18th July 2013
Nick Martin, founder and CEO of Wineowners, considers the history of wine investing and the reasons for investing.
As well as being a passion for many, wine is a classic collectible asset. Fine wine differs from stocks and shares in that it doesn’t produce an income and is not fungible. In that regard it’s similar to other collectible pleasures such as such as art, stamps, coins, cigars and classic cars.
Fungible means ‘interchangeable’. For example, cash is fungible; one £20 note having equivalence with any other note of the same value. Pure gold is also fungible, a gram being interchangeable with any other gram.
In contrast, diamonds are not perfectly fungible because varying cuts, colors, grades, and sizes make it difficult to find many diamonds that are exactly alike. Big raw diamonds are worth considerably more than small cut stones. A global market can nonetheless exist and thrive irrespective of whether an asset class is perfectly fungible. Scarcity and demand are more significant drivers of value appreciation than anything else, illustrated by the fine art market.
All of which adds to the challenge that investing in fine wine isn’t straightforward. But let’s take a look back to where this all started.
The history of wine investment
Modern wine investment has its roots in the 1982 vintage, which coincided with the first Bordeaux reviews from Robert Parker, the most influential wine critic of the last 40 years. Though tasting preference is somewhat subjective, Parker’s rigorous approach and easy to read descriptions gave consumers an ‘analyst’s view’ they craved, and a points system that simplified buying decisions for buyers interested enough to do the research before purchasing.
As Parker became more and more influential his impact on the fine wine market became increasingly significant. Wines that scored more than 95 points outperformed wines with lower scores, and with time came accusations of points inflation, so that these days only the very highest scores tend to substantially move markets.
Which countries are the most prolific wine investors and why?
Fine wine sales have for the most part been dominated by Anglo-Saxon and European markets. The most famous collector being President Jefferson who in his first term as President spent $7,500, a tidy sum for those times, and equivalent at least to a hefty six figure investment in today’s money.
The status quo changed when China started to gradually open up from 2001, the year they joined the WTO.
An immensely wealthy elite started buying in the big names – first growth Bordeaux in particular, driving prices inexorably higher and culminating in the mother of all investment bubbles. In the summer of 2011 the bubble dutifully burst, and the price of first growth purchases plummeted.
With Chinese consumer taste now starting to mature; less fixation on a few big brands such as Lafite; and government officials being instructed by new Premier Xi Jinping to cease ostentatious gift accepting and giving; the market discontinuity in first growth prices has been replaced by moderation and a broadening focus on wines across the spectrum. China may well be the most significant destination for European fine wine market, but it will be many years before the first growths approach the heady heights scaled in 2010/11.
Wine’s globalisation will doubtlessly continue, with India a candidate for the next emerging fine wine market, especially if the EEA and India do a deal on tariffs that would benefit wine through lowering import duties.
What’s the effect of big business investing in wine?
With the escalation in fine wine prices and correspondingly eye-watering premiums attached to top vineyard real estate, big business is increasingly buying in; enterprises that understand the value of luxury brands and the corresponding massive investments necessary to build them. Repositioning an estate, with the price premium that implies, is not without its challenges and the consumer often carries a large part of the risk premium.
What are the investment options available?
Just like in traditional investment management where online platforms such as Hargreaves Lansdown (or E*TRADE in the USA) offer private investors all the information and tools to be able to take control of their wealth management decisions, there’s a new service that promises the same benefits for fine wine.
Founded by a collector and with heavyweight backing, Wine Owners combines fully-fledged portfolio management along with a huge market pricing database that shows the level at which a wine represents fair value. What’s more members can see critics reviews and scores for a given wine – akin to equity analyst reports – and check out producer information including data on how much is actually produced each year.
These management tools are integrated with a trading exchange containing millions of pounds worth of fine wine, giving members the option of buying, selling or bidding.
The fine wine market has lagged far behind other many other sectors that invested in online self-service and portfolio management tools. Wine Owners has just changed all that, enabling private collectors or investors to make properly informed decisions with a platform purpose-built for their needs.
This article is sponsored by Wineowners