Monday, June 22, 2009

To Profit or not to Profit; that is the question.

This is the second in an occasional posts about wine from our very own resident expert Alasdair.

I’m sure many of you have heard about some people making lots of profit from buying and selling fine wine. The music and theatre impresario Andrew Lloyd Webber is one of many examples. Here was a very rich and successful amateur wine collector, who one day decided that he should sell part of, and in the end most of, his vast wine collection. I remember reading all about it in the Evening Standard, how he had spent many years building up his collection, to the point that it became more than he could ever possibly consume, even with regal-like and daily and frivolous entertaining.

Of course Lord Lloyd Webber had not amassed this cellar himself. Oh no, he was far too busy making another 20 million quid writing Cats. He had a full-time wine buyer, who for 60-odd thousand quid a year, (a goodly wage at that time), made offers on Lloyd Webber’s behalf for highly sought after parcels of super-rare wine, attended all the important Sotheby and Christie wine auctions, and buttered-up sales directors at all the various wine companies who imported the best kit. What a job! Until of course LW decided to stop buying and starting selling.

When I started out in the wine business it seemed as though most people bought wine to drink. Of course, I hear you say – that’s what you’re supposed to do. The only people I knew who at that time during the late 80’s purchased fine wine with the intention of keeping it for 3-5 years and selling it for a much higher price were the wine traders themselves – it was like a badly kept secret with more and more people finding out and doing the same.

I clearly recall the founder and buying director of Bibendum Wine, Simon Farr, diligently buying up all the stock of Le Pin 1982 that he could get his hands on. There was a pallet of the stuff, 50-odd cases, stored in the Bibendum duty-paid warehouse above their Primrose Hill offices.

Simon figured that here was an extraordinary wine, made in tiny quantities, no more than 500 cases at that time, that was positively cheap given the reports circulating the trade that it was the next Chateaux Petrus. Whenever a case came up for sale Simon would contact the owner and buy it. After storing the stock for some years he sold the lot for a handsome profit. But the best way to buy the world’s best wines is to buy them as soon as they become available, and in the case of Bordeaux wines, that means buying them ‘en primeur’.

This basically involves buying the wine before it has actually been bottled and packed into cartons. The vintage 2008 en primeur campaign is currently underway now, with buyers and merchants frantically communicating the ‘opening’ prices for the Grand Cru Classe Bordeaux wines. The best Bordeaux wines, the Premier Grand Cru Classe, inevitably rise in price immediately as buyers all over the world scramble to secure some stock of these half dozen or so wines. To give you an idea back in April 1985 a case of 1985 Le Pin was offered for sale during the early stages of the en primeur campaign for only 500 quid – 10 years later it was changing hands for 12K quid.

Nowadays, with wine investing becoming more widespread and seen as a relatively safe investment vehicle it has become necessary to hold the wines for at least 5 years to hopefully realise a healthy profit. Even better though, to keep it for up to 10 years if you can – this will inevitably result in your stock becoming rarer, and therefore valuable, as consumers around the world drink the limited stock available.

So there is money to be made through wine investment, especially with red Bordeaux, and there are many private collectors all around the world holding ‘investment’ stock. I can assure you from personal experience that this is the case. But in order to maximise your chances for robust profits and as a way of lowering your risk, here are some useful tips:

Always try to buy ‘en primeur’, or as soon as the wine is released by the Chateau or producer. Opening or ‘release’ prices are always the lowest.

Always buy the best wine you can afford, ideally Premier Cru.

Always have it stored by a reputable and established wine-storage specialist.

If you feel the need to take some advice from a wine trader, then do so.

And of course, let’s not forget two more excellent reasons to ‘invest’ in some fine wine – it’s free of UK capital gains and inheritance taxation, and, in the happy knowledge that you may have become so rich while your wine has been aging in the cellar and consequently you do not feel like you need to sell and release the profit, you can drink it! What can be better than that?

posted by Alasdair.