Wine has been used as an investment vehicle for centuries, but primarily as a commodity investment. The idea of investing in individual bottles of high-value wine is more recent, and has gained in popularity since the last major financial crisis. Clever investors stand to benefit from exceptional capital gains.
The price of wine has increased significantly over the past decade. Bottles of fine wine picked up at recession prices have fetched handsome prices from wine lovers who can once again afford to splash out. If, in the worst-case scenario, the wine doesn’t sell, you can always enjoy it yourself. That isn’t a terrible worst-case scenario.
Capital gains of wine investments
Recent years have seen an increased demand for wine – caused in part by successful marketing in countries like China which previously were not considered to be wine markets. The value of some quality Bordeaux wines has increased by 50 or even 100 percent over a single year.
The first thing to understand when considering a wine investment is that not all wines are equal. The value of wine is strongly influenced by the region and more specifically the cellars in which it is produced. The year in which the grapes used to make wine are harvested is another key factor. The grape varieties used also play a role. Personal tastes are of secondary importance in investment. Still, having good tastes in wine will likely give you an advantage as a wine investor.
Specialists publish information about wineries, regions, grape varieties, and also about developments in the prices of specific wines. Experts like Robert Parker – publisher of The Wine Advocate which reports on the most recent wine tasting results – enjoy cult status among wine lovers, producers and investors. Other helpful tools for investors include wine fairs and established quality-control labels.
Red wines have longer shelf-lives
Most of the wines available for purchase from retailers are meant for immediate consumption and their value does not normally increase over time. However, there are red wines which can stay drinkable for many years after they are bottled – in the best case for as long as 50 years.
Experts classify only around 100 wines as investment-grade. In addition to select Bordeaux wines, the list includes some Burgundy wines like Romanée-Conti and some premium Italian wines like Ornellaia.
Recognizing a true premium wine is not an easy task for a layperson, and the current price charged by a retailer or winery also has little bearing on the future value of the wine being sold. If you are interested in investing in wine, take the time to research the topic thoroughly and get advice from experts.
Store wine properly
Before you take possession of the desired wine, you must make sure that you have adequate storage facilities. Incorrectly stored wine will not likely gain in value. The following basic rules apply to proper wine storage:
- A constant temperature is necessary. The ideal temperature at which wine should be stored varies between individual wines and experts, but is typically between 8 and 12 degrees centigrade. Some wines should be stored at 17 degrees centigrade.
- Secondly, a constant atmospheric humidity level of between 65 percent and 75 percent must be maintained. Insufficient humidity can result in the drying out of the cork. Too much humidity can cause wine labels to mold.
- A clean, odor-free atmosphere. Strong odors like those of gasoline, vegetable, motor oil or chemicals can be absorbed by wine and influence its flavor.
- Darkness is a plus. Too much light can negatively impact the flavor of wine. Ultraviolet rays can cause chemical reactions which alter the wine’s flavor and shelf-life.
- Wine bottles should be stored in a horizontal position. Ideally, bottles should be kept at a slight angle in order to prevent the cork drying out.
Even when wine is properly stores, it should ideally be sold at the right time. While the ideal timing for the sale of wine is easier to determine than that of stocks, achieving the best chances of capital gains still requires some know-how. Suggestions from experts and careful tracking of wine markets and auctions will help you determine the right time to sell.
Macropolitical and macroeconomic changes play a far less important role in determining fine wine markets than they do in securities markets. Instead, you should pay attention to consumer trends – the popularization of a certain grape variety, wine-producing region or year, for example. Tracking the prices at which wines produced by the winery in question are sold can help you understand the market value of your wine in order to better decide on the right time at which to offer it up for sale.
Wine ownership certificates
Another way to invest in wine which is arguably easier than storing it in your cellar is to buy wine futures. Instead of purchasing bottles of wine, you buy wine which has not yet been bottled or in some cases even produced. A futures contract makes you the legal owner of a given amount of wine before it has even been made. It gives you the right to claim delivery of the wine when the contract matures at some point in the future – typically after the wine has been bottled.
Futures contracts are typically used in large-scale commodities trading, but they can be used for small-scale investments as well. Investing in wine futures requires a relatively high risk-tolerance because there is no guarantee of a good year, or that the wine will be safely delivered. However, it provides an avenue for investing in wines which may be difficult to obtain once they reach the market. Futures contracts can also be sold to third-parties before they mature, allowing investors who want to profit on increases in the value of wine to do so without having to take possession of the wine itself.
Wine shares and wine certificates
Another option is to buy shares in wine production companies. This may be accomplished by buying shares in alcoholic beverage producers like Campari, Diageo, Laurent Perrier, Remy Cointreau or other companies which are directly linked to the wine trade. Alternatively, you could invest in companies which service the wine sector, such as agricultural machinery and chemical suppliers, or logistics companies which manage the storage and distribution of wine.
Structured products and certificates are two even more abstract alternatives to investing in physical wine. These investment vehicles let you speculate on price developments without owning any tangible assets – neither wine nor companies linked to wine production. When you invest in certificates and structured products, you do not have any claim to any physical assets. You are completely dependent on the issuer of the contract to make good on their promise to pay if the contract works in your favor. Because of this, there is a high level of risk involved in investing this way. It is important that you have a good understanding of how structured products and certificates work before investing. It is also important that you carefully study the terms and conditions of the contract and that you have complete faith in the issuing company or broker.