In vino, profit!

Stephen Beard May 4, 2012

In vino, profit!

Stephen Beard May 4, 2012

Tess Vigeland: Now I don’t really know why anyone would buy something so delicious and then never drink it. But that’s just me. In actuality, investors have been pouring into the wine market recently. Some of the profits from investing in Bordeaux vintages like Chateau Lafite ’82 have been — wait for it — intoxicating.

But as Marketplace’s Stephen Beard reports from London, investors dabbling in wine need to keep their wits about them.

Stephen Beard: Often the beauty of a tangible asset is you get to handle your investment. But not if that asset is fine wine.

Will MacLaren: That’s from the Languedoc, that needs drinking quite soon. Ah some Merlot from South Africa…

This is Will MacLaren rummaging through his wine rack, looking for something to drink. But he doesn’t get to touch the wine he’s invested in.

MacLaren: The first point to make is that it’s held in storage. And therefore, I don’t come home from the pub and decide to open up a case and see what it’s like.

The wine has to be stored in precisely the right cellar conditions if you want it to improve over time and appreciate in value. MacLaren’s rather glad he hasn’t dipped into his portfolio: Six cases of vintage Bordeaux and two cases of Champagne.

MacLaren: It has returned on average 27 percent over the last four years for me, which I think is a pretty good investment when you stack it up against the equity market.

MacLaren started buying fine wines after the financial crisis of 2008. He’s a banker by trade. But Adrian Lenagan, boss of Provenance Fine Wines, says he’s now selling wine as an investment to people from many walks of life.

Adrian Lenagan: We have clients ranging from prison officers to painter and decorators to High Court judges, and architects and policemen.

And he tells them all the same thing: Treat your investment like a fine wine; expect it to mature gradually.

Lenagan: I would never allow somebody to become a client of ours unless they had the expectation that they would hold onto their wines for at least five years.

That’s just as well. Wine prices are not looking too hot at the moment. The index of the top 100 vintages has fallen sharply over the past year. The index is calculated here at LIV-EX, a fine wine exchange in London

Man: Eglise Cluny 05. Yeah you’ve got some six packs.

In the twelve years since LIV-EX was set up, the global market for fine wines has grown fourfold to more than $4 billion a year. Over the past decade, the index is up by more than 160 percent.

But says LIV-EX founder Justin Gibbs, the index has seen two big falls within that period

Justin Gibbs: One was post Lehman Brothers when it dropped 20 percent. And one was last August with the euro crisis, when again it effectively dropped 20 percent.

So along with the thrills wine investing has also had its spills. And in some cases it’s left a particularly bitter taste.

Slurping sound

I met wine expert Jim Budd at a winetasting in central London

Jim Budd: It’s got wonderful orange and tangerine flavors.

Jim’s been exposing some of the pitfalls in the wine investment business. Over the past four years, 50 wine investment firms here have collapsed either through fraud or mismanagement. Investors are reckoned to have lost more than $160 million. Jim does not invest in wine.

Budd: I recognize that people can make money through investing in wine, but for me, the central purpose of wine is enjoyment, pleasure.

But investor Will MacLaren is happy to continue holding his eight cases of wine along with his 27 percent profit. He can afford to be philosophical, especially about this particular asset.

MacLaren: If the bottom falls out of the market, you can drink it.

In London, I’m Stephen Beard for Marketplace.

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