also the case that many 2005 prices make more
mature wines look incredibly good value. Wines such as Mouton 1986, Haut
Brion 1989 and Cheval Blanc 1990 look fantastically cheap when compared to
the price at which their 2005 versions have sold out.

So, in brief summary of the Bordeaux market, the fully mature 1982s are
pushing ever higher and before long these wines are likely to make the leap
into the price range occupied by the 1961s; at the other end of the spectrum
we have the latest vintage just released at prices well above comparable wines
from other recent vintages but selling easily; this leaves just about every other
good vintage in between looking significantly under-priced.

This situation
may not last for long: by the time the campaign was drawing to a close, the
implications of the success of this vintage were beginning to dawn on
merchants, collectors and drinkers alike and we were already witnessing a
significant surge in the (already healthy) demand for some of these relatively
under-priced wines. Indeed, it is the start of that price realignment which has
produced the bulk of this month’s performance with en primeur profits
supplying the balance; it is the continuation of that realignment, coupled of
course with continued growth in the market as a whole, which may well mean
that the second half of 2006 turns out to be even better than the first.


Of course, one might also reasonably conclude that the 2005 prices are crazy, and that the time to buy the 2005 vintage will be ten years from now.

http://www.vintagewinefund.com/images/p ... 06_ord.pdf

Robin, you might enjoy my recent correspondence with Jancis Robinson on this subject:

Bob Ross, NJ:

I wonder if you have any words of wisdom about wine as an investment. My question is inspired by this recent Dow Jones article and in particular the London International Vintners Exchange.

I have nothing but an intellectual interest in the subject; my own cellar has been created only for the enjoyment of friends, family and myself.

me:

It’s really quite misleading the way so many general writers and even financial specialist writers jump in and suggest that we can all make an easy fortune investing in wine. Invariably they have been fed very selective information by someone with a vested interest in attracting investors.

In fact Liv-Ex, the London-based company to which you refer, is specifically a business-to-business operation, as its founder makes clear below.

Justin, Liv-Ex, London:

We are wholly focussed on trade in terms of trade itself. ONLY wholesalers can be trading members. We do however offer an information product - price discovery, cellar valuation and market reports. This is an INFORMATION-ONLY product. It runs off the database that we are building with every trading day and so is linked to our main business of the exchange itself. I suppose an analogy might be the LSE [London Stock Exchange] and the FT [Financial Times]. The LSE is an exchange platform for banks etc (its members) and sells this information to the FT for private investors to view the market activity etc........

Regards, Bob