Invest without the hangover
The price of top wines is still not back to the level of six years ago, yet we've had five good years. Investing in wine for dummies.
Wines do not have to taste good to be worth a lot of money. "I have drunk most wines from the beginning of the nineteenth century. Sometimes they taste good still but often not. The taste doesn't really matter much, it's also very often subjective" says Aart Schutten, the new manager and auctioneer of the reputed Antwerp-based wine auction house Sylvie's. In the most recent auction were one lot of twelve bottles of Château Petrus 1990, which sold for 35,000 euros and one lot of twelve bottles of Château Latour, at 5,900 euros.
1. How should you store wine?
It is important that wine is stored under the correct conditions. "We collect the wine from the seller's home. That's our very first opportunity to check" explains Schutten. "The wine cellar must be sufficiently cool, not too humid and not too dry. If the wine is under a layer of dust, you know it has lain untouched in the cellar for years. We will not take a wine if we have any doubts about the quality of the cellar. Some alcohol will evaporate from a bottle but if the level of the bottle is too low, we won't auction it." Schutten doesn't have a lot of faith in climate-controlled cabinets. "They are a solution for someone living in an apartment. Power failures can occur and sudden fluctuations in temperature will always leave their mark. You can see that in the cork." The influence of the seasons on cellared wine provide a natural maturation, according to Schutten.
2. Which wines can you keep?
Most wines are not made for investing in. "The wines you can buy in the supermarket can be kept between one and five years. The more expensive the wine, the more storage potential it has" Schutten explains. How long you can keep the wine depends, inter alia, on tannins and acids. Tannin is introduced into the wine in two ways: by the peel, seeds and stalks of the grapes and by the wooden barrels in which the wine is aged. With red wine, the skins are added to the grape juice during fermentation for colour. "Red wine usually keeps better than white wine" Schutten says "very old wine does not necessarily need to taste good in order to be worth a lot of money." The taste, then, doesn't matter that much. A bottle of wine can be valuable for two reasons: because of the contents or because of the packaging. Château Mouton-Rothschild is a favourite with wine collectors for both reasons. Since World War 2, Baron Philippe de Rothschild has engaged well-known artists to design labels for his bottles including, among others, Salvador Dalí, Joan Miró, Andy Warhol, Keith Herring and Karel Appel.
Pull quote: "Over the last ten years, the prices of some wines are as steady as the prices of shares"
3. How do the prices evolve?
There are five of the Château Mouton-Rothschild bottles carrying the exclusive labels from between 2000 and 2010 in the leading Liv-Ex Wine 100 index. This index aggregates the prices of the hundred most sought-after and frequently traded wines. Anyone wanting to know about the market should keep an eye on this index. Since the beginning of this year, prices have risen by 3.3 per cent. Hence, 2017 is not a grand cru year. Over the past five years, there has been an annual return rate of almost 16 per cent. There is also the Liv-Ex Index, which tracks the prices of Bordeaux Premier Cru wines over the previous ten wine years. These prices have risen since New Year by 4.1 per cent. Schutten calls wine "stable in value" and notes that more and more private individuals are buying wines as an investment because savings accounts no longer yield anything. However, wines are not like a savings book. In the past ten years, the prices of some wines fluctuated as wildly as share prices. Between the peak of the Liv-Ex Fine Wine Index in 2011 and its lowest point in 2014, there's a difference of 36 per cent. The Index is still not back to its record 2011 level. There are no interest rates on wine and no dividends. Therefore, the return needs to come via the added value at sale time.
4. How do you invest in wine?
According to The Wine Investment Fund, a well-known British wine fund launched in 2003, it is a bad idea to invest in wines that are over 25 years of age or which are not in a standard bottle. Additionally, wines that are currently fashionable for whatever reason and wines that are approaching their ideal drinking date are excluded from the list. Very young wines are also avoided, as the prices can be too volatile. Their web site describes the strategy as follows: "We buy stocks that are at least four years old and that have the reputation of coming from a good harvest. There needs to be a good quantity of bottles available so there is good potential for profit as the bottles become more scarce. We especially choose wines from the better Bordeaux châteaux. Be careful if you are thinking of investing in a managed wine fund. It's not easy to know whether the fund covering the wines really owns them or whether the wines are really worth as much as they may claim. Without regulation, fraud is a likelihood, as evidenced by the fate of the Luxembourg wine fund Noble Cru, which was liquidated following allegations of dubious transactions at fictitious prices. Also, when you want to invest in wine directly, you should know what you are doing. "With wine, it's the same as with art or antiques" posits Schutten "you have to know what you are doing".
5. How much are the transaction costs?
As with all alternative investments the transaction costs are quite high. "The buyer pays a commission of 17.5 per cent" says Schutten "some competitors ask for 20 to 22 per cent". If you compare this to the antiques market, where commissions are 25 to 30 per cent, it's not all that bad. The seller also pays a commission, depending on the quality and quantity of wine being sold. Sylvie's also incurs costs for the organization of the auction, the transport of the wine and insurances. Once a seller entrusts their wine to Sylvie's, it must be insured. Schutten is not planning to make changes at Sylvie's, although he is looking into the possibility of an online auction. For now, buyers may only register a bid in advance via the internet. Once the auction begins, the only options for now are to bid on wines by telephone or attend the auction in person.