If you insist on buying wine as an investment despite my post of yesterday (see ”
Pleasure before profit – Thoughts on investing in wine”), then take the following factors into account to maximize your chances of a positive outcome:
- Choose “investment grade” wine - To be a candidate, the wine should have been rated well by recognized critics, preferably 95+ points by someone like Robert Parker, Stephen Tanzer, or Allen Meadows. It also helps if the producer’s wines have a proven track record for improving in the cellar.
- Pay attention to a wine’s supply and demand factors -This includes looking at the absolute case production in a given vintage as well as where the wine is in its lifecycle. If a wine is close to its peak drinking window, it’s time to sell as it won’t get any better and demand is likely to fall.In short, a wine held too long will begin to fade and so will its value. See my prior post on “An explanation of fine wine prices.”
- Buy competitively - The wine industry can be very inefficient, in part because of crazy state regulations left over from the repeal of Prohibition. The average retail price spread for a wine on Winesearcher.com is 2x from high to low. If you don’t buy competitively, you will be “in the hole” from day one.
- Inspect your purchase– Verify that you receive what you purchased and ensure that the condition of bottles is satisfactory. I once received a case of the wrong vintage of a very expensive grand cru red Burgundy. Unintentional shipping errors happen.
- Exploit arbitrage opportunities - For example, if you can secure a spot on the mailing lists of cult California wineries offering highly allocated wine, you can immediately sell any purchase for a profit. But there are probably less than two dozen of these wines and the wineries typically have multiyear, if not 5-10 year, waiting lists.
- Sell efficiently - Selling wine typically incurs transaction costs which are very high in comparison to financial securities. A sale transaction with a major auction house may carry a fee overhead of 30%-35% (or more) of the market value. Vinfolio’s personal selling service offers a very efficient alternative with retail-based pricing and fees as low as 13%.
- Target up-and-comer wines - One reason Vinfolio has a full-time reviewer, Doug Wilder, based in Napa Valley, is to discover and review promising new wines before they are reviewed by mainstream critics (that may generate price increases). Read Doug’s free weekly wineletter, the Wilder Side of California, and his blog, Free Run Juice.
- Protect your investment – The “carrying costs” for a wine investment can be significant but are unavoidable for protecting your investment from a catastrophic loss. In particular, store wine in a temperature-controlled environment at all times which typically costs $1/bottle to $3/bottle per year at an offsite storage facility. In addition, insure your wine which costs about 0.4% - 0.5% of the market value per year.
One big wild card
Should a major wine critic later downgrade his rating of a wine you own, you’ll see the value of your wine fall. Conversely, upgrades raise the value. The only problem is that this volatility is completely out of your control.
Drink your losses
Buy wine you’d be glad to drink so you can convert your losses into gains!
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