Tuesday, October 21, 2008

Investment tip for the day: Drink your profits

By Steve Bjerklie

So the economy’s tanking and even successful investors these days -- both of them -- are looking in their closets and sock drawers for hidden investment opportunities. Investment-minded wine lovers are naturally tempted by the profit possibilities residing cork-down in their cellars.

Understandably so. Wine has a long history as an investment vehicle. Those bottles of Roaring Twenties-era Bordeaux that occasionally show up at auction didn’t survive that era’s excesses because someone forgot they were in the cellar. No, they were secreted away for future sale. Back in 1928 a first-growth Bordeaux might’ve cost no more than several francs; at auction today they bring tens of thousands of dollars (or, even better, euros). The profit can be measured in tens of thousands of percent.

But if you’re thinking you’re sitting on investment gold with your carefully put together collection of fine Washington and/or Oregon and/or California wines, think again. Chances are the only profits you’ll realize are the profits to be gained from enjoying your wines with great friends and fine food.

For one thing, wine-investing is an expensive game -- very expensive. A bottle of $50 or $60 cabernet sauvignon, even from a good vintage and from a well-established, award-winning, high-scoring vintner, will not double or triple in value in 10 or 15 years. Investment-grade wines begin at around $200-$250 a bottle and go up -- way up -- from there, and it’s difficult to sell a quantity smaller than a case of 12 bottles. You’ll need an expendable 10 grand, at the very least, to get into wine as an investment, and that’s money that’s not going to do a thing for you for several years except collect dust. It’s not even tax deductible unless wine-investing is your primary business.

For another thing, only a handful of wines in the world are investment-grade. In France, the regions of Bordeaux, Burgundy, the Rhone and Champagne each produce only a small handful of wines that are auction-worthy and that will, in time, increase in value. Same thing’s true in California: In contemporary vintages, only wines from Harlan, Screaming Eagle, Colgin, Opus One, Dominus and perhaps two or three other estates will gain value over time (by the way, a single bottle of the most recently released Screaming Eagle, if you can possibly find one, will cost you $750). Among Washington wines, only Quilceda Creek, with a $100-per-bottle starting point, has a track record of building value over time. A good auction market just hasn’t developed yet for the likes of Leonetti, Cayuse and Long Shadows.

But let’s say you’ve got the cash and you were able to buy a case of Petrus or Ch. D’Yquem or Caymus Special Selection for four grand and now you want to lay it away for five or 10 years and then sell for the big money. Where did you buy the wine from? Who did you buy it from? Your investment will have to have perfect provenance, as they say, and don’t count it getting it from an eBay seller. How and where are you going to store your wine? Your hall closet, garage or even your own wine cellar, however fancy, isn’t good enough. You’ll need to keep your investment waiting for its payday in a commercial, climate-controlled cellar that will provide documentation to the buyer -- an additional expense you’ll need to earn back if you’re planning on a profit. And no matter how well your wines are stored, you’re going to lose one or more bottles to corking. That’s the hard fact of life of aging quantities of wine, even (or especially) great wine. Are you ready to lose a few hundred bucks or a couple of thou to bad corks?

Finally, as anyone who invests in collectibles with an intent to sell for profit will tell you, the worst thing you can do is fall in love with your investment. If you love wine, invest in coins or stamps or antique hair pins or old postcards with cows on them. You’ll keep your heart intact when the winning bid is made and your precious possessions become someone else‘s.

Not that loving wine, even expensive, wonderful wine (and Leonetti, Cayuse and Long Shadows, among several other Walla Walla beauties, come immediately to mind), is a bad thing. Love your wine -- and, to borrow a phrase and turn in on its head, drink the profits. Do so with friends, food and gusto, because those are the only profits you’re ever likely to see from investing in wine.

2 comments:

Jeff said...

I recently steered a friend out of this trap.

We were buying wine from a restaurant that was going out of business. Everything was priced at 40% below retail. I picked up six cases: a lot of cheap-to-midgrade wine and one or two expensive bottles. He bought Marilyn Merlot with the idea of selling it.

While we were there, and I was taking a lot longer than he was, he started looking at the high-end wines. There were bottles of Lafite and Margaux and he asked me if I thought he could buy them for 40% off the retail price and then sell them for somewhere between those two prices.

I gave him some of Steve's argument: that people who buy these wines expect them to have documentation showing that they were stored properly. That wasn't available. In fact, I'm not convinced they were stored properly at the restaurant - the expensive wines were in their own room, but there was no air conditioner running while I was there. And some of the other wine rooms had daylight coming in through windows.

I told him that if he wanted a bottle to enjoy for himself, then now's the time, but don't expect to sell it at a profit.

Catie said...

Hi Jeff,

Thanks for writing. Sounds like a great sale, but with the intent of imbibing and not "investing." Or at least have some bragging rights with the Lafite and Margaux.

I wish him luck on selling the Marilyn Merlot for a fortune. It seems as if here are always at least 50+ bottles of Marilyn Merlot on Ebay. Don't we all have at least have one bottle by now in our collections? I know we had one of the very first vintages - 1998.

And good advice you gave your friend - - now's the time to enjoy it.

Cheers,
C~