To understand wine investment, first, we must understand fine wine. And, whilst defining ‘fine wine’ can be cause for debate, it’s generally accepted that quality, provenance, age-worthiness, reputation, scarcity and cost all play their part. Moreover, fine wine is in the eye of the beholder, that of individual perception and the secondary wine market.
It’s important to understand that the wine industry has two main markets the ‘primary market’ and ‘secondary market’. The primary market is where wine is sold directly to the consumer. The secondary wine market is where the original owner sells their wine to hopefully make a return on investment (ROI) on their initial purchase. The good news… wine can be an incredible asset if you have the know-how. Why? Well, that’s easy; limited release numbers, increased demand and rarity drive the value of wine to soar.
The origin of wine trading left WD scratching our heads, with reputable sources citing conflicting facts. One surmised the first record was that of wine traded between Asia Minor and Gaul (through Marseilles) in 600BCE by Greeks. And another claimed the first wine traders to be the Phoenicians somewhere between 1220 B.C. and 539 B.C., who traded across the Mediterranean to Greece, Italy, Turkey, Lebanon, Israel and Syria. We thought it best to present both findings.
From an economic commodity perspective, the trading of wine is relatively infantile, crashing onto the market floor in the 1970s with significant peaks and falls. Since the tempestuous 70s, the market has enjoyed a mostly upward trend with pivotal market impacts such as the financial crisis of 2008, the 2009 Chinese Fiscal Stimulus Programme and the EU referendum. Moreover, fine wine investment is its own economic beast and is mostly unaffected by significant market downturns.
Investing in wine can be lucrative, provided you don’t indulge your profits. Or perhaps, that’s the whole point, in which case it’s a win-win, leaving your glass suitably topped with the world’s finest wine with little impact on your pocket (hopefully).
It’s all about demand and supply…
Let’s step out the process:
If in doubt, seek support (WD did!)
WD spoke to Orazio Baldino, Luxury Sales Manager Private Clients for Penfolds. Over 26 years in the wine industry, Ori has explored some of Australia’s most revered private cellars. The conversation was splendidly candid, and let’s say he had a lot to share on the topic of investment.
“Today, we see a younger demographic (30 to 50 years old) with a higher disposable income investing in fine wine, watches and the likes of sneakers. And they’re buying these things and trading them daily for a profit.
Ultimately, there are two types of investors. The collector who invests in happiness: this buyer tends to cellar wines they enjoy drinking. When wine comes of age, they get great pleasure sharing them, and if they aren’t enjoying the wine’s drinkability at that time (tastes change), they sell them, at the very least, getting their money back and making a small profit. These investors are often unaware of the market value of what’s in their cellar.
The second is the investor who invests for monetary gain: this buyer purchases primarily to profit, cellaring wines of provenance that have a proven return record and are not necessarily of their palates liking. This investor is likely involved with a fine wine trading company or holds a portfolio that does not require them to cellar, i.e. the portfolio manager manages the cellaring. These investors know the value of their wine and are discerning when to buy and sell.”
One parting tip from Ori…
“I always say it's embarrassing if you haven't got your children’s or partners’ birth years or years of marriage, the years of significance that are special to you. For me, it’s about passing on to the next generation. I want to share those special wines with my children as they move into adulthood, for them to inherit my cellar and hopefully enjoy it. And if they don't enjoy wine or are not into it, they can sell and enjoy the monetary value.”
And for final consideration…
If there is one point you take away today, be it the importance of cellaring and caring for your investment . Buyers will pay more for wines with well-preserved labels, no ullage, and details of cellaring conditions. You most certainly don’t want to pour your investment down the drain!
Happy investing!
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