(Editor's Note: This post was actually put up on Wednesday evening, but things got a bit mangled in Typepad-land, and a lot of folks probably missed it. I am therefore posting it again, since it's a superb piece. I also have an exceptionally busy afternoon, so I need a few hours break. Today was fantastic, however, and I look forward to doing a post tonight.)
I'll be leaving Wednesday for Mendoza. For those interested in following my misadventures I've set up a makeshift blog directed at my UC Davis classmates and fellow Slopers. It's Disqus powered so swing by and say hello. This series on Wine was enjoyable to write, and I appreciate the positive feedback given.
Based on the quality of comments from this wine series so far, it's obvious the wine knowledge of Slopers is extraordinary. In an attempt to broaden my own horizons, I sent an email to Scrillhog, a very astute collector and enthusiastic contributor on the subject of wine. I asked him to comment on this snippet I wrote:
As a starting point for any collectible purchase, I visit Wine-Searcher. Tied into thousands of online stores, you'll get an accurate picture of the retail market. I always check the eBay-style auction sites, Wine Commune and Wine Bid before purchasing anything. I'll occasionally land a smoking deal, especially if there is no reserve price on the listing. These sites are catered to the small collector. Of the two, Wine Commune is my favorite for selling wine since only a 5% fee applies, compared to a 20% haircut from auction houses like Sotheby's. Don't expect to fetch top dollar prices when you sell, but don't expect to pay top dollar prices when you buy either. You’re simply out 5% plus shipping for every round trip wine trade; kind of like the obnoxious spreads in option trading.
His response was so good I'll Leave the remainder of the post to him. Take it away, Scrillhog!
As a consumer/ collector I'm lucky to live in CA, where I can buy wines from a huge list of retailers that I'm able to visit in person and build relationships with the owners. The first thing I’d say about wine investing is to forget about it unless you are also a wine lover. In this day and age there is plenty of risk and uncertainty in the fine wine world. If you're a wine lover you probably know much of what I’m about to say. If you’re not, and still determined to invest in wine, well then read on. Today's economy is the perfect time to try and strike deals with retailers – mainly the smaller ones, as chains like K&L or Bevmo won't be able to work the same type of deals. Many small retail shops are struggling to move wines, especially with the string of amazing vintages we've had, so at shops where I have a personal relationship I'll often offer to buy the remaining stock of xyz wine for just barely above their wholesale cost, getting a great discount and helping them move product. This is easier since I know and have bought wine from these folks, so many times I don’t even have to ask, they’ll just offer. If you were to randomly walk into a shop and try to strike the same deal, you might look like a "cherry picker" to the shop owner. Then again, shops are hurting and that method could very well work.
For personal consumption, I buy a lot from Winebid, and always use Wine-Searcher but the biggest problem I have with them and random shops across the country is the inability to guarantee provenance. I’m a believer that wine should be treated similar to milk. Quality goes down when it’s stored improperly, but the difference is a lot harder to tell than spoiled milk. Provable provenance of temperature controlled storage is important to wine buyers, and many are willing to pay a premium for that peace of mind. For that reason I’d avoid buying older wine for investment at anywhere other than the most reputable online auction sites. As investors/ traders, buying expensive wines from uncertain places is taking on lots of risk. To go further, if you try selling them via private party, you might have luck but if your wines are possibly heat damaged etc you could get a bad rep in the wine buying "community". If you plan to sell at auction they will definitely sample wines from your cellar before placing the rest up for sale. One respectable auction house you can buy from online is Acker Merrall & Condit. You will have to pay the buyers premium but there are many lots that go for a bargain even with that fee and you can buy online without having to be present at the auction.
So where else does an investor go for new wines?
US wines – get on the mailing lists. This gets you guaranteed provenance as you have shipping, storage receipts etc. Biff mentioned in a post he’d been trying to get on the Harlan list for some time. If you're a "flipper" and on that list with a big allocation you can sell it or a portion of it at big markups to private parties who can't find the wines and are willing to pay top dollar. Just think how lucky you'd be if you got on the Screaming Eagle list in the first vintage? Those wines sell for $1k + per bottle. The top lists have been closed for nearly a decade and if they open to new people in this climate they might not hold the same allure they once did, so best thing to do for domestic wines is hunt for the big new up and comers. Personally I don’t find US wines something I’d look to make a profit on.
Here's a short list of top US wineries:
Sine Qua Non
A list of up and comers:
Moving on to French wines, which I find more suited for investment purposes. The auction market is worldwide, and for the most part foreign buyers are not into US wines. The Asian market is booming, and people there are buying top Bordeaux and rare Burgundy. One of the best ways to buy French wines is En Primeur, which means you are buying wine as a future and taking delivery much like one would do with corn, wheat, or oil. Like other futures, there are inherent risks buying wine this way. Many well-known retailers (Zachy's, Acker, K&L, etc) offer Bordeaux / Burgundy futures well in advance of the grapes even being harvested. Here are some things to consider when buying wine futures:
1. Currency changes. The dollar vs. euro will of course affect wine prices. Would you buy French wines today when the dollar is sinking or do you think it will gain strength a year from now, leaving French wines cheaper and you with money that doesn't have to be tied up for 1-2 years?
2. Ability of retailer to deliver the wines. Reputable houses should deliver the wines once in bottle, but recently there have been some houses unable to deliver wines from a top vintage. Now you have wines with huge scores by critics you will not be able to find elsewhere for the same price you paid, and you just gave your retailer a two year interest free loan only to receive a 100% refund. Read the fine print and do your due diligence.
3. Scores change. What may have been scored highly in barrel will change once the wines are in bottle, sometimes to the downside. Nothing like buying heavily into a supposed top vintage only to find a drastic change of opinion once the wines are in bottle.
Here's an article on buying en primeur.
One recent vintage – 2007 Rhone (Chateauneuf Du Pape) was heralded as “the best ever” by Robert Parker, wine critic. He scores wines in barrel, issues a report and then later issues an updated report once the wines are in bottle. At the end of Oct, he released the current issue and scores for many wines were upgraded. To my chagrin, I had not bought as many wines as planned due to various reasons, and now find myself priced out of wines that I wanted to buy anyway. As an example, the 2007 Usseglio Mon Aieul, one of my favorite wines every vintage scored 100 points. I bought a bit, but not as much as planned before the report. Once it came out, the price increased at least 50%. As an investor, if you bought before you could have made a healthy profit. As a consumer, I now find myself priced out of that particular wine, and would rather backfill older vintages than buy 07 at the current premium.
Bordeaux and Burgundy are what I feel to be wines that will appreciate the most. They have proven aging ability, old world cache, and many are rare enough to be highly sought after. You want to buy by the case, in their original wooden case (OWC) and the magnum format (1.5 liter) is probably best. Wines age best in that format (opinion), and they hold additional value. Rare wines from these regions can obviously fetch higher prices. Some domaines in Burgundy bottle as little as 2-4 barrels of a wine. Good luck acquiring those. Here are a few names to research:
Latour, Margaux, Haut-Brion,
Leoville Las Cases, and
In closing, there are many things you need to factor in if you want to buy wine for investment. Storage costs, auction fees, time spent finding buyers, etc. If you don’t have a passion for it, I think it would be more of a hassle than it’s worth. Personally, I don’t buy wine for investment purposes – I just love drinking it , collecting it, watching it change and sharing it with loved ones. I’m fascinated by history and love opening something that has been through world wars, recessions, depressions, other significant events and is still vibrant, alive and full of character. Hopefully you found this post interesting… I didn’t plan on writing it, but it was fun!