Fine Wine Investment Guide IFWIC.ORG. I n t e r n a t i o n a l F i n e W i n e I n v e s t m e n t C o m m u n i t y

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1 Fine Wine Investment Guide 2011 IFWIC.ORG I n t e r n a t i o n a l F i n e W i n e I n v e s t m e n t C o m m u n i t y

2 Content Chatper 1 Chatper 2 Chatper 3 Chatper 4 Chatper 5 Chatper 6 Chatper 7 Chatper 8 Introduction, Pros and Cons Investment Wine Which Wines to Choose Buying Investment Wine Transporting and Storing Selling Investment Wine Costs of Investment 10 tips for Investing in Wine 2

3 Introduction For the last quarter of a century the fine wine market has remained stable and has shown continuous growth, despite the world s economic crises. Unaffected by swings in interest rates and stock market crashes, investments in wine have continuously provided high returns for over two hundred years. Although wine does not belong to the classical commodities that are traded on commodity exchanges, it has, in recent years, surpassed gold and oil with its returns. Wine is even being traded on the principles of futures contracts (so-called En Primeur or Wine Futures): it is purchased at the stage when it still has to age in casks for two years or more in the producer s wine cellars. 3

4 Pros and Cons of Investing in Wine Of course, as with any form of investment, there are pros and cons to investing in wine. If you are considering diversifying your investment portfolio or simply dabbling in wine investment for fun, then you need to consider the advantages and disadvantages of investing in this liquid commodity. Do your research, watch the market and take expert advice to determine if this is a suitable investment type for you. The Pros of Investing in Wine High Profitability An investment purchase of top quality wines can bring a higher return than investing in oil, gold or other precious metals. Well-selected wines can easily grow in net value by more than 12% p.a. and do not tend to fall, even in times of economic crisis. High Stability Another plus of investing in wine is that prices tend to remain stable, meaning that investing in wine is relatively low-risk. Whilst stock markets and commodity prices can climb dramatically, equally they can fall just as rapidly. The value of wine, however, simply remains constant at worst or increases. This can be illustrated by taking a look at the market for Grand Cru Classé Bordeaux over the last 30 years, the value of which has not once fallen below its purchase price. Continuous Growth The growth in the wine market has been brought about by several economic and societal factors, including: An enormous growth in the number of people who enjoy fine wines, particularly recently in emerging economies. The limited but constant long-term availability of fine wines. The desire factor inherent in investing in and enjoying a refined and luxurious status symbol. 4

5 The Cons of Investing in Wine Price Volatility Although the wine market is generally one of growth, there is no guarantee that a specific wine s price will not go down instead of up. Only a relatively small number of labels and cellars have a guaranteed constant growth, due to their limited supply and consequent permanently high demand. Wine prices, on the whole, depend on current trends, quality of vintage, wine experts ratings and other factors. Liquidity Compared with other commodities, wine investments may be harder to sell off. Of course an investment s liquidity depends not just on the asking price but also on its quality. Wines that are in the best condition, come from established cellars, are properly stored in bonded warehouses and that have a proven track record will always be easier to sell than relatively unknown or poorer quality wines. Expertise There are a few wines, such as Lafite Rothschild, Château Latour, Chateau Margaux and other Bordeaux st growth wines, which are always safe bet. You would be very unlikely to lose your money if you invested in any of these wines. But there are, of course, many other wines, some of which could bring even greater profits, but some of which could make a loss. Apart from those few wines mentioned above, it requires a great deal of expertise and experience to identify potentially profitable wine investment opportunities. Besides knowledge of the wine market, some financial knowledge is also beneficial. Additional Costs Broker commissions, storage, insurance and transportation are the most typical additional costs that need to be taken into consideration when investing in wine. These costs lower the total profit on your investment. Most of these costs are necessary if you want to minimize the risk to your investment and maintain the wine s quality in order to keep your investment liquid (easy to sell) because, as mentioned previously, only wines with a proven history of good storage keep their investment value. Lack of Regulation The wine investment market is largely unregulated, so there is very little protection if things do go wrong. Therefore only deal with reputable, long-established merchants or companies offering wine investment advice or services. For extra security, you should also consider storing your wine under your own name at an independent bonded warehouse. 5

6 Investment Wine Investment Wine Characteristics For a wine to be considered a good wine for investment, it must have several characteristics. Probably the best definition of an investment wine comes from Decanter s Wine Investment Guide. According to this guide, an investment wine is a wine that: Has a good track record of both quality and price and is an immediately recognizable brand or label. Has had a steady global demand for previous similar vintages and has shown a consistent growth in value. Comes from an excellent vintage and is highly rated by global wine experts. Has the ability to age (and therefore improve in quality) over the years. En Primeur A special section of our Wine Investment Guide concerns En Primeur. En Primeur, or wine futures, is a method of purchasing wines early while a vintage is still in a barrel, offering the customer the opportunity to invest in a particular wine before it is bottled. Payment is made at an early stage, a year or 18 months prior to the official release of a vintage. An advantage of buying wines En Primeur is that the wines may be considerably cheaper during the En Primeur period than they will be once bottled and released onto the market. However, this is not guaranteed and some wines may lose value over time. The wines most commonly offered En Primeur and that are potentially interesting for investment purposes are mainly wines from Bordeaux and Burgundy. However, it should be mentioned that while En Primeur has been exceptionally profitable in the past decade (and even though it still is profitable) it is questionable whether the potential profit outweighs the risk of not knowing the future price evolution. In recent years the release prices being charged by estates for their En Primeur wines have been very high and wine merchants do not help the situation either, often charging a 50% or more margin. So it can happen that by the time wine in En Primeur reaches a potential independent investor (who does not have the opportunity to buy wines directly from estates), the price is so high that there is little scope left for potential future price increases in order to deliver a satisfactory return on investment (ROI). 6

7 Which Wines to Choose Region, Property and Label The vast majority (around 90-95%) of all investment wines come from the French wine region of Bordeaux. Bordeaux is the ideal region to begin your search for investment wines to start building your portfolio because, if you are new to wine investment, you can find several high-return-low-risk labels here. Other regions, such as Burgundy, Rhone, Champagne and Italian Tuscany also produce some fine wines that investors could consider, but we recommend that these wines are only included in the portfolio of experienced investors or upon a recommendation from your merchant. The relative importance of particular regions in wine investment can be seen in the Regional Weighting table of The Liv-Ex Fine Wine 100 Index. This index is the industry s foremost benchmark and shows the price movements of the 100 most soughtafter fine wines. As one would expect, the majority of the wines are Bordeaux but there are also wines represented from the Burgundy, Rhone and Champagne regions as well as some Italians. The Liv-Ex Fine Wine 100 Index Regional Weighting (June 2011) Bordeaux Red 95% Bordeaux White 0.9% Burgundy Red 1.7% Champagne 2% Italy 0.3% Rhone 0.1% You can find the full list of investment wines (including indicators of their investment performance) at Bordeaux As mentioned above, around 90-95% of all wines for investment come from Bordeaux and its wines are the foremost to consider for investment purposes. However, it is important to mention that only a relatively small proportion of the Bordeaux wine production is truly interesting for the investor. From around 8500 wine-producing estates in Bordeaux, only around can be considered worthwhile for wine investment purposes. 7

8 The most important wine making areas in Bordeaux include St. Emilion, Graves, Medoc, Pomerol and Sauternes. Wines from the Graves region are ideal investment wines, with an aging period of between ten and twenty years, whilst Sauternes need to be aged for anything between seven and twenty years to be at their very best. Bordeaux wine classification plays important role in judging wine potential for investment. The top Bordeaux wines are mostly er Cru wines and their 2nd wines: Bordeaux er Cru Château Lafite Rothschild Château Margaux Château Latour Château Haut-Brion Château Mouton Rothschild 2nd Wine Carruades de Lafite Pavillon Rouge Les Fots de Latour Le Clarence de Haut-Brion Le Petit Mouton However, the classification system in Bordeaux is not uniform. There are several classifications, depending on the sub-region, and some sub-regions have no kind of classification system at all. Hence there are some exceptional wines that are considered top wine investment opportunities, despite not being 1855 classified, or classified at all, such as: Château Le Pin (Pomerol, no classification) Château Petrus (Pomerol, no classification) Chateau Cheval-Blanc (St. Emilion 1955 Premier Grand Cru Classé) Chateaux Ausone (St. Emilion 1955 Premier Grand Cru Classé) Many wine merchants often also talk about La Mission Haut-Brion and consider this wine to be another top Bordeaux wine to invest in with the belief that if there were to be an 1855 re-classification, Mission Haut-Brion would become a 1er Cru wine. In recent years, since the entry prices for the top Bordeaux wines sky-rocketed, other Bordeaux wines (along with the already-mentioned 2nd wines) have become increasingly interesting and often outperform their big brothers in terms of profitability. In addition to Lafite Rothschild and Mouton Rothschild, other Domaines Barons de Rothschild estates are currently very popular, especially that of Chateau Duhart- Milon. Burgundy Returns on investments in Burgundy wines can be good, as long as the wines are from the best vintages from the top producers best vineyards. The top Burgundy 8

9 wines for investment purposes are: DRC, Laflaive, de Vogüé s Musigny and Bonnes Mares, Meursaults from Lafon, Meursaults from Coche-Dury and Ponsot s Clos de la Roche. These wines are only available in small quantities and only from wine merchants and agents who reserve their stock for their best customers. There are some wine futures from Burgundy that are so in demand that they sell out on the day of their release and some wines never make it onto the public market. It should also be pointed out that the secondary market for Burgundy wines is much less developed and therefore much smaller, similar to Domain de Romanee Conti wines. Champagne Champagne can be a very lucrative investment. Prestige Cuvees, such as Cristal, Dom Perignon or Krug certainly represent interesting investment options and some of them can grow in value by as much as 40% per year. The potential investor should, however, bear in mind that these wines are produced in pretty large amounts. Dom Perignon, for example, produces up to three million bottles per vintage, although Cristal and Krug produce substantially less, at 500,000 and 400,000 bottles per vintage respectively. Tuscany Sassicaia by Tenuta San Guido and Ornellaia by Tenuta dell Ornellaia represent perhaps the best choice amongst the Super Tuscans and are wines that are worth considering investing in. Robert Parker came up with the term Super Tuscans and has helped make them become globally well-known. Super Tuscans represent good investment opportunities and their value has been known to double (or more) over time. Vintages History proves that only wines from the best vintages perform well as investments and this is a ground rule that applies to all regions, estates and labels. The only exceptions to the rule are Bordeaux er Cru wines and the top Pomerol and St. Emilion wines, where demand is so high (due to the high prestige associated with their labels) that quality of vintage influences their price, but not the dynamics of price evolution. With these wines even the less good vintages can become a good investment, as they are easy to sell. The top wines from top vintages are so expensive already that not everybody is interested in buying them and instead prefer to choose the same wine but from a less good vintage with a lower price. For example, in the case of Bordeaux, where the best vintages in the past 10 years were 2000 and 2005, it is much easier to sell other vintages because the selling prices are substantially lower. 9

10 Exceptions always exist, but we can say that to maximize your profit, it is important to buy a wine as close to its opening price as possible. This means that only the most 2 recent vintages are worth considering for investment. IFWIC works with wines of a maximum of 10 years of age, with particular focus on the last 3 years. 10

11 Buying Investment Wine Alone or with Broker? Wine is a commodity that any independent investor can buy on his own although most people prefer to use a wine merchant or a wine consulting service. The reason for this is that selecting the right wine to invest in requires a lot of knowledge and information. If you decide to invest on your own it can actually be a great deal of fun and any success you have will be truly pleasurable. Beginners should probably stick with the er wines and their 2nd wines, where the risk of losing money is minimal. En Primeur or Bottles? If you are sure that you won t need your money for next 2-3 years, buy your wine En Primeur. This way you will probably maximize your investment. Alternatively, another good opportunity to buy wine is when the En Primeur bottles are physically released onto the market - right now in September 2011 this is wine from Do not buy in May, wait until September because analysts say that over the summer months the prices of most of newly released Bordeaux wines drop a little. If you choose to buy already-bottled wine, focus on buying full, undamaged wooden cases of excellent quality wines only. Standard bottle formats are the easiest to sell, so the best choices are cases of 6 x 0.75l or 12 x 0.75l, but 0.375l bottles in cases of 6 or 12 are highly desirable too. Ratings, Reports and Analysis If you decide to buy investment wine on your own, watch wine ratings, vintage reports and wine previous performance figures. These can all help you to estimate the future behavior of price. Wine ratings and quality of vintage are very important, as they both greatly influence the entry price of a wine. In the world of wine ratings, Robert Parker s score can make a huge difference, and Jancis Robinson s opinion has gained importance in recent years, so watch both. Vintage quality will influence the all round price level of wines. It is not that a nonexceptional vintage necessarily means a bad investment option, but that you need to put all the information into perspective to compare it with other factors (such as wine ratings and label prestige amongst others). It is very useful to look at the price 11

12 evolution of a past vintage that is, in terms of quality, comparable to the vintage you are considering for investment. How much to Invest? Each individual knows their own limit of how much they want to and how much they can afford to invest in wines. A budget of around 5,000EUR will enable you to start making some investments, but anything less than this will probably not be sufficient. However, as it is standard practice to minimize your investment risk by creating a diverse portfolio, 10-15,000EUR minimum is a good amount for a hobby wine investor. Where to Buy? You can, of course, buy wine wherever you want, but you must make sure that you can trust your source! A lot of wine merchants guides to wine investment often talk about the need to trust your merchant and you might think that they have only written that in order to attract you to their business. Whilst, to a certain extent, this may be true, they are also correct in what they say. Expensive fine wine is a popular target for all kinds of scams and that is why it is truly essential only to buy wine from established sources. To find a suitable wine-trading partner in your country, please feel free to visit our Wine Merchants Directory at fine-wine-merchants.php. 12

13 Transporting and Storing Investment Wine Transport The buyer usually pays all transportation costs and this means that you will bear these costs from the moment of the wine acquisition. It is essential to use only quality carriers, who meet or exceed the required standards for transporting wine in all weather conditions and without affecting wine quality. The extra cost involved in using reputable wine transporters is most definitely worthwhile to protest your investment. Do not forget to make sure that your wine is insured during transport! Personally, my best long-term experience has been with DHL. DHL is not the cheapest service available, but they transport carefully, in good climatic conditions and any problems, such as broken bottles, are quickly resolved. DHL is probably the best general carrier to use when transporting investment wines. UK-based investors will also find the parcel2go.com site very helpful, offering various carrier options at attractive prices. There are also several carriers that specialize in wine transport. Their major advantage is that their whole logistic chain is designed to deal with wines and therefore you can be sure that your wine is being well treated. The principle disadvantage is that their services are only available in the major wine investment countries, such as France, UK, USA or Hong Kong. Storage If you buy wine with the idea of selling it in the future, storing it in a reputable bonded warehouse is a must. Only in this way can you guarantee to a future buyer that your wine is worth the market price: that it is still in a perfect condition and that even after leaving the cellars of its producer, it has always been stored in conditions equal in quality to those of the original warehouse. So, storing your investment wine in a specialized wine warehouse, which guarantees the right climatic conditions for correct aging of your wine, is essential. Furthermore, it is important to keep your wine in bond, to avoid paying taxes and duties. Taxes and duties mean unnecessary additional costs on your investment that can be avoided by storing your wine in bond. Wine stored in bond is also much easier to sell as, for example, most merchants prefer to buy wine in bond exactly for the above-mentioned savings reason. Storing your wine in reputable bonded warehouses is also very secure. These warehouses often offer additional services: they accept the wine in your name when it 13

14 arrives and check its quality, ensuring that it is in the condition in which you expect the wine to be. They can even send you a photo if you wish. If, at a later date, you sell your wine, they will take care of transport for you. NEVER forget about insurance! Wine is a fragile item and something untoward could happen to it at any time. It is not wise to risk losing your investment for the sake of spending a relatively small amount on insuring it. Prices for storing your wine at prestigious bonded warehouse are quite reasonable and absolutely worth the benefits. For example, London City Bond charges around 8GBP per case of 12 bottles per annum, including insurance. Prices for other bonded warehouses are comparable. Please feel free to check the list of recommended bonded warehouses at

15 Selling Investment Wine Price Evolution finding the right moment The profit you make on your wine investment depends on its future price evolution. You can never be 100% certain if, and by how much, the value of your wine will increase. However, in the case of Bordeaux wines, there is a certain evolution pattern which has been observed already, and which can help you to decide whether to sell or not. In the case of Bordeaux wines, the price goes through several phases. The first phase is when you have purchased the wine En Primeur, following which the price slowly increases for the next two years. The next significant price increase comes at the moment when En Primeur wines are bottled and released onto the market. This is the first right moment to sell for the investor who doesn t consider wine to be a longterm investment. After a wine has been bottled, its price increases slowly and any further significant price increase occurs really only at the moment when the wine is sufficiently aged and ready to be drunk. This can take around 10 years in the case of cheaper Bordeaux wines and up to several decades in the case of top Bordeaux wines. Evaluating Investment Wine Once you decide to sell your wine, it is important to know its value and therefore how much you can expect to receive for it. Assuming that your wine is in perfect condition (meaning that all the bottles have perfect labels, the bottles are still in their original wooden case (OWC) and you are able to prove quality warehousing) it is relatively simple to determine the market price of your wine. You can visit wine-searcher.com and check wine prices corresponding to the geographical area where you plan to sell. Your reference market price is the minimum wine-searcher.com price for a particular wine, quantity and format. To know the value of your wine (what you will receive), you need to subtract 10-15% from this minimum market price. The reason for this is that, no matter if you decide to sell you wine via the Internet, via a traditional wine merchant or at auction, 10-15% will be the minimum commission you will have to pay. 15

16 Where To Sell If your wine is in perfect condition and has been well stored, it should be easy to sell. You can contact your local broker or wine merchant or you can offer your wine for sale at auction. To find a local trading partner, please visit our wine merchant directory at and our wine auctions directory at Alternatively you could sell your wine over the Internet. But again, we must warn you to beware of Internet scams! If you sell your wine to an unknown buyer, be careful with the payment methods that you accept. Credit cards and Paypal can be a subject to a chargeback. The best option is to ask your buyer to pay in advance or use a third party escrow service such as moneybookers.com. 16

17 Costs of Investment Wine is a tangible asset and that is why there are some additional costs associated with investment, compared to other, more traditional, forms of investment. The most obvious are broker s or merchant s commission, storage, insurance, transport and money transfer costs. Broker s or Merchant s Commission Regardless of whether you buy/sell your wines from/to a traditional merchant or through an established Internet shop, you must always allow to pay 10-15% commission. Transport Transport costs can vary considerably and represent one of the disadvantages of investing in wine. The costs depend on the distance and the carrier and decrease substantially the more cases you send at once. A single case of wine sent across Europe costs around 60Euros with DHL. For wine, it is the industry standard to pay an insurance fee of 1% of the value of the shipment and this is indispensable! Warehouse A reputable warehouse will ask for around 12Euros/year per case of 12x0.75l bottles for storage. Money Transfer This cost cannot be ignored as it can represent as much as 2-3% of the value of the money transfer, especially in the case of using Internet payment services, such as Paypal.com or moneybookers.com or in the case of international wire transfers. 17

18 10 tips for Investing in Wine Evaluate Risk Decide if you want or are able to buy wine alone or if you will need the services of a broker or a consultant. Their services can help you to identify wines that would be way too risky to invest in alone and their commission charges can easily be recouped by potential high returns on your wine. If you want to invest alone, stick with the traditional labels and very good to classic vintages. Buy from Trusted Source You will only be able to sell your wine if you are able to prove its history. Buying wine of trusted origin from a reputable merchant is the first step. Create Portfolio To minimize investment risk, it is important to create a portfolio. Bordeaux wine should represent the majority of your wines, around 90-95%. Watch Ratings, Reviews and Numbers These can all help you to forecast the future evolution of wine prices and of your investment. Do not invest in wines with a Robert Parker rating of less than 95. Watch out for Formats and Quality The easiest to sell wine is that in standard formats (0.375l and 0.75l) in their original wooden cases of 6 or 12 bottles. Quality matters and only wines with undamaged labels and cases have a market value. Buy in Bond, Store in Bonded Wine Warehouse Avoid unnecessary extra costs such as duty and taxes by buying wine in bond and storing in a bonded warehouse. If you buy wine in bond you will be buying it at the 18

19 lowest possible price at that moment in time. Wine stored in bond is the most desired by wine merchants, for the above-mentioned financial benefits, and therefore is the easiest to sell. Insure Wine is fragile, that is why it is essential always to have your wine insured, no matter whether in storage or during transport. Document Keep and safely store all documents from merchants, transportation companies and warehouses relating to your wine investment. You might be asked to provide evidence of the quality and the origin of your wine. Beware of Scams Make sure that you are actually getting what you think you are buying: buy only from trusted sources and reputable merchants. Never pay more than 1,000Euros by credit card or Internet payment sites, such as Paypal or Moneybookers and likewise never accept more than 1,000Euro through these means. Better to use wire transfer. Look at 2nd wines of Bordeaux er Cru Especially from the past 2-3 years, the 2nd wines of the top Bordeaux estates represent a high yield investment option. Take a look at them. 19

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