As published in Hawke's Bay Today. A canny View by Nick Stewart, CEO & Authorised Financial Adviser
Epicureans (persons devoted to sensual enjoyment, especially that derived from fine food and drink) have found a sense of satisfaction in securing and consuming a good bottle of wine for a long time.
The same emotions might overcome an investor looking at the performance and diversification benefits of the same bottle in a portfolio.
In 2008, in the midst of the financial crisis, the Financial Times designated the market for fine wine as "a haven for investors in difficult times" which probed the interest in fine-wine investments in modern times.
As a consequence, wine is not being viewed as only a pure consumer good anymore, but also as a tempting investment opportunity by many investors.
As a result, a small but steadily growing market for fine wines has established itself as an investment asset class.
Auction houses have expanded their presence to new geographical regions to reach new customers, especially in Asia, and have simultaneously increased the number of wine auctions throughout the world.
The increase in worldwide turnover from $US90 million in 2003 to more than $US233m in 2009 at major auction houses, as noted by publication Wine Spectator, provides a proof for the sudden popularity of this market.
Wine investment has barely been on the scene for two decades, and If you have a taste for investing in wine, it could be a hobby worth the money one can spare.
There are risks, of course, and here are some top things you should know about wine investments.
Only invest what you can justify losing … or drink
It's not wise to use the money which is likely to be necessary for your living in short-to-medium-term. Only spend what truly won't be missed. Returns are not guaranteed; however, grade wine is a valuable commodity and sales are increasingly impressive.
Know the market
The cost of investment-grade wines can be large, by as much as 2,000 per cent more than your Friday night quaffer. Information proffered to investors is all too often poor or, worse, misleading.
In fact, reliable data – most notably offered by Liv-ex; wine's largest trade-to-trade online platform – is only available from 2001. Prior to that, statistics appear to have been plucked out of thin air. In consequence, the wine investment market remains markedly inefficient.
Approach en primeur wines with caution
Commonly referred to as "wine futures", en primeur is the process of purchasing wine while still in the barrel, with bottling and physical delivery likely to occur two or three years later, after the vintage release.
Traditionally this was believed to be the best way for investors and collectors to buy premium wines at the lowest market price. However, buying en primeur means committing to the wines at their youngest – with all the maturing to do, before the final blend and oak-ageing are complete – and is fraught with risk. The actual bottled product may turn out better or worse than the initial barrel samples indicated.
Fine-wine frauds
A former fine-wine consultant at an exclusive Auckland auction house has been charged with defrauding affluent clients of over $1.3 million – including faking vintages. A Havelock North wine merchant, who paid $36,000 to this wine consultant for Te Mata Coleraine wine, reported that the wine never arrived.
The former wine consultant allegedly engaged a graphic designer in changing labels in a photograph to make a case of 2001 Chateau Lafite appear to be from the valuable 1981 vintage.
Many are aware of Sour Grapes, a documentary about Rudy Kurniawan, who received a 10-year prison sentence for counterfeiting vintage wine.
A New York auction house sold $35m of Kurniawan's wines in 2006. Kurniawan prepared the fakes in his kitchen.
He had a complete in-house factory with bottles and labels. He fooled many billionaires. It is estimated that there may be as many as 10,000 of Kurniawan's bottles still in private collections.
The art of selling
When it comes to selling, auctions are usually the best for very finest. For mid-range wine investors, there are bid websites too.
Before you start seeing the dollar signs, though, tally up the hidden costs. There are seller fees, called hammer fees, which can be up to 15 per cent of the sale price. Then there is also the cost of insurance and shipping.
Despite taking all the right steps, what if the auction house goes into liquidation with your expensive wine in their cellar, awaiting sale?
Joining a list of unsecured creditors and a possible legal class action wasn't what you had in mind when you thought of investing in wine.
NZ's largest auction house, Mossgreen-Webb's, went into liquidation last year.
Living in Hawke's Bay, a wine region, it sounds like "selling ice to Eskimos". Do not lose sight of the fact that wine is essentially an inefficient market based on a perishable product.
It's always better to enjoy wine for its drinking pleasure and allow your diversified portfolio in financial markets to do the work for you. At Stewart Group, we don't provide and promote wine in our clients' investment portfolio.
• Nick Stewart is the CEO and Authorised Financial Adviser at Stewart Financial Group. Stewart Group is a Hawke's Bay-owned and operated independent financial planning and advisory firm based in Hastings. The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed, or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any investment decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
