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Wine indices buck the investment market trend

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“There is a rally somewhere.  You just need to find it.”  When the Dow Jones Industrial Average is down almost 20% year-t0-date the S&P 500 declining almost 24% and the FTSE down too, it seems like you have to look pretty hard to find some good news.  Suppose someone told you the LIX-EX champagne index was up 18.4% you might think: “Perhaps I should be investing in wine.”

But don’t be telling the bar owner you will take all the Bolly they have in the storeroom just yet.  There is a lot you need to understand.  Once bottled and sold, wine traditionally changes hands at auction.  Collectors buy it, store it, drink it or sell it.

There are several wine investment funds on the market.  Like buying stock, you can cut out the middleman and buy bottles yourself, consigning them to auction in the future.  You can buy an investment vehicle, bearing in mind they take a piece of the action for doing all the work.

Pros:

  1. Supply and demand. Famous chateaus only produce a limited amount every annual harvest.  Every time a bottle is consumed or broken, the worldwide supply decreases.
  2. Known winners. Unlike stocks, where you hope to discover the next Amazon or Microsoft, the wine world bases some indexes on the classics, certain Bordeaux wines listed in the original 1855 classification.  They are hard to find.  Collectors want them.
  3. Say goodbye to bad vintages. Years ago, chateaus produced a couple of great vintages per decade, a couple of stinkers and a few average years.  Technology in the cellar means terrible years are largely a thing of the past.
  4. Drink your profits. If your investment does not work out as you hoped, you can pull a couple of bottles from your cellar and enjoy them with a good meal.
  5. Improving over time. Fine wine tends to get better as the years pass. One of the most collectible wines is the 1870 Chateau Lafite Rothschild sourced from Glamis Castle.

Cons:

  1. Only the best. A small handful of wines are auction worthy.  The list of wines within the indexes is a good start.  Most will not be available at your local store.  They will be challenging and expensive to find.
  2. Provenance. People want to know whose hands touched the wine from the time it was bottled to the moment you consign it to auction.  You cannot say: “I bought it from a guy I met in a pub.”
  3. Storage. Wine is fragile.  It is sensitive to temperature and light.  It is heavy.  It needs proper storage before it is consigned for sale.  Wine pays no cash dividends.  Storage costs money.
  4. Commissions. Buying and selling at auction involves paying premiums.  If you are upset paying an annual 1% charge for professional money management, you will not like paying a 20% buyer’s premium.
  5. Faking-it. Anything worth owning is worth faking.  There are lots of suspect bottles out there, especially among older vintages.  Visit the website of a famous French chateau and you will likely see they offer bottle authentication services.

You can make money buying and selling wine.  Instead of making it your primary investment strategy, it makes more sense to follow the traditional British approach of buying two cases from your wine merchant, waiting for the wine to mature, selling off one case to recoup some capital and drinking the other.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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