Wine is no longer just our beverage of choice, the way we relax after work, or our favorite dinner party accompaniment. Wine is increasingly becoming something that we can invest in, in a similar way to shares or property. Wine collectors are investing in something physical, unlike shares, which usually only increases in value over time. However, there are sparks in, and ways of predicting the ebbs and flows of the market value of wine, that you need to consider if you’re considering wine collection. To help you come to grips with this concept, as the first part of our wine valuation guide, we will walk you through market timing for wine valuation.
Then we will delve a little deeper into how vintage wines should look, age, be stored and transported. But before we get into the nitty-gritty, here are some of the basics in terms of wine valuation. Rare wines differ in price depending on firstly, the grape type. Some well-known ones include Chardonnay, Pinot Noir, Cabernet Sauvignon, etc. Another well-known factor is the brand or vinery name, such as Dom Perignon, Domaine de la Romanée-Conti, Château Mouton-Rothschild, and the list goes on. Another well-known factor of wine’s valuation, which will affect its market price or the price at auction, is the region like Napa Valley, Bordeaux, Costa Brava.
And when it comes to vintage wines, wine searchers will look at the year. This might be more complex than it looks at first glance. The year of the wine is important when valuing a wine, not just because of how much it will have matured, but because of how successful that year was in general. Some years are known by experts to be much better than others, which will affect the investibility of that wine exponentially. After walking you through the basics, let’s have a look at some of the more complex areas of valuing a wine, for those of you who are looking to take your wine appreciation from enjoyable to investable.
As we all know, when it comes to financial investments, timing is absolutely crucial. This holds true with fine wine investments just as much in any other sector. Especially considering that the fine wine investment market is moving into the mainstream of investments, and when we say that, we really mean alternative financial investments. It goes without saying that fine wine investment is a very different ballpark to investments in shares or property.
However, as an alternative financial investment, it’s beginning to grow in popularity, especially considering that a good vintage usually just increases in value. But, because fine wine investment is starting to be seen in the same vein as other types of investment, market timing is key. So let’s delve a little deeper.
Timing is key in any type of investment, be it fine wine, shares or property for example. Fine wine should offer a consistent return on investment. However, if you’re looking for short to medium-term gains, it’s very possible to make expensive mistakes in this area, if you don’t get your timing right. The reasons why your fine wine assets require precise consideration in terms of timing is because the investment potential and wine prices are affected by many many factors.
For example, the investment potential of your wine can often be affected by the production statistics, weather analysis, and grape harvest. The investment potential will also be affected by the reviews and ratings of renowned wine critics, most namely the Robert Parker tasting notes and scores.
Taking these considerations into account, and some others which we will cover, there’s a huge amount of information that will factor into the market value, or wine price, of your vintage. But these need to be taken into account alongside the market situation and the financial climate of the time. To make a profit, all of these factors need to be considered and researched thoroughly to work out the true investment potential of a fine wine. And, the thing you’re really looking for, all for this information needs to be gauged and considered and applied, to make a profit from your investment.
Take, for example, the valuation history of Chateau Lafite Rothschild 2005. During the bull market in 2007, the value of this fine wine increased massively. A bull market is the condition of a financial market of a group of securities in which prices are rising or are expected to rise.
The term “bull market” is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies, and commodities, like fine wine. So, in 2007, the value of the luxury wine Chateau Lafite Rothschild 2005, in under 12 months, appreciated in value over 100%.
However, things changed with the 2008 financial crisis, the worst economic disaster since the Great Depression of 1929. The financial crisis was primarily caused by deregulation in the financial industry, and it led to the Great Recession, when housing prices fell 31.8 percent, more than the price plunge during the Depression. This, of course, has a big impact on the valuation of fine wines.
Many investors in Chateau Lafite Rothschild 2005 rushed to sell their fine wine, and make the profit gained in the previous year. Because of the 2008 financial crisis, the valuation of the Chateau Lafite Rothschild 2005 dropped to almost as low as it was before the 2007 spike.
Those who sold their Chateau Lafite Rothschild 2005 in 2008 most probably regretted their decision a couple of years later. A couple of years after the financial crisis, the price of this luxury wine soared. This just proves how reading the market, researching and planning thoroughly, and sometimes having just some very good luck, can lead you to glean the greatest profit from your fine wine investment. If, for example, you had bought a case of Chateau Lafite Rothschild 2005 at the beginning of 2007, and sold it in 2011, you would have yielded a return of over 200 percent.
So, as we can see from the example of the Chateau Lafite Rothschild 2005, some fine wine investments are thoroughly affected by the changes in the stock market. So, depending on the vintage you’re looking at, it’s worth keeping your eye on developments or predicted future trends in the market. However, not all fine wines have the investment potential of the Chateau Lafite Rothschild 2005. Some luxury fine wines are seen as recession-proof, as luxury commodity investments that retain their value, no matter the behavior of the stock market.
In fact, fine wine is classified as a commodity investment because of all the factors we laid out previously. All of these factors tie into the valuation of the vintage: the production statistics, weather analysis, and grape harvest; the reviews and ratings of renowned wine critics, most namely the Robert Parker tasting notes and scores; and many other factors.
Provenance and storage
Fine wine investments have grown and the entire market has developed in recent years. Because of this, prices have risen, so there become more and more factors in what keeps a fine wine at the top of its valuation. One of the biggest factors is in provenance and storage. Perfect provenance now proves vital in ensuring fine wines are sold for their maximum value. “Provenance” is the most important concept in the fine wine market.
It’s an umbrella term referring to whether the wine is genuine and how well it has been kept. Fake, high-end wines have been diluting the market in recent years. Thus it is now imperative that consumers ask about a wine’s Provenance, especially for older bottles kept in personal cellars or offered in auction houses.
It’s also important that the wine is pristine. Pristine is an industry term that means the wine hasn’t been touched or tampered with. Pristine wines are in a condition that is interchangeable with other wines of the same producer, make and vintage. Except for the obvious things, like there not being any leakage, pristine wines refer to bottles that have had no tampering: cuts, damage to the bottle stopper, markings, labels, or capsules.
Another example, with Bordeaux and Burgundy style bottles, is the level of dehydration. These bottles have a measurement in the neck which determines the level of dehydration, and this if the bottle is pristine. Cases, of course, must be original, with no repackaging. Non-pristine fine wines are a godsend for those looking to actually drink and enjoy some fine wine. They lose a great deal of their market value and thus can be a steal for those looking for the ultimate luxury drinking experience.
Proving a wine’s provenance is closely linked to the way, and where, the wine is stored. This is evidently also a factor in how pristine the fine wine is. If you store fine wine in wooden cases in a respected place, then your provenance is traceable: you’ll have all the right paperwork to prove the perfect provenance of your investment. The best way to store your fine wine is in bond (IB) in a bonded warehouse. Two famous examples of bonded warehouses are Bordeaux City Bond, Octavian Vaults or London City Bond.
Not only do they contribute towards proving the provenance of your vintage, but they also add towards proving how pristine it is. This is because bonded warehouses provide the optimum environment for wine storage. The best bonded warehouses carefully regulated the temperature, humidity, and other microclimatic factors, to fully protect your cases.
Traditional bonded warehouses
Traditional bonded warehouses, that have built up a trusted reputation, are subject to very strict rules. Because of this, there’s an audit trail for every case stored in these well-established warehouses. This audit trail, combined with the fact that people really trust these establishments, makes it far easier to prove the provenance of your vintage. It provides you with a solid method for tracing provenance, and in the long run, will this lead to a higher return on investment.
Another factor, which will increase your return on investment, is that being an owner of IB wine grants you certificates which prove your ownership fo the wine as a physical asset. In the eyes of an investor, having a physical asset like some cases of IB wine is a significant advantage over non-physical assets such as equities. This is because they hold no physical or inherent value, except for the paper they were printed on, whereas the IB cases offer you a real-life asset.
If the greater return on investment wasn’t enough to whet your appetite, listen to this. Wines stored in IB are also not liable for VAT, as technically they are in transit, according to law. This also helps with the valuation of the wine. Even though the cases of wine might go between the hands of investors multiple times, if it is stored in an IB, it will stay in the same warehouse, removing the risk of damage and disruption, and instead, be handled only by experts.
If you remove a case of wine from a bond, you’ll have to pay some fees and taxes on them. This may vary depending on the country you’re strong your fine wines in, but it might be VAT for example or the Excise Duty. Cases that have been removed from the bond are called DP, and they can go for a lot less on the market. Buyers really prefer IB over DP cases, due to the guarantee of immaculate provenance.
Another factor towards how pristine your wine is, in industry terms, is whether it’s in its original casing. Wines that are stored in their original wood casting hold the most market desirability and get the best prices. So for the best investment, opt for wines in their original wood casing, and store them in bond, in bonded warehouses, to prove the provenance and how pristine the wine is.
Another thing you should look out for in your investment is a proof tag. For luxury wines, for example, all the wines of Chateau Lafite-Rothschild (beginning with the 2009 vintage), a proof tag has been added. This is because of the large emerging business of counterfeit wines. If you have the proof tag, you know you’ve got the real deal.
Considering wine labels
Labels should also come into consideration when valuing wine. If you’re looking at a case of wine which is of a significant age, we can expect the label to look aged. It might yellow or wrinkle slightly, over an extended period of time, even when stored in ideal temperatures and conditions. In a bonded warehouse, therefore, a bottle of wine of significant age will probably have a label which is slightly soiled.
As long as the providence of the wine is impeccable, the aged appearance of the label is to be expected, and won’t detract from its value. Of course, though, if you’re purchasing fresh stock or new wines, the label should look as new as the bottle. You also need to ensure that the wine level is up to and in the bottleneck, and the labels and capsules are in mint condition.
As we previously stated, cases that have been removed from the bond are called DP, and they can go for a lot less on the market, due to the lack of guarantee of immaculate provenance. Similarly, if the wine you’re looking at valuing has traveled, it will probably decrease its market value. This is also because of the lack of guarantee of immaculate provenance. Wines that have been imported into the United States always have an importing sticker.
This is put on them by the importing firm which brought them in. Wines that have traveled for an extended period of time, like these, have a decreased market value. Because they have spent some time in transit, you cannot guarantee that they have been kept in the right environment, at the right temperature, like in a bonded warehouse. There are also fewer records of their movements, so provenance is less easy to guarantee with these cases.
Wine has always been something that people have debated the value of. Whether it was about different tastings, or which are the best vineyards or regions, wine has never been a commodity that everyone agrees on. Whether it’s champagne or a cabernet sauvignon from California, people who know about wine have always loved to share their opinions. However, now with wines, especially cases of wine, being increasingly seen as investments, and vintages going for more and more at auction houses, there are now a complex array of things that need to be taken into consideration when valuing wine.
However, if you’re taking your bottle to wine auction, be wary. Single bottles are far less easy to sell than cases unless it’s a really rare and interesting example. And if you want to get a professional opinion before pricing your wine to sell, or before investing in cases yourself, think about having a consultation with a professional wine valuer. But if you’re not at that point yet, we hope this has given you an introduction for a wine valuation guide.
Bonus tip: While you’re at it, check out this video on one of the most expensive vintage wine collections in the world!
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