How to get a nose for a tasty profit
Anthony Rose explains how to invest in wine - the ultimate in liquid assets

Sunday Independent
08 January 2005

There's a saying in the wine business that the best way to make a small
fortune is to start with a large one. It's usually applied to the latest
grandiose winery scheme but the same could be said of investing in wine,
because the field is littered with the detritus of money squandered on
ill-informed investment decisions.

Why invest in wine at all, you might ask, when wine is a perishable product
designed for drinking? I would estimate that a good 95 per cent and more of
wine is bought for drinking and consumed, if not within 48 hours, at least
within a few weeks of purchase.

But old masters are a different life form from reproductions, and fine wines
are the old masters of the wine world. They improve with time spent in the
bottle, which is why we have cellars for laying them down. Where there's a
cellar with more wine than its owner can or wants to drink, there's a
secondary market. This provides both an exchange mechanism and, with online
trading on the increase, a useful tool in establishing price transparency.
For this reason, fine wine is a thriving business, populated by auction
houses, wine merchants, online brokers and, lest you forget, piranhas.

If you want to invest, you'll need to bone up on the subject. There are
plenty of people already making a nice living from sitting at their desk,
following every twist and turn of the market. If you're not on top of it,
you can be taken to the cleaners - like the innocent victims of the
so-called "claret web" scams, now scotched by the DTI. Typically,
professionals with too little time to check facts were lured into parting
with large amounts of cash by con men promising a crock of gold which never
materialised.

However sound anyone's buying judgement, expert or amateur, wine is subject
not only to vintage variation but also the vagaries of the wider
marketplace, from exchange-rate movements to unforeseeable catastrophes. The
Asian crash of 1997, for instance, and, to an extent, 11 September, played
havoc with the wine investment market, which has only just started to
recover. Exchange rates are also a factor, and the current plight of the
dollar is another damper on the global investment market, as Americans
feeling the pinch pull out of wine collecting.

So where to start? While France may not be the supreme power it once was in
the world of wine, it is still the dominant force in the investment market.
Bordeaux, having stood the test of time, accounts for two-thirds to
three-quarters or more of trading activity among auction houses and wine
brokers. The five first growths, Haut-Brion, Lafite, Latour, Margaux and
Mouton-Rothschild, are the primi inter pares of blue chips, along with
Cheval Blanc, Ausone and Petrus from the "Right Bank". These icons head the
list of the four dozen or so Bordeaux chteaux that are the bedrock of
investment.

Not all potential investment wine is confined to Bordeaux. At the highest
quality level, France also offers red and white Burgundy, Rhône, Alsace and
champagne. These wines are often made in limited quantities and, once sold
out, can achieve a scarcity value faster than Bordeaux. This is also the
case where there is an excess of demand over supply for renowned wines in
the right vintage from Germany (2001), Tuscany (1999), Piemonte (2000),
Rioja (2001), Ribera del Duero (2001) and Priorat (2001). Vintage port is a
staple of the auction room, although currently out of favour. The New World
has yet to really take off, although Californian and Australian fine wines
sell well in their own countries.

A number of fine wine merchants offer wine investment portfolios or monthly
investment schemes with regular payments. The best way to buy, though, if
you have an eye to selling later is en primeur. The success of this system,
developed by the top Bordeaux chteaux for cash-flow purposes, has
encouraged its expansion to other regions and countries. As soon after the
vintage as is seemly, the wines are offered first to wine merchants and
thence to the public at an "opening" price. The risk that wine's future
prospects are a relatively unknown quantity is balanced by the attraction in
securing the wine at, ideally, the most advantageous price.

If you expect to turn a profit, however, it's only worth buying in this way
(a) in an excellent Bordeaux vintage such as 1990, 1995, 1996, 2000 or 2003,
(b) if the chteau has excelled itself in the vintage and (c) if the price
is right. To know if the basic three pre-conditions apply, you must do your
homework.

Enter America's Robert Parker, whose journal, The Wine Advocate, is the
investor's primer. Parker has levelled the playing field and his judgement
counts. When he rates a wine 100 points or as near as dammit, you can hear
the ring of the till at the chteau. Yet his Midas touch is not universal.
Speculative Johnny-come-latelies such as Valandraud and Mondotte, for which
the word "Parkerised" has been coined, have plummeted in value lately.

You also need to bear in mind that it's one thing to buy, another to sell.
If you're buying with an eye to investment, you need to know the best escape
routes for your wines, not forgetting the possible tax implications. Wine is
regarded by the taxman as "a wasting asset" and not normally liable for
capital gains tax. But it might be, if the taxman thinks it can be kept for
longer than 50 years. Traditionally, the best route to market has been the
two major auction houses, Sotheby's and Christie's, which will hammer your
wine down and take a seller's premium on a sliding scale from 15 to 10 per
cent downwards, according to the value of the wines sold. Bonhams also sells
wine and there are country auctioneers such as J Straker Chadwick, in
Abergavenny, whose premium is lower.

Few wine merchants will offer you cash upfront. Most merchants and brokers
such as the online uvine.com, will list your wine and take a commission on
sale, typically in the region of 10 per cent, but caveat vendor. When
recently I decided to offload a case or two of claret, I approached
Christie's and three brokers for estimates. Neither Wilkinson Vintners nor
Reid Wines bothered to respond with an estimate. Christie's and Farr
Vintners gave market estimates and did a professional job of offloading the
wines at the market price less 10 per cent commission.

Investing in wine can bring the conventional consolation that if you can't
sell your wine, you can always drink it; but if you can't drink it for
whatever reason, there will always be a market out there for it - if the
price is right.

'I've never bought a case thinking I'll make money'

This Morning presenter Phillip Schofield recalls that there was never
anything more exciting than Liebfraumilch on the table when he grew up in
the 1970s. The turning point came after he was asked to introduce a video
for Jason Donovan in 1992. As a thank you, two cases of 1990 Burgundy
arrived from Stock, Aitken and Waterman. One was of Louis Jadot Puligny
Montrachet, the other an Armand Rousseau Gevrey Chambertin. "The Gevrey was
the wine that really lit the touch paper," he says.

When he moved from Chiswick to Oxfordshire, his house happened to have a
wine cellar, but it grew too quickly. He then excavated a sturdy, outside
cellar, which now contains his most treasured wines.

"It's not so much a financial investment as an emotional investment. I'd
like to be buried here, preferably about six months before I depart. Three
things conspired to cost me a lot of money: the two cases that got me going,
moving into a house with a cellar and joining the Wine Society."

His favourite wines are unashamedly French. "I find Bordeaux fascinating.
I've been four times and knowing the geography helps to understand the
winemaker, the people and the place."

He still buys his own wines from the Wine Society, and from Farr Vintners,
Corney & Barrow and Loeb. He adores Côte Rôtie and Chteau de Beaucastel. "I
think Rhône is still good for value for money. I had a fabulous couple of
days in the southern Rhône sitting in little cellars with people who are
passionate about their wines. I wish I had more time to do that."

Among his most treasured bottles, the last 1990 Gevrey Chambertin apart, is
a bottle of 1988 Pétrus that his wife bought. But he never feels that wine
should be so revered that you shouldn't drink it.

"I won't sit and look at a bottle and wonder what occasion is good enough to
open it. I've never bought a bottle or case thinking I will make money, but
I'll occasionally sell back six bottles from a 12-bottle case and get
something else."

FACT FILE: INVESTING IN WINE

* Aim to buy en primeur. Against the risk of buying wine before bottling or
delivery, this method should achieve the best price, thus the best chance to
make a profit.

* Read Robert Parker, look at auction results in Decanter magazine, talk to
a wine merchant you can trust. Ask yourself (and your adviser): what are the
important factors - such as scarcity, quality, vintage, demand, fashion -
likely to increase the wine's value?

* Buy from an established wine merchant, who will, if necessary, store your
wines for you, and, if you don't drink them, sell them for you.

* Condition and provenance command a premium, so store your wine in
temperature-controlled storage facilities, free from heat, light, excessive
damp and vibration.

* Stick to mainstream names, avoid cult or "garage" wines, buy only in the
best vintages and shop around for the best prices.

* From the Bordeaux first growths, aim for Lafite, Latour, Margaux, Ausone
and Cheval Blanc. At "supersecond" level: Pichon Lalande, Léoville-Las
Cases, Cos d'Estournel, Montrose, Léoville Barton, Palmer, Lynch-Bages,
Angélus, Lafleur.

* Rhône names to look for: Chave, Chteau de Beaucastel, Chteau Rayas,
Vieux Télégraphe.

* Burgundy names: Coche-Dury, Rouget, Comtes Lafon, Domaine Leflaive, Leroy,
Méo-Camuzet, Ramonet, Etienne Sauzet, Armand Rousseau, Dujac, Comte de
Vogue.

* Champagne names: Krug, Roederer Cristal, Dom Pérignon.

* Icons from Italy and Spain: Sassicaia, Ornellaia, Gaja, Giacosa, Masseto,
Solaia, Pingus, Vega Sicilia, Unico, L'Ermita, Artadi El Pison.

* California: Opus One, Dominus, Harlan, Screaming Eagle, Araujo, Bryant
Family, Maya Dalla Valle, Colgin, Marcassin.

* Australia: Penfolds Grange, Henschke Hill of Grace, Wendouree, Mount Mary,
Yarra Yering, The Armagh, Giaconda, Leeuwin Estate.



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