An Insight to Fine Wine Investment

Does the game of chess attract you? A game based on total mind power and strategy where one has to continuously think of new moves to unsettle the opposition? Do you have a tendency to give the trodden track a miss and opt for the less travelled road? Most importantly, do you love to take risks and does the same apply to your investment plans as well? If all your answers are yes, then read on. Here is an investment plan that is very uncommon but can be as lucrative as normal investment plans, if traded cautiously and effectively. And most importantly this investment plan involves the drink you are most passionate about! Yes, you have got it right. We are talking about investments in wine.

Though the concept of investing in wine is still in a very nascent stage in India, it is a very well-known medium of investment in several countries including USA, UK and France. The past decades have seen a consistent rise in the appreciation of fine wine as people have become more conscious about the value of wine, not only in terms of money but also in terms of its age. Since wine is a perishable good and the quantity of the finest wine across the world is really very limited, that all the more adds to its worth and mysticism. And as it has often happened in history, millionaires across the world are eager to spend a good chunk of their fortunes on these pricey jewels. The result is obvious — the price of fine wines continues to soar making it a brilliant investment option.

There is one element of surprise though. Like many scientific discoveries which are actually ‘rediscoveries’, wine investment too has its root in the histories which have been rediscovered by the present age wine buffs. It was an important medium of trade for the Incas; Egyptians used to burry their Pharaohs with jars of wine so that they can carry their precious drink to their afterlife journey. However, the trend of dealing with wine finally came under the spotlight with the Romans as they introduced the first vines to France in around 500 BC and planted in Bordeaux at around 50 AD. Roman wine is still a widely discussed and well documented topic. The Roman wines were famous for its long maturity which proved its quality. There are records of a Roman wine that was prepared in 121 BC and was consumed when it was 125 years old! One has to thank the early Romans for bringing their vines to Gaul, today known as France. They withdrew in the fifth century, but by then the land had already got the taste of the crimson liquid which later paved the way for modern world’s greatest vineyards.

That was only the beginning. Things took a more defining shape when Napoleon III categorized the Bordeaux wines from 1 to 5 on the basis of quality and prices realized from each Châteaux wines over a time span of last 100 years. This classification was the first ‘Fine Wine Index’. Apart from one change in 1979 when Château Mouton-Rothschild was promoted from a 2nd growth to a 1st growth wine, nothing has ever changed. In fact the laws he put in place in 1855 are vigorously upheld today and controlled by the Institut D’Appellations d’Origine and upheld by EC directives.

Coming back to modern age, wine is at the centre of business transaction like never before. Since last 20 years fine wines have outshone many equities and bonds and offered consistent return of around 10% – 12% per annum. People are taking wine investment more seriously simply because it is a less volatile market than normal stock exchange and share market. A consistent return for the world’s top 100 wines over last 25 years and the exemption of capital gain tax in many developed countries have made wine an exciting substitute of classical investment options. Even in the spate of global economic meltdown, the wine investment market not only remained largely immune from financial crunch but also outperformed stock indices in both the UK and the US. “Although it is often said that the market for wines is the last to feel the impact of any economic upheaval and the first to show recovery, there is no substitute for seeing this principal put to the test as indeed we have over the last 10 months,” says Wilson Douglas, UK’s leading alternative investment company.

The Liv-Ex 100 Fine Wine Index is the leading standard of the modern wine industry and it represents the price movement of 100 most coveted fine wines for which there is a secondary market and is calculated monthly. As of 31st March 2009, the index is at 207.65. Since 2004, when the index started at 100, it has climbed up to 207.65, a total increase of 107.65%, and that is 21.53% per annum. With the increasing demand for Bricco’s pick and other products related to wine, there is no denying the the stocks for this industry is booming.

The Liv-ex 100 Fine Wine Index is the industry’s leading benchmark. The value of the index as of 30th September 2009 was 229.94, a rise of 2.0% on the previous month. The index is up 12.2% year to date, and down 9.1% year on year.

Without involving into the web of number games, there are flatly two reasons as to why one should be interested in investing their hard earned money in wines. First, for attaining pure mortal bliss… You can opt to buy a fine wine worth of maturing by spending, say, Rs. 20,000 and you plan to consume it after 10 years. You can be well assured by then the buyers will be paying almost double or triple that amount for the same bottle. The second reason is closely associated with the first one where you can buy the wine at Rs. 20,000 and sale it at Rs. 40,000 after 10 years. In the first case you are the saver and in the second case you are the wine investor. Of course there might be a third option that involves both savings and investment and naturally more bottles.

However, investing in wine may not be as simple as it seems. One has to be a wine lover with a deep knowledge and understanding of wines as well as a deep insight of wine market trends. Besides one also need to go for the right wine at the right price while investing. There are many a wine companies which overcharge their customers and there is no point in spending a fortune to buy wines for investment purpose. Since wine is a long term investment, it is unwise to lock a large sum for a decade and as an investor your target should always be to get the wine bottle at a lesser price. This requires constant vigilance and a thorough knowledge of wine pricing. There are a number of websites that gives out the pricing list of different wines. Opt for the best price and always go to a trustworthy site for checking out such pricings so that you are not misguided. Never go for a wine with a price tag too high or too low, because in the first case you would be incurring heavy stakes from the beginning and in the second case the wine could simply be fake.

There are, however, a few things to remember while choosing a wine for investment. Not all wines are worthy of maturing and similarly, not all wines are worthy of investment. To check whether your wine is of investment quality look for the following factors:

  • None The wine should be worthy of maturing with an age limit of 25 years and more.
  • None The wine must be from an excellent and well-known vintage (year of produce)
  • None It should be a well-known name highly acclaimed by critiques.
  • None It must have a great demand through out the world and should be showing a consistent hike in price trend.

However, very few wines from some selective regions worldwide can meet these standards. Those who can are Bordeaux, Burgundy, Rhone valley from France along with Italy, Spain and California. Always consider wines from these regions while investing.

Another word of caution would be necessary here. If you are considering overnight recovery of benefits then wine investment is not for you. This is a market meant for long term investment and demands extreme patience and you should be prepared to lock your money away for minimum five to ten years. Of course there have been instances where the price of a certain bottle has gone a few notches up within two-three years, but this is only a fleeting phenomenon and does not represent any steady trend. Keep an eye on the price index given in trustworthy websites and wine exchanges that deal with wine investment.

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