Assembling a collection of fine wine certainly seems like a glamorous way of storing your wealth, but does it really make sense as a hard-headed investment? Jon Wall asks the experts.
As an alternative to traditional investments in a diversified portfolio, wine is becoming popular among high-net-worth individuals. Although it can take several years before significant returns are seen, many investors believe that the rewards can be worth the wait – indeed, among the various classes of passion investments, wine has become as popular as, say, rare watches or classic automobiles.
As with any investment of this nature, however, wine obviously requires more than a modicum of passion – and that, surely, is a part of its appeal. According to Michelle Chan, head of the wine department at Christie’s auction house in Hong Kong, “We believe that the beauty of wine is that ultimately you can enjoy and share it with friends. So usually I wouldn’t advise clients to buy wine solely for investment purposes. I want them to enjoy it. Of course, there’s no harm in setting aside a portion that they can resell later, but I do think that clients should buy wines that they’d like to drink.”
Her view is broadly supported by Simon Tam, a Hong Kong-based wine expert and consultant who’s also a former auctioneer. “I would recommend wine as part of an investment portfolio, assuming that you love wine to start with,” Tam says, “though quite honestly, I think there are a lot of things in the world that yield a much higher return than wine.
“The idea I’d like wine lovers to consider,” he adds by way of explanation, “is that there’s nothing better than getting a really nice glass of wine for free and all because you invested wisely. For example, a lot of people bought 1982 Bordeaux, and those who got on to the bandwagon early made money and drank a lot of wine for nothing, because when they came to reselling their surplus quantities, their investment paid for itself many times over. Like many investments, however, you have to keep an eye on it, you have to keep an eye on the ball.”
Tam recalls a meeting he had with a prominent wine client when he first joined an auction house more than 10 years ago. “I asked quite innocently, ‘Why do you invest in wine?’” To Tam’s surprise, the client just laughed and said, “I don’t really invest in wine. I love wine, I love drinking it and I love learning about it.”
Even given such a degree of passion, individuals who are considering devoting considerable sums of money towards the accumulation of an investment-quality wine collection should be aware of several caveats before they even start. There is, rather obviously, the fact that wine is a commodity that can change over time – to its benefit as well as to its detriment – and that, however good and worthy of laying down for three, four or five decades or more it may be, at some point it’s likely to reach a peak of flavour and complexity, after which it will probably deteriorate. There’s even the very simple issue – as Tam demonstrates by waving a cork – of the material most commonly used to plug premium bottles, poor examples of which can help “cook” or otherwise taint even the finest wines.
Bottle breakages don’t even bear thinking about, but they can happen too. So you need to take care of your wine, which in the vast majority of cases means proper, ie professional, storage in a darkened space where a constant temperature of around 12-14 degrees and humidity of around 70 percent are maintained, and which should preferably be vibration-free — and storage such as that is unlikely to be cheap.
“Too hot, too cold or too dry will do harm to the wine,” says Chan. Unlike rare coins, jewellery or watches, cases of wine take up considerable space, a factor that not only directly influences storage costs, but also the expense of shipping the wine from wherever you bought it (which is likely to be Europe or the United States) to the place that you intend to keep it.
“If you’re buying wine to be consumed within three to six months,” says Chan, “it’s OK to keep it in your home, though you should have a wine fridge. It would be even better if you had a basement, but in Hong Kong that’s unlikely! For long-term storage, say years, you really need a professional cellar, and that could be quite expensive. There are lots of private storage spaces for wine in Hong Kong, but the rent can be up to $50,000 a year for 50 square feet, which would house around 100 cases.
“Loose bottles are fine for short-term storage for your own consumption,” she adds, “but if you’re going to store the wine for years then I’d strongly recommend the original wooden cases.”
In an age and culture when apparently anything and everything can be faked, provenance is another issue that must be taken into account (though establishing a wine’s history isn’t solely concerned with whether or not it’s the real thing, but also if it’s been properly stored).
Are you sure that case of 1998 Château Lafite Rothschild you just shelled out a small fortune on isn’t some cheap plonk that’s been rebottled? Well, if you’ve obtained it through the proper channels – which generally means from a reputable auction house – you can be fairly sure it is. Any self-respecting auction house has its reputation to consider, so it will exhaustively research the history of the wines it’s offered – where and when they were bought, how they were stored, etc – and even sometimes taste them before agreeing to sell them.
As to the kind of wines that are likely to make good investments, the list is actually rather limited. “I would go for French wines,” says Chan, “wines from Burgundy, Bordeaux, Champagne and the Rhône Valley. Outside of France, you can consider top Italians and California wines.
“Of course you have to consider the vintage, too. The better vintages can last longer. Take, for example, [Bordeaux] 1993, which is not a very good vintage. If you bought, say, 20 cases, these are already past their peak and if you try to resell them now they won’t be worth as much. But in any case I’d suggest not focusing on a single vintage: your collection should spread out by decade. Even if you know that 2010 is considered a great vintage, don’t buy all 2010. Remember the best vintages and spread out. For Bordeaux, it’s 1945 – if you can still get some – ’47, ’49, ’59, ’61, ’80s … You need to remember the good vintages for each region.”
Tam, meanwhile, warns potential buyers off Burgundy, which he says is a costly investment that’s unlikely to generate much in the way of returns. “The reality,” he says, “is that the wine world is driven by Bordeaux, and people like some Burgundy. For the past few years, Burgundy prices have reached a plateau and now they’ve got nowhere to go. The boom has passed, though top Burgundies [such as the near-legendary Domaine de la Romanée-Conti] will likely maintain their value because of limited quantity.”
Tam, however, does make a strong case for champagne. “If you’re a wine lover,” he says, you’ll know that aged champagne – and this has been true for a few years now – is magnificent and you just can’t go wrong with it. I’m talking about champagne that’s got bottle age. That means you’ve got to buy and cellar for four, five or six years. In that time, you can make 20 to 22 percent, which is better than money in the bank – and that’s why it’s become a bit of a trend. There’s also a proliferation of auction houses and dealers who are eager to snatch it off you, because it’s increasingly hard to find. This requires passion, foresight, a degree of knowledge and not even that deep pockets to be honest.”
As for monetising your collection – or, at least, the part of it that hasn’t already disappeared down your throat or that you wish to put aside for future consumption – Chan says that the best option is to ask an auction house to give you an estimate.
“The usual procedure is that a client will send us a list – it could just be a simple spreadsheet – with wine names and quantities, and I’d ask where they got the wine from, where they’re stored – very straightforward questions. Then we’ll prepare low and high estimates, and negotiate as to whether they’re happy with that, and then we’ll agree on the list that they’d like to sell – and, of course, the more wine there is, the better the terms will be. I’ll also give them some recommendations: for example, if you have 20 cases of Latour 2005, I might not want to offer all 20 in one auction. Instead, I might recommend that they offer five cases in the first auction, five in the next and so on. I’d let them know our strategy.”
“There’s another option,” says Chan, “and that’s what we call a private sale. But it has to be a high-value collection, and for a private sale it would have to be a separate proposal. It would have to be worth at least $1.5-$2 million potential. And we’d offer a net value.”
Assuming all goes well and you manage to dispose of a portion of your investment at a satisfactory price, you may not only have made a pretty profit on the transaction but also, as Tam suggests, have enjoyed several years’ of imbibing some of the finest wines known to mankind – and all for next to nothing.
Most Sought-After French Wines
According to Christie’s, at least some of these bottles should feature in any investment-quality collection.
Château Lafite Rothschild Château Latour
Château Mouton Rothschild Château Margaux
Château Haut-Brion Château Pétrus Château Cheval Blanc Château Le Pin
Best vintages: 1945, 1947 1949, 1959, 1961, 1982, 1989, 1990, 1996, 2000, 2005, 2009, 2010, 2015
Domaine de la Romanée-Conti Domaine Armand Rousseau Domaine Georges Roumier Domaine Leroy
Best vintages: 1978, 1985, 1989, 1990, 1999, 2002, 2005, 2009, 2010, 2015
Best vintages: 1982,1985,1996, 2002, 2008
This story first appeared on PrestigeOnline Hong Kong