The recent collapse of wine investment companies Heritage Fine Wines and Wine Orb underlines the high risk to consumers of investing in wine through a third party. And a search through the price realisations at Langton’s Auctions suggests the secondary market is a buyer’s paradise and a devilishly difficult place to make money even when you do go it alone.
On the demise of Wine Orb, investdrinks.org — a website published by freelance drinks journalist Jim Budd — comments, “The circular [to creditors from administrator Ngan & Company on January 28th, 2005] also indicates that the deficiency totals $AU956,813, of this $195,000 may be owed by client investors for wine storage and insurance. The total deficiency does not include any shortfalls in investors’ wine stocks. Wine stocks in storage ‘are on the basis that all wine stocks are stored in bulk and not under the name of individual clients or investors’. All investors’ wine stocks, especially those for superannuation purposes, should have been properly stored under the individual’s name. That Wine Orb did not bother with this elementary precaution is surely highly indicative of the type of operation this was”.
Just what the fate is of those holding wine investment stocks with Sydney-based Heritage Fine Wines is not clear at this stage. Heritage placed itself into administration with Ngan & Co on March 2nd, about a year after beginning the transition from wine investment towards database wine retailing.
According to investdrinks.org, both companies had connections with dubious characters, although last year Heritage had severed its ties with Simon Farid, “who remains on the UK Financial Services Authority’s prohibited individual list”. (For more details, see the website – investdrinks.org).
The clear conclusion from this is to avoid spruikers. Promises of big and easy profits in wine are as empty as in any other get-rich-quick scheme.
It is possible to make money from wine. But it’s difficult and requires research, acumen, timing and luck. As a collectible, the profit to be made is simply the gap between buying and selling prices less storage, transport and transaction costs.
To give a guide of wine-price movements over time, Langtons auctions publishes the Langton’s Fine Wine Index, endorsed by Access Economics. The LFWI shows price movements on a basket of 28 Australian wines from the 1986, 1990 and 1994 vintages. The wines are all established performers from Langton’s Classification of Australian Wine (see Langtons.com.au).
However, the index is fairly narrowly based and any attempt to compare it, as some do, with the all ordinaries index or ASX 200 ignores the fact that shares provide dividends as well as potential capital appreciation. Comparison with an accumulation index might give a better indication of the comparative returns on wine and shares.
And, where share transactions attract comparatively low broking commissions – a per cent or two at most — selling wine at auction attracts commissions of up to 13.75 per cent. It is possible to sell wine free of commission direct to a licensed retailer or restaurant. Most are not interested but Vintage Cellars (part of the Coles Myer Liquor Group), for example, employs a full time broker, Melbourne based John Newton, to deal in the secondary market. Where demand exists, John tends to buy close to the current auction price – an attractive proposition for sellers.
For most sellers, however, the auction house remains the only practicable route to market. And this will probably increase in importance as both major retailers now stockpile the best wines for later release and will be, presumably, less interested in buying from collectors.
This, of course, complicates matters for would-be wine investors as the big retailers only buy at wholesale prices but tend to resell even older vintages at comparatively sharp prices.
Two other potentially significant costs for wine investors are storage and insurance. Provenance is increasingly important for buyers on the secondary market. So, it’s essential to store wine in ideal cool, dark conditions. And insurance is essential now with theft of valuable wine collections increasingly common.
So much of this is the mechanics of storing and selling. What of the selection and buying, arguably the most crucial step? That is the hardest part. There’s no other way but to research, seek advice and when the decision about what to buy has been made, attempt to buy as close to wholesale price as possible.
You can always drink your mistakes of course. But if, like the Chateau Shanahan buying team, you’ve decided it’s more fun to drink wine than invest in it, you might take a look at Langton’s web site price realisations. There you’ll find the delicious, mature Penfolds Grange 1981 at $300 — $100 below the retail price of the current release 1999 – amongst many other bargains.
Copyright © Chris Shanahan 2005 & 2007