Make Millions through Investing in Wine?

I recently received a rather flattering email. The message was passed on to me on the grounds that I was a 'professional in the field' [of wine]. It posed a number of interesting questions on investing in wine. Whilst as yet I don't consider myself a pro, I do like to think I have bit of gray matter and with the backing of some financial economics I can be build a logical argument. Here are the questions and my attempt to answer them:

Is wine a good investment?
I hate to answer a question with a question, but what is a good investment? What criteria are you applying? Is investing in a house a good investment or an art piece or a doughnut, for that matter. I think, to delve into a touch of finance, it comes down to your required rate of return. By that I mean, what does an investment have to deliver to you, either in terms of a monetary return or aesthetic pleasure (if you drink your own stock!) in order to justify that investment. If you believe the investment in wine is going to deliver more than that threshold, then go for it.

How does one approach it?
If you are going to be doing the investment yourself I think you certainly need to have a high level of wine knowledge. If you don't have the requisite knowledge you have to set about either acquiring it yourself or finding a wine expert to invest on your behalf. Acquiring a high level of wine knowledge is a long term project and wine experts to advise on purchases are in short supply in South Africa, so no easy answers there.

What should the substance of your portfolio be?
Most serious wine portfolios that I know about are fairly Old World driven, with French wines predominating. Italian, Spanish and to as lesser extent some New World wines tend to make up the rest of a portfolio. That is not to say you can't have a portfolio more weighted to South African wines. I don't think, however, that you can expect to see the same returns with SA wines as you would if have some of the blue chip Bordeaux wines in your cellar.

How / what to buy?
To get hold of the wine you want you would need to establish links with various wine merchants here in South Africa and abroad to get to the point of a diversified portfolio. The 'what to buy?' question is a tough one. I think you need to split you portfolio between more established brands and those which are below the radar. The weighting of those two categories would be dependent on your appetite for risk.

Is it only for the rich?
Well, without wanting to douse hopes, I don't think you can be concerned about your next meal or paying the rent, if you are going to make a serious investment into wine with the purpose of making a significant financial return. I don't think this is true, however, if your purpose is one of aesthetic pleasure, i.e. you just want to enjoy a decent bottle of wine. I think most of us, including myself, subscribe to the latter category. Don't go out for dinner or don't shop at Woolworths for a month and use that money to buy a couple of good bottles of wine!

What are the rules of wine investment?
Like any investment making serious dosh requires you to take a contrarian (against the market consensus view) and being right about that view too! So if the market thinks that a certain vintage of wines from an area are average, but you are convinced that they are great you can buy them on the cheap. If the market is proven wrong then you will enjoy a good profit with the price upgrade . I think there are very solid returns to be made through investing in certain established brands. And don't forget storage- you must be able to provide a decent home for your wines (The pic up top is a sneak peak at my dad/Backsberg's stash of wine).

Here's to enjoying wine whichever way you.


SB