WINE COLLECTION AS INVESTMENT - Mishu Agarwal

 

When you hear the phrase “wine cellar,” what pops into your mind? I picture a climate-controlled bunker attached to a gaudy beachfront mansion. Sure, wine collecting and investing is a popular hobby among the wealthy elite and has a certain snobbish connotation but that’s not the whole story. In recent years, it has become feasible and potentially lucrative for members of the middle class to invest in wine – in other words, to collect wine with the goal of selling it for a profit in the future.
To be clear, most wine isn’t suitable for long-term investing, and it’s unlikely that you’ll find a vintage that produces eye-popping returns. But if you commit to exhaustive research and avoid making purchases that you can’t afford, you could find it to be a satisfying, rewarding hobby. Plus, even if it never earns you a dime, your wine collection can double as a source of enjoyment for friends and family.

WHAT IS INVESTMENT GRADE WINE?

Investment-grade wine is wine that has a reasonable chance of appreciating in value over the medium- to long-term, typically at least five years. Non-investment wine can also appreciate in value over time, but it’s not recognized as a suitable investment by market experts because it doesn’t meet all the necessary criteria.

Critical Consensus. Investment-grade wine must be rated “classic” or equivalent by one or more noted wine publications, such as “Wine Advocate” or “Wine Spectator.” “Classic” usually equates to an average of 95 points or better on a 100-point rating scale.

Producer Pedigree. Independent of critical consensus, investment-grade wines must be produced by wineries or vintners with impeccable reputations. Generally, this measure favors established wineries over newer entrants.

Price Appreciation. The wine, either the specific vintage being assessed or previous vintages from the same producer, must have a clear record of price appreciation over a period of 10 years or longer.

Longevity. The wine must reach peak maturity, often simply described as “peak” or “peaking,” at least 10 years after bottling and be able to age (while remaining pleasurable to drink) for at least 25 years. By contrast, most non-investment wines peak within one year of bottling, and fewer than 1% of all wines peak after 10 years.

Production Quantity. Investment-grade wine needs a liquid secondary market. Though they may be highly valuable in theory, wines produced in very small quantities may rarely or never be sold, reducing or eliminating their usefulness as an investment. At the same time, widely produced wines may not be scarce enough to command high prices and reward collectors who want to cash out. Few (if any) investment grade wines are produced in quantities above 20,000 cases (one case is equivalent to twelve 750 ml bottles). Though there’s no hard-and-fast lower production limit necessary to ensure a liquid secondary market, wines produced in quantities of less than 50 cases may be too scarce to make reliable price predictions about, particularly if the entire supply is held by a handful of collectors.

 

COST RANGE PER BOTTLE

The value of investment-grade wine varies widely. It depends on a number of factors, including when the wine reaches peak maturity (wines tend to reach maximum value at or just before peak), the winery’s pedigree, critical assessment, scarcity, and current demand for a particular vintage.

With few exceptions, you shouldn’t expect to pay less than $30 for a 750 ml bottle of investment-grade wine. However, wines at the lower end of the price spectrum (roughly below $200) often carry more price risk – they may not appreciate in value as time goes on.

For instance, 2004 Chateau Sarget de Gruaud Larose, a red from St. Julien, France, has an excellent pedigree and was bottled with high hopes. However, famous wine critic Robert Parker characterized it as a “major disappointment,” and it now sells for about $35 per bottle on the Berry Bros & Rudd wine exchange after barely appreciating in value at all.

2008 Hermitage Rouge, a red produced by Domaine Ferraton in Les Miaux, France, suffered a similar fate. It rates 89 out of 100 by “Wine Spectator” – a good, but not spectacular, rating – and sells for about $70 per bottle at Berry Bros, mostly due to the Ferraton pedigree. Other Ferraton wines appreciate more rapidly and may sell for several times this amount.

 

Wine vs Stock: Which Is a Better Investment?

Much like the S&P 500 is the benchmark index for U.S. stock performance, the London International Vintners Exchange—commonly known as the Liv-ex—is the benchmark for the fine wine market. The Liv-ex Fine Wine 100 has risen by 270.7% over the two decades spanning July 2001 to July 2021, outperforming the S&P 500 by 8 percentage points over the same period, though only when you consider the index’s performance without dividends reinvested. When dividends were reinvested, the S&P 500 outperformed Liv-ex by 60% over the same period.

In short, wine can be a very lucrative investment. But an important buyer beware: You should bear in mind that indexes like Liv-ex and Sotheby’s track tens, if not hundreds, of wines, and any individual wine in the index may not exactly replicate the performance of the index itself.

This means that just like you choose a variety of stocks to diversify an investment portfolio, you’ll want to buy a variety of individual wines to avoid placing too much weight on the performance of one vintage or producer. You’ll also be targeting invest-grade wine rather than the less expensive bottles you might buy from your local wine shop.

 

When choosing wines as an investment ,quality of the product is key. Quality also guarantees longevity, and this is key because the owner of the bottle can be comfortable that there is no time pressure in case they decide not to enjoy a great bottle but to sell it. Rarity is also a key element of the equation

 

WHERE, HOW, and COSTS TO SELL YOUR WINE?

In-Person Auctions. Auction houses such as Sotheby’s, Christie’s, and Condit and Morrell & Co offer selling opportunities and can be particularly useful if you’re offloading highly valuable wines. However, since auctions may occur in a specific location and during specific periods, you may need to plan ahead. Also, auction houses tend to charge rather high selling fees. These are typically assessed on a sliding scale that considers factors like quality, selling quantity, and producer, and may range from nothing to as much as 20%. The more valuable your collection, the more likely it is that your selling fees will be lower or waived entirely.

Online Auctions. Wine auction sites like VinFolio, WineBid, and Spectrum Wine Auctions are great selling venues as well. Selling costs vary widely. For instance, at Spectrum Wine Auctions, buyers shoulder all costs, with sellers receiving the full amount of the sale. Meanwhile, Wine Bid takes a commission of anywhere from 14% to 20% of the sale price, passing just 80% to 86% to the seller. Wine Commune is in the middle, with commissions ranging from 2% to 5% (depending on sale price).

Online Wine Exchanges. Cavex, London International Vintners’ Exchange (Liv-Ex), Berrys’ Broking Exchange (BBX), and other online exchanges all facilitate person-to- person sales. Though selling minimums vary by exchange, you may be able to sell as little as one bottle at a time. In other cases, the minimum selling threshold may be a single case or a specific currency amount. Selling commissions vary widely: CaveX takes just 3% of the final selling price, passing 97% along to the seller, while BBX takes 10% of the final selling price.