Guide: Buying Wine for Investment

As an investment category, fine wines are delicious in their potential. We seek out expert advice as Asian buyers change the landscape of collecting

Bidders’ paddles shot up in the air-conditioned tent as the auction headed into the home stretch. Braced by unbound generosity — and perhaps the easy flow of NapaValley’s finest wines — the 2013 AuctionNapaValley broke all records in early June.

Now in its 33rd year, the live and online auction, brought in US$16.9 million in America’s premiere wine region in Northern California. The Saturday live auction at the Meadowood Hotel attracts well-heeled international bidders to taste Napa’s cult wines and bid on them. Where else would you see one Balthazar-size bottle of Screaming Eagle Cabernet Sauvignon go for US$500,000 or four double magnums of Harlan Estate accompanied with dinner fetch US$800,000?

Then there was a trip to Seoul with wine, dinners and tours offered by Dana Estates, a newcomer to NapaValley. When the bidding escalated beyond US$500,000, vintner (and Korean food czar) Hi Sang Lee doubled his generosity, bringing the total selling price to US$1.2 million.

The Case for Investing

The question remains: Is this a wise investment for a wine collector?

Perhaps not — when it’s a charity auction. But at auction houses such as Sotheby’s, wine investing is a wise move, says Jamie Ritchie, CEO & President at Sotheby’s, Americas & Asia wine department. To be certain, this is investment grade wine, not the random bottle of chablis purchased from a retailer.

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1999 Chateau Mouton Rothschild (image courtesy of wikimedia commons)

On a global level, Sotheby’s Wine Auctions, in 2012, brought an overall total of US$64,462,965 exceeding pre-sale expectations of US$49.3/67.1 million. Split among three cities, the New York auction totaled US$17.7 million, London sales achieved US$19.7 million while Hong Kong once again posted the highest total of the three locations with a result of US$27 million.

It is worth remembering that the 2012 figures here are no threat to the record books; auction figures were higher in the previous two years. The 2011 sales brought an overall global total of US$85,467,096, a little short of the 2010 figure of US$88.27 million, the highest in the company’s 40 years of wine auctions. 2010 saw extraordinary demand from Asian collectors with every bottle offered in the eight Hong Kong auctions finding a buyer and major Asian participation in London too. The Asian market has always been important for the world-renowned auction house.

“The fundamental change happened in January 2009, when the Mainland Chinese market started waking up to enjoying, drinking and investing in fine wine,” says Ritchie. In addition, a new crop of buyers emerged in Taiwan, Indonesia, Singapore and Thailand. Like most buyers, Asians buy for two reasons — enjoyment and investment. Like any investment though, it requires some level of knowledge and comfort.

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Haut Brion vineyard (image courtesy of wikimedia commons)

Blue Chip Wine

“Many people have badly gone wrong due to poor advice, buying non-investment wines, lesser Growths, lesser vintages, etc.," notes Ritchie. "We’ve also seen people who’ve made significant amounts of money investing in wine by buying smart, by knowing which vintage and what properties to buy and at the right price.”

So, yes, one can make good investments and it is possible to make money. He advises to invest in blue chips — Bordeaux’s five First Growths (Haut-Brion, Margaux, Lafite, Latour and Mouton Rothschild) or so-called "Super Seconds" (Cos d’Estournel, Pichon Longueville, among others) or top Right Bank wines such as Château Petrus or Cheval Blanc.

Ritchie also suggests looking for wines on a trajectory such as non-First Growth wines likely to go up in value. Wines such as Château Ausone and Château Pontet-Canet are on a consistent rise and broadly appreciated by the market.Hong Kong-based Simon Tang, who heads Christie’s wine department in Asia, concurs that wine has proven to be an important liquid asset. However, he notes that a Christie’s client invests in wine in a different way than a traditional banker.

 

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2009 Colgin

Passion Over Finance

The Asian strategy, he says, is to buy today because they think prices of sought-after vintages and producers could be prohibitive in the future or supply may dry out.

Wine in Asia, especially in China, is a lifestyle choice and people see the pleasurable side rather than dollars and cents.

“The difference between a French wine cellar and Chinese is that in China everything is bought and consumed and shared.” And this constant demand is what’s made Hong Kong an important wine hub and trading center, noted Tang.

The majority of Christie’s consignments come from the US and Europe but recently they have added Asian collectors. The Burgundy exclusive collection of Henry Tang, former Secretary of Administration in Hong Kong, was sold in March 2013 for US$6.2 million.

Commenting on Napa Valley Cabernets versus Bordeaux, Ritchie notes that California wines haven’t appreciated as much, but have maintained a consistency. Screaming Eagle, Harlan Estates, Colgin Cellars, Arajuo and Shafer Hillside Select are some of Napa’s sought-after labels. Of this group, Screaming Eagle and Harlan Estates have increased in price, Ritchie noted.

Commenting on appreciation in value, Bill Harlan of Harlan Estates notes that any business that continues to evolve and improve increases its chance for long-term value.

“As a winegrower, our primary focus is to produce fine wine and manage our land better,” says Harlan. It’s not only the wine but the credibility and continuity of the producer. “Buyers look at the body of work, not just the vintages."

Due to high demand the winery could easily sell its entire production (1,800 cases annually) directly through its mailing list. But Harlan chooses not to. ”We want to last many generations and make it available to patrons in the world market," he explains.

Two-thirds is sold direct to customers and one-third through wine stores and restaurants. According to Harlan, the vintages from 1997-1999 have appreciated at an average of approximately 10 times its original price. The 2009 vintage released this year is priced between US$750-800.

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Harlan Estates

Personal Satisfaction

While Ann Colgin, proprietor of acclaimed Colgin Cellars, insists she produces wine for consumption, she goes on to compare wine investing with art.

“Buy what you like because these are fields of passion as much as they are investments.”  So buy wines you plan to drink.

“Having said that I know there are people who aggressively buy wine that is not to drink and therefore becomes a valuable asset — and a good one to be resold.”

One of the advantages of buying wine upon release is that you know exactly how it has been stored, notes Colgin. And winery selling price is considerably lower than the retail store price. For example, Cogin’s 2009 Cabernet Sauvignon-based wine was released in 2012 at US$325 yet its aftermarket (purchased through retail stores or private collectors) price was US$455.

Similarly, the 2007 vintage released at US$290 rose to an aftermarket price of US$483. Since 2002, her wines have averaged an appreciation of more than 80 percent in value in the retail aftermarket, according to Colgin.

To access these wines at attractive release prices you have to get on the mailing list that has a long waiting list since Colgin’s annual production is just above 2,000 cases.

World Class Competition

Since the Asian market is growing, demand will exceed the supply, especially for world class wines, notes Jae Chun, proprietor of Dana Estates.

“True potential of China’s market will come in 15 years and the scary part is that as a collector I will face that competition,” says Chun whose cellar holds a few bottles of 1761 Madeira among other prized vintages.

Comparing wine with other luxury goods, Chun says, with wine you drink it and it is gone. If you’re looking for returns then it is not as attractive as other investments. “You have to think clearly about that first, before you put your money in; it’s all about personal satisfaction.”

Dana Estate’s first vintage was in 2005 and annual production since has ranged from a mere 80-400 cases, priced at US$400/bottle and available through mailing list.

The family chose Napa over Bordeaux, because of its terroir and their personal relationships. Also Bordeaux’s top Right Bank and Left Bank’s First Growth estates are simply not for sale, noted Chun. “But here you still have a chance to find the best possible vineyard that Napa has to offer,” comments Chun. “And the window is closing down.”

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Sotheby's Hong Kong elBulli auction

The Most Expensive Bottle of Wine Ever Sold

Wine can indeed be liquid gold. At the 2010 Sotheby's Hong Kong auction 3 bottles of Château Lafite-Rothschild 1869 were sold for a record price of US$232,692 each. The second most expensive bottle, Château d'Yquem 1811 from Bordeaux was purchased in London in 2011 for  US$117,000. The buyer was Christian Vanneque, owner of Sip Wine Bar in Bali, Indonesia and former wine director at Paris' La Tour d'Argent, which houses one of the world's great wine collections.

A valuable investment? Mais, non.

After displaying the prized bottle in his new restaurant, Sip Sunset Grill, Vanneque says he intends to drink the wine in 2017 at La Tour d'Argent to commemorate the 50th anniversary of the launch of his wine career in Paris.

Staying Ahead of the Curve

The rules of the game are shifting for casual investors so keep yourself up to date by checking out the following websites. As the disclaimers note, it is wise not to rush in on a wave of wild optimism. Remember also that not every country defines wine for investment in the same way, for tax and other legal purposes, so always arm yourself with the best information.

www.efwines.com
www.cultwinesltd.com
www.wineinvestmentfund.com
www.wamllp.com
www.wine-eis.com

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