How to Invest in Wines: What should you know in 2020?
January 26, 2019
Fine art, classic cars, handmade watches and chronographs, especially of Swiss origin – these are the things that most likely come to mind when you think about buying prestige items at auction, and with just cause. These are truly wonderful creations that can command incredibly high sale prices and transform your investment portfolio. But there is one investment alternative that is almost criminally overlooked, and that is fine wine.
Oft sorted into the ‘alternative’ category when it comes to investing in desirable objects, along with rare coins, stamps, and other curiosities, wine has recently become increasingly popular for collectors and investors. In fact, 2018 saw the record for the most expensive single bottle of wine being broken 5 times.
What are the advantages of investing in fine wine?
It may be puzzling to those who aren’t particularly interested in wine as to why anyone would pay so much for a glass container of fermented grapes, but there are plenty of level-headed reasons as to why it could be a safe and considered financial decision.
For one thing, much like the other previously mentioned alternative investments, the fine wine market is resilient to economic storms thanks to the niche nature of the pastime combined with the passion of the dedicated collectors.
Collecting fine wine is a fairly practical and low-maintenance pastime as well. Hanging fine art requires wall-space and special lighting to minimise fading; watches need cleaning and routine services; classic cars need automotive pampering and a garage that isn’t filled with old paint-cans and spiderwebs. But with wine, all you need is somewhere dry and cool to store it safely (a cellar is the most obvious choice) and then you simply leave it to accumulate value, worry-free.
The inherent rarity that comes with a vintage case or bottle is one of the strongest aspects of what makes fine wine desirable both to a buyer and a seller. If you had £200,000 to invest in something, and you bought, say, a Ferrari 488 or a McLaren 720S, then you’ve got yourself a fantastic supercar, but you’ve also bought something that will one day be superseded by a newer, more advanced model. But a 1937 magnum of Bordeaux that is one of a thousand simply remains what it is, and won’t be relegated to obscurity by a newer, better 1937 magnum.
What should you look for when purchasing wine?
Place of origin – As you will probably know, there are wines with protected places of origin, most famously sparkling white wine from the Champagne region of France. In the same vein, the estate or vineyard where the grapes were grown and subsequently fermented and bottled is key when it comes to the value of an item.
Prestigious wineries and chateaus have accrued reputation and thus desirability over time, such as Musigny, Romanee-Conti, Chambertin etc. Researching the history and appeal of a winemaker is an advisable step before investing.
Age – everyone knows the phrase ‘aged like a fine wine’ and naturally it applies here. Many of the most valuable single bottles ever sold at auction were first pressed and bottled pre-1900, with some being as old as 1789. Of course, age alone does not generate worth, but it is a key factor.
Providence – proof of origin and the history of the bottle/case. Auctioneers will of course make sure that any item has the proper certification and proof of authenticity, but this is still something to bear in mind when buying or selling. Fakery and deception are the nemeses of any collector, and keeping your guard up is key.
In more depth…
Here are a number of factors to look out for when you’re trying to put a value on a bottle of wine. It can take years of studying and expertise to put a precise figure on a bottle, but by following this checklist you’ll certainly be able to figure out if your bottle is a fine wine, or a dud.
The first – and easiest – thing to do is look at the region the wine was produced in. Was it harvested in a well-established wine region, or a less developed wine region? Wine from a country such as France, Italy or Spain is far more likely to be valuable than a wine from the USA, or European countries with less of a long-standing wine tradition, like Germany.
You then need to look closer, and figure out which region within the country of origin your wine was harvested in. Certain regions are well known as producers of premier wine, and this will affect the value of your bottle. However, don’t make the mistake of assuming that your bottle of wine is valuable just because it’s French, Italian, or Spanish; wine harvested in one of the premier wine growing regions in California could well be more valuable than a lesser French wine.
Terroir is a word that is overused by wine connoisseurs, and one that often confuses those not in the know. So what does it mean? Terroir is the French word for ‘land,’ and it refers to three main factors; climate, soil, and terrain. These three factors affect the way grapes grow, and can therefore have an impact on the overall flavour of the end product.
Climates being cool or warm can affect the sugar levels of grapes, with a hotter climate linked to high sugar content. There are hundreds of soil types that can affect the flavour of a wine, and while it may take some research, this is worth learning about. Finally, the terrain can have an impact; grapes grown at different altitudes, and at differing distances from a body of water can both have an impact on how a wine tastes. Another factor people may be referring to when they use the word terroir is the winemaking tradition of the region.
So how can this be used to value a bottle of wine? Wines from certain terroirs around the world are more valuable than others, so do some research on the wine’s terroir and see if it’s particularly notable. If it is, your wine could be quite valuable.
The age is an important factor when assessing a bottle of wine. A bottle of fine wine does not have to be old to be valuable, and a bottle being old does not automatically make it good in its own right, but it’s certainly a handy indicator of value. A wine that is decades old may well be highly valuable, it’s just that you have to take other factors into account.
Additionally, you need to consider the time taken to make the wine, not just the year of harvest that’s printed on the label. A wine that has been aged for 6 years in the barrel is likely to be far more valuable than one that’s been aged for a few months. Do some research on your particular bottle, and you should be able to find out how long it was aged for.
In the past, you’ve probably heard a wine connoisseur refer to a wine as being from a ‘good year’. What does this mean exactly? What they’re referring to is the year the grapes were harvested. As with any agriculture, the yield of a harvest can fluctuate. There can be bad years, with not enough sun or moisture, and the grapes can turn out badly as a result. And then there are good years, where all of the factors affecting harvest come together to result in perfect grapes, and a great tasting wine. Of course, this wildly differs by region; a good year in Bordeaux may have been a terrible year in Tuscany. Do your research and figure out if your wine was part of a good harvest. If it was, you’re more likely to get a good price for it. And if you’re looking to pawn fine wine, the higher the price the better.
Just one of these factors positively applying to your bottle in isolation is unlikely to make your wine valuable (though I’m sure it will taste good). However, if two or more of these factors apply to your bottle, you could well have a valuable piece on your hands. If that’s the case, I would recommend taking it to a wine valuations specialist to find out the monetary value.
Some of the Best Fine Wines to Drink or Collect in 2020…
The Top 10 wines of 2020 are mostly great reds and span the globe from Tuscany to New Zealand. As Wine Spectator said when they published their highly respected list recently, ‘it’s a great time to be a wine lover’.
Much has changed since the first Wine Spectator Top 100 list in 1988. Then, the top ten was exclusively European, apart from one Napa Valley Cabernet Sauvignon. Classic French names dominated the top five and most wines were predicted to be best by 2000. Today’s leading vintages are ready to drink, but worth laying down too. So whether you’re a wine lover or collector, here is our choice of the world’s finest wines with immediate appeal and investment potential.
Au Paradis Cabernet Sauvignon 2012, Napa Valley
Wine Spectator’s ‘Wine of the Year 2015’, from celebrated Peter Michael Winery, is part of a long tradition of fine Cabernets from Napa Valley’s Oakville District. Described as ‘deliciously pure and supple’, the wine is excellent to drink now through to 2030.
Evening Land Pinot Noir 2012, Oregon
Evening Land are renowned for their terroir Pinot Noir and this 2012 vintage is considered their most stellar offering to date. Called ‘seductive, silky and stunning’, just 1176 cases of the wine were issued in 2015 and it is best between now and 2022.
AALTO Tempranillo 2012, Ribera del Duero
Established in 1999, AALTO is a relatively young Spanish winery with an exceptional record for quality vintages. Placed at number six in Spectator’s Top 100, this pure Tempranillo is aged for 20 months in 85% French oak and described as ‘muscular and graceful’.
Escarpment Pinot Noir 2013, New Zealand
Winemaker, Larry McKenna, is often called the ‘godfather of New Zealand Pinot Noir’ and his 2013 vintage confirms that reputation. Produced in the acclaimed Martinborough Region, this outstanding Pinot is drinkable now through to 2030.
Much like art, cars, and other coveted items, wine can be either sold privately via merchants or auctioned off. Notable auctioneers such as Sotheby’s and Christie’s have their own dedicated branch for the subject, offering rare and desirable lots for sale with expert authentication. The numbers being reached before the gavel falls have shot up in recent years. Below are but a few examples of bottles or cases sold at auction, notable for their price and/or their heritage.
DRC 1945 Burgundy – £424,000
As mentioned before, the 2018 Sotheby’s Wine auction saw the world record for a single bottle of wine being broken repeatedly, with this particular item ultimately taking the top spot. Domaine de la Romanee-Conti, a French estate with over seven centuries of experience, holds the reputation amongst collectors as being the best source of the world’s best wine and this bottle of 1945 vintage may very well be just that. If you wish to pour yourself a glass of heritage and history, you may need some substantial capital to do so, as there are now only 600 bottles of this lot in existence.
1907 Heidsieck & Co Monopole Champagne ‘Diamant Bleu’ – c£200,000
This bottle is an example of how a wine’s story can also add to its allure. Recovered from the seafloor over five decades after the ship it was onboard was sunk by a German U-Boat, this champagne sold at 228,000 euros at a Moscow auction. Hopefully the taste of this rare wine hasn’t been tainted by unwanted notes of saltwater.
Chateau Margaux 1787 – c£180,000
Coming from a renowned French vineyard and being over two centuries old, it is no surprise that this bottle of Chateau Margaux commanded 191,000 euros at auction. But it transpires that age and quality are not the only reasons this bottle was so highly sought after. It had in fact been owned by Thomas Jefferson, third president of the fledgeling United States, which elevated it beyond a ‘regular’ bottle of 1787 Chateau Margaux. Unfortunately, the bottle was dropped not long after it was bought at auction.
Six bottle case of DRC Romanée-Conti 1996 – $134,750
Cases are also an option for the prospective wine investor. If you’re a wine enthusiast, and the idea of buying and reselling without tasting the sublimity of what you’ve purchased feels almost sacrilegious, then a case might be the best solution. Here, you can buy 6 bottles in a single fell swoop, savour and enjoy one and sell the 5 on individually. It might not be the most efficient strategy from an investment perspective, but sometimes you’ve simply got to treat yourself.
Of course, much like the other areas of investment, there are many strata when it comes to buying and selling wine. Six-figure single bottles are the upper echelon, and there are still plenty of desirable yet moderately priced wines that can still be a valuable addition to your portfolio. Some Chateau Lafite-Rothschilds can be had for as low as £2,000 and there are plenty of online auctions that can help give you an insight into the market itself. Equally, while smoking your cigar in Barbados, you might think you have to wait decades to make any return – in fact, experts have advised that between 5-10 years is the optimum length of time for reselling.
Wine prices at auction have increased roughly threefold over the last decade, and this upward trend is likely to continue as more people are drawn in by the relative security of the market and the inherent charm that comes with trading objects with a great deal of history. A good wine can help elevate a meal to new heights, but a truly great wine could benefit you and your portfolio hugely.
Investing in wines…A £20M COLLECTION case study
An overseas businessman has been given a loan against his collection of fine wines, valued at £20m. The businessman, who chose to remain unnamed, sought the capital in order to invest in new business interests.
The £20m loan was brokered by Octavian Vaults, a company specialising in the storage of fine wine. Their well-guarded vaults are located 100 feet below the Wiltshire hills, and are made from solid Bath stone. According to Octavian’s website, this allows the temperature and light to be kept at an optimum level. One of their cellars was used during the second world war to store ammunition, and was likely built to be deep underground so as to avoid enemy shelling.
Octavian’s private vault is home to bottles of fine wine belonging to 10,000 private collectors. Rumoured to be among them are West End and Broadway composer Lord Lloyd Webber, and former Manchester United manager Sir Alex Ferguson, who was known to enjoy drinking fine wine with his opposite number after matches during his time at the north-west football club.
In order to provide the capital – which Octavian could not provide alone – they worked alongside Emigrant Bank Fine Art Finance, to whom they had to provide certification that the wine was genuine. They also had to provide proof that the wine would be kept in satisfactory conditions. It’s thought that the loan provided was equivalent to most of the wine’s value.
After the crash of 2007 / 2009 wine investors in Europe were chastened by the volatility the market was displaying, and, as a result investments of this kind slowed. However, this market has regained momentum and confidence has been restored, partly due to a colossal new far eastern market; burgeoning and eager for everything and anything luxury, European and revered. Assuming that the global consumption of fine wine continues to grow, these markets have the potential to be seismic and influential. China represents a huge percentage of this potential growth, as a result of the increasing wealth and high-end taste of the nation. In this context, the market leaders in fine wine have held value for many years due to a carefully constructed and long maintained reverence as producers. Bordeaux, Champagne Cru, La Rioja have all been produced in these provinces of the world throughout history, and as such today, attract some of the wealthiest buyers from the US to China. These wines are revered and like anything, investing in them carries some potential pitfalls in natural market fluctuations.
Faux Fine Wine
There are always risks in investing large sums of capital in liquid assets, from the scams of the early 2000’s to modern sophisticated counterfeiters. It is not difficult to see why – during the massive fine wine investment boom of the early 2000’s – that the draw to wine counterfeiters was so high. Landbank fraud was on the rise, the metropolitan police reported in this period. In a telegraph article from 2011 it was said that
“Fine wine investment fraud is the latest in a long list of scams and frauds costing UK consumers over £38bn a year, according to the National Fraud Authority.”Matthew Wall |Saturday 25th June 2011
Top Ten Wine Frauds in History
- The Jefferson Bottles– 1985 – present
- Brunello di Montalcino – 2008
- Red Bicyclette – 2010
- Georges Duboeuf– 2005
- Austria and antifreeze– 1985
- Italian methanol scandal – 1986
- Dishonest blending practices in Bordeaux – 19th century
- Champagne investment scam– 1997
- Rhône producer accused by daughter– 2010
- Fake Mont Tauch in China– 2007 – 2010 Source: The Drinks Business
At the time (2011) the return on fine wines, such as Château Lafite, Château Mouton Rothschild and Château Margaux, had far exceeded other fine wines on the stock markets, thanks to the rising demand from increasingly affluent emerging economies such as China during the 90’s.
Ask any luxury retailer where there biggest customer base comes from and it will always be China, from luxury British goods to fine wines. It is no lie that Chinese and far Eastern Markets have a tendency to romanticise the UK’s monarchy and this trend seems to extend to the luxury goods sector as well. These countries represent new money in the luxury sector, the purchase of fine and rare wines is no different.
Macroeconomic Alarm Bells
Although China’s addiction to luxury goods is commonplace, rife and omnipresent there are definitely macroeconomic signs throughout Asia and in China. The volatility of the Chinese stock market is occurring at a staggering degree, and recent efforts by the Chinese government led to a widespread understanding that this problem was under control. However on July 27th the Shanghai Index dropped by 8.5 percent, the largest since February. Avery Booker a partner at China Luxury Advisors says:
“The stock market fluctuations are unlikely to have a significant impact on luxury consumption” , “Chinese consumers generally see the Chinese stock market as a casino, and don’t adjust their purchases of consumer goods based on its ups and downs.”
This quote seems to present an emphatically resolute conclusion, which Chinese consumers are unaffected, or will find other solutions, such as British real estate, in order to contain and protect their wealth from wild and unexpected market fluctuations.
“For the ultra-affluent Chinese consumer, these market gyrations combined with the geopolitical uncertainties have accelerated the push to extricate their currency from the Chinese economy,” Wealth-X’s Mr. Friedman said. “This will mostly manifest itself in luxury residential real estate but that impulse will spill over into other luxury purchases as well.”
Although stock market changes may have only had a slight psychological impact on luxury purchases for the Chinese,. When we look historically at this market, we may say it is one that is infantile, immature even. Online rumours have spread that talk of ultra-high net worth Chinese men mixing Coca-Cola with their wine as they disliked them so much, whether this is true or not is another question but it does bring the maturity of the market to the fore.
Fine Wine and Bribery
Luxury is about aspirations and the dream armada of consumable items. This is including fine wine and spirits for these newly rich, elites and governmental forces of the Far East. The corrupt landscape of these political arenas has been widely known for a long time. In a recent news article Good Cat Cigarettes – retailing at an equivalent of $889 in China – are amongst other luxury items that are suspected of being used to bribe officials on a large scale.
Then in 2013 this all came to a grinding hault as new Chinese President Xi Jinping sharply cracked down on gifting as part of his broader anti-corruption drive, wine (and spirits) sales began to fall.
“A market force no one seemed to have predicted had pierced the bubble. Gifts were an ostentatious aspect of the corruption Xi sought to root out — if someone did you a political favour, or bent a rule, a gift was given and received. Many believe that the wines given were often never even consumed, and that fact didn’t really seem to matter. With no more gifts, the market began to slow. As demand currently remains soft, prices sit near five-year lows, with many of the finest wines still off nearly 40% from their gifting-induced peaks in 2011” VinePair.Com
In August 2015, the Bordeaux region reported a drop of 13% in sales, and a 9% decline in exports to China, it’s hard to see how these were not directly related. The global luxury conglomerate LVMH reported a slowing of sales across the board whilst wine and spirits weighed the most on the company’s balance sheet.
China has been said to have an insatiable thirst for fine wine, yet the decline in the market induced by a ‘market force nobody could predict’ represents the challenges facing luxury brands. These brands are having to retain a market share amongst an immature and volatile stock market. The world of gentleman investing in 6 casks of Merlot, drinking 2 and selling 4 to buy another 6 younger wines has long since disappeared, and there are new forces at work here.
Emerging Growth Areas for Fine Wine producers
Traditionally, some of the biggest, most dominant and instrumental forces in the global fine wine market have been some of the larger western and European economies. Recently – and as a tone echoed throughout the press – markets in the Far East have been gaining impressive momentum in their fine wine consumption and drinking habits.
For suppliers of luxury products from a DB10 to a fine Chenin Blanc this is welcome news. But what has traditionally tied regions of the world with some of the finest wine production?
From the vine to the market…
The concept of ‘Terroir’ is telling of this. It has a deep resonance with producers and fine-wine lovers alike; it refers to the complete natural environment in which a particular wine is produced, namely the soil used to grow the grapes, the topography and climate.
But despite being a product very unique to its terroir the globalisation of fine wine continues to become an ever-more far-reaching reality and now wine producers are looking to the Far East to expand their market.
‘There is no doubt that the vibrant wine market of Hong Kong gives a perception of more noise and
excitement than the genteel auction houses of Mayfair and St. James’. As the gateway to the giant Chinese market, and with its reputation as a global trading centre, the new wine route is clearly still taking an easterly direction. For us, the Asia region still represents more than 50% of our total business.’
Stephen Williams AWC founder – in ‘Looking East’
Being deeply evocative of the natural elements that influence the production and therefore quality of the wine it cited as an ancient consideration of why these regions produce the best fine wines.
Wine has been consumed for its pleasurable and intoxicating qualities for millennia, an ancient past-time. But the desire to classify and sort wine into a system depending on its distinct quality – and pleasurable merits of distinction – happened much later in 18th and 19th century Europe.
From Vin De Table (table wine) at the lowest of the rungs of classification right through to Vin de Pays and Appellation d’Origine Vin Délimité de Qualité Supérieure (AOVDQS) there are many varieties within these prevalent classifications. These distinctions carry great reverence and influence popularity due to their superiority.
World-wide these wines are seeing new areas of demand in the global market and are adjusting accordingly. These new pools of wealthy are exactly that, impressively lucrative, dynamic and contemporary demographics of a new rich.
Forbes Magazine cites the dynamic shifts in the ever-changing distribution of wealth and prevalence of high-net-worth individuals worldwide as being more concentrated in China than previous years. In fact:
‘There are 63,500 ultra-high net worth individuals with assets of more than 100 million yuan’ Forbes.com
The world’s most expensive fine wines from Bordeaux, Burgundy, Rhône, Champagne and Spain have seen phenomenal growth in sales in Hong-Kong, the gateway to China and to new Asian markets, as a result of this re-distribution of wealth.
Many thought-leaders have put the maturity of this market into question, its sensibilities and tastes not yet mapped, however there is a clear spike in demand.
Berry Brothers and Rudd – a revered British fine wine and spirit merchants – have said that although the UK continues to ‘dominate’, China is displaying huge growth as stated below:
‘China is becoming an increasingly important player in the fine wine market, and for Bordeaux in particular Chinese wine lovers are the 2nd biggest buyers of top Claret by volume behind Germany, and the 3rd biggest by value, behind Hong Kong and the UK.
The pace of growth of Bordeaux imports in China, however, far outstrips that of every other country.’ Berry Brothers and Rudd – Fine Wine Report
Although China and is the 2nd biggest buyer of top claret it sits in 11th and 20th place in terms of overall export value for fine wines generally, and when we look at sheer volume consumed China generally leaps up to 14th ahead of Hong Kong in 16th.
Some of the biggest names in the industry commented on the future of the wine market in Hong- Kong and had very high hopes. Eddison Leung said that:
‘Hong-Kong is the window to China… [and] to an audience of sophisticated consumers who are well educated in this regard and have purchasing power. The average purchase prize is between 60 and 120 euros.’ Eddison Leung in – ‘Hong Kong’s fine wine scene.
The fine wine report states conclusively that ‘It is clear that Burgundy is looking to target China as a major market for the future.’ And for good reason, as distribution of wealth changes with the dynamism of 21st century economics there will surely be new surges in demand for luxury products – including fine wine – overseas.
Emerging Fine wine geographical areas…
California Is Where The “Interesting” Fine Wine Is At
Speaking during Pol Roger’s showing of the wines from California’s Robert Sinskey’s Vineyards and many others, James Simpson stated that California is the place for fine wines. As the sales director at Pol Roger UK and Master of Wine, we’re pretty sure he knows what he’s talking about.
Having just added Robert Sinskey Vineyards, following the acquirement of Staglin Family Vineyard (both based in California), to their portfolio, Simpson says that the current trends in the UK are pointing toward Californian wines. According to him, they are crucial to the continued success of Pol Roger UK.
Pol Roger is a notable producer of champagne, producing at least 110,000 cases annually. Dating all the way back to the 1860’s, Great Britain has always been the premier export market for Champagne Pol Roger.
In a statement he said, “We think that California is the next big thing in terms of fine wine and the exchange rate is good and the UK wine trade is looking for something posh to sell, and we’re not excited about Australia, South America or South Africa.”
He noted that the recent additions to their portfolio were not necessarily needed but rather the companies wanted “international respectability”. He said that Staglin are likely to “open the doors” in “uber posh American restaurants.”
Although not revealing anything, Simpson also said that Pol Roger UK is looking to take on another name from California. Whilst he does adamantly say that California is the place to be for fine wines, as he thinks, “[…] California is more interesting than anywhere else in the New World,” he also mentioned Oregon as a place of interest for Pinot Noir.
If you’re looking to pawn fine wines, get in touch with us today. Our Blenheim Street shop is based in the heart of Mayfair. Appointments can be made, but are not 100% necessary; we’re always happy to take walk-ins. We look forward to seeing you – and your fine wines – very soon. Some of the wine we loan against includes Chateau Petrus, Chateau Margaux, Chateau Lafite and Chateau Mouton to name just a few.