Investing in Wine

Funny how your perspective on things can change. For years I would deliver a stock-standard response to anyone telling me they wanted to invest in a vineyard and/or winery. Forget it, I would say. It’s much cheaper instead simply to allocate about ten percent of your income to buying decent wine to drink and to cellar. That way you’ll keep your lifestyle, your health, some of your wealth and much of your sanity. And if all else fails, you should always be able to find something at least half-decent to drink.

Today it’s impossible to give that sort of advice with any confidence. Wine investment is the latest fad. With a decent wine portfolio you will never be caught short of a conversational topic with your peers and partners. Provided theirs isn’t bigger or better than yours, your wine folio will impress those with whom you might wish to do business. You may have to keep its full extent a secret from your wife, husband or partner, but the odd little remark like “I bought that Three Rivers for only A$65, but given I could sell the lot today for over one thousand US per bottle, I’m travelling at over 1,500 per cent per year with my wine investments”, even the most sceptical of the people in your life should view you with renewed and profound respect.

There is of course another option for the wine you buy, and one so blindingly naive it’s almost embarrassing to mention in this context: you could actually drink it. Sorry about that; I’ll get back to reality right away. And that’s how to make money from wine.

Choosing the Right Stuff



Unless you’re prepared to do the homework and discover for yourself some unknown star performer of the future, there are some basic rules to follow when buying investment wine. These are:

? Stick with established brands, large and small.
? Avoid poor or ordinary vintages like they’re carrying a communicable disease.
? If you buy in dozens, unopened boxes are best.
? The market, especially the overseas component, is spending big on older vintages of top labels and good years.
? Just because a currently available wine may be expensive, it doesn’t mean that a it is any good, and b that it will appreciate in value.
? Right now, shiraz is king, and it’s unlikely that the overseas buyers who are currently driving up prices will switch their tastes to other varieties with which Australia doesn’t have as quite as distinctive and advantage.
? Magnums cost more than they should in Australia, but do appreciate quickly.
? Before you buy or sell, check not only the track record of the agent or auction house, but the selling and buying commissions applicable.

The best Australian investment wines fall into two entirely separate categories, cult and classic. Led by Grange, the classic investment wines are those like Henschke’s Hill of Grace, Mount Mary Cabernets – wines which over the years have developed a proven track record for quality and investment return. Langton’s Classification of Distinguished Wine, a catalogue of such wines developed and maintained by Australia’s largest and most influential auction house, is as thorough a listing of these wines as you can get.

On the other hand, recent years have seen the emergence of a number of small wineries whose tiny productions – typically of old-vine shiraz – now sell at stratospheric prices. Led by the opinions and scores of the American wine critic Robert Parker jnr, who simply needs to allocate a wine a single rating above 90 in his scoring scale, a hitherto unheard of wine can catapault into the pricing stratosphere. Wines from makers like Torbreck, Wild Duck Creek, Three Rivers, Greenock Creek, Veritas, Noons and the Burge Family have become the hottest-performing wines on the Australian auction market, before they are quickly shipped off to the US for resale.

Either way, both cult and classic wines are in incredibly short supply. So, unless you’re prepared to do what some collectors do – which is to recruit an army of associates who foster their own relationships with the producers and then hand over their scarce allocations – to join their ranks you will have to take significant risks with wines presently rated well below blue chip status.

Don’t Buy Just Any Old Bottle



Irrespective of its reputation or price, wine is a perishable thing that is only as good as the way it has been kept or transported. While nobody could seriously deny that many of the wines traded on the secondary market will never actually be opened until well after their earning and drinking peak has passed, the issue of provenance is the sleeping volcano beneath the secondary wine market.

A huge and unknown proportion of the wines sold through the various secondary market channels in Australia – by auction, through clubs, private cellars and commercial cellaring operations – are absolutely stuffed, to phrase it as politely as possible. Better customers from virtually all Australia’s auction houses have been warned from buying certain lots, or have else been told after discovering that a batch tasted very prematurely aged, that ‘Oh yes, we weren’t too sure about that lot’. While credits are typically given, it’s interesting to contemplate the retrospective nature of much of this advice.

In other words, many buyers at wine auctions are regularly paying top dollar for wines that the operators of the auctions know full well are in no condition for sale. Although you should never, ever buy a bottle of wine that appears to have leaked from its bottle, there is absolutely no way you can tell from looking at most bottles of badly cellared wine they are useless to drink; you only find out by opening them. Sooner or later this issue will come home to roost.

Serious collectors with a long-term view will, wherever possible, only buy direct from makers or from properly maintained cellars. My advice is not to spend up big on old or expensive young wine unless you have the cellaring history set in cement. Of course we all take a punt now and then, but that’s exactly what it is, unless we know first.

Some of the better commercial cellaring facilities like Liquid Assets in Melbourne and Wine Ark in Sydney not only provide the means for cellaring wine correctly, but are very honest about the history of the wines they sell. Furthermore, the advent of the Australian Wine Exchange, a private stock exchange-like system run through the NSX Newcastle Stock Exchange enables buyers to purchase wine direct from their makers, either to trade or to keep.

The Big Picture



While the initial impetus for what has now evolved into quite a sophisticated – if perhaps under-regulated – secondary wine market came from within Australia, its recent strength has largely come from American and Asian investors, with emerging recognition from Europe. The slowing of the US economy may take some heat out of the American enthusiasm for Australian wines, but they’re still only paying half-price when you take the exchange rate into account. It’s hard to compete against these guys.

Try to remember that wine is a drink. Many friends of mine fund the bulk of their drinking purchases by remaining on the mailing lists of the cult or classic wine makers. They might open some of these wines, but after several years find they’re in a good position to sell them for a decent profit, to reinvest into good drinking wines with a lower profile and price.

Finally, keep your expectations realistic. Those who make a killing on the stock exchange don’t usually do it by accident. With wine it’s no different. You will need to research your purchases, thoroughly learn the system, the margins, the prices and the rules; the good advice and the poor advice. You will have to know how to get hold of the stock you want, which will usually be the stock that everyone else wants. You will need to spend big on cellaring – either for yourself or through a commercial facility. You will also find all this very hard to do in your spare time, if indeed you ever have any.

You might in fact do just what a friend of mine did. He built, then filled, a very impressive climate-controlled investment wine cellar. He then rediscovered his love for wine. So he decided to drink it. Please login to post comment