Investing in Bordeaux: Then and Now

POSTED ON 05/07/2010

You have savings, £50,000, let’s say, and you’d like to know how best to invest your money. You leave it in the bank, which before the recession, when interest rates were high, would have given you a decent return. Today, it’s festering frustratingly.

You invest in a portfolio of shares of low, medium or high risk, but unless you know anything about shares, you probably have to pay a financial adviser to help you. Even then, as the recession has demonstrated, investing in shares is far from a safe bet. You can invest in art, antiques perhaps, or you can invest in that other so-called ‘alternative investment’, wine.

Invest in wine? Cue howls of moral outrage. The idea of using wine as an investment vehicle is anathema to most people who love wine. Wine shouldn’t be an investment, so the argument goes, but for drinking. On the face of it that’s absolutely right. Wine shouldn’t be an investment because it would be wrong to buy it with the idea of never drinking it.

And yet no-one questions the accepted strategy that when buying wine futures, or en primeur, for drinking, it’s often a great idea to buy two cases either of 12, or, increasingly, six bottles each, with a view to drinking one, and selling one to cover your initial outlay. This is wine investment and no-one bats an eyelid, perhaps because the aim is to actually end up drinking some of your wine, and it’s not that ambitious anyway.

The notion of people outside the wine trade investing in wine was given a boost by the tax advantages given by the Business Expansion schemes of the late 1980s. Thanks to generous tax advantages, numerous companies set up, offering clients an opportunity to buy wines which, when sold, would attract tax relief and wouldn’t be subject to capital gains tax. Because most of them were run by wine merchants rather than businessmen, and because a lot of the companies creamed off the profits to service their own revenue costs, hardly anyone I know benefited from these schemes as a client, and many lost money.

I invested in a couple of cases with something called the Mount Street Fine Wine Co. and ended up losing a precious case of 1983 Château Cos d’Estournel, which fell into the hands of a company, Greens, that went belly-up. As a salutary reminder of the BES era of 20 years ago, check out my piece from 20 years ago:

That legacy of speculation, together with the success of the Bordeaux en primeur campaigns since the defining vintage of 1982, has created a new wine investment mentality fuelled by growing wine investment opportunities . The rise of Robert Parker with his 100-point scoring system has cemented the notion of wine as investment. It’s no coincidence that Parker’s 21 wines (see below) with potentially perfect 100 point scores in this year’s Bordeaux 2009 en primeur campaign are by far the most sought after.

Today, there are a number of funds that will take your money, if you have enough, and invest it for you, promising returns that far outweigh those of shares or other potential investments. As an article in today’s Indy points out, the Liv-ex 100 Index way outperforms the FTSE 100. There is a secondary market by which through brokers and auction houses, wine can be traded without you ever having to involve the taxman or consume the wine. It’s schemes like these and the idea that you might invest in wine purely as a commodity with no intention of ever drinking it that give wine investment a bad name.

It’s the punch-line of many an article on wine investment that if your wine loses its value, you can always drown your sorrows by drinking it. That still holds true when it comes to investing in most of the wines currently on offer in the 2009 Bordeaux en primeur campaign. If you buy a case of Grand Puy Lacoste for instance at £575 in bond, the final cost of the bottle, with VAT and duty at current rates added, will be £57.99.

Yes, we hurt when we have to pay £50 or so a bottle, but will do what we can to find the money, knowing that in a few years time, we will have a wonderful wine that we’d never be able to afford at a later date. For us, the infallible piece of advice on wine investment is that if you only buy wine, whether for investment or not, which at the end of the day you’d be happy to end up drinking, you can’t go far wrong.

Compare that however with the first growths and other wines of equal or similar status. Since the price hikes of 2005 when the first growths cost around £4,500 a case, and the considerable further price hikes of 2009 (900 euros a bottle for Château Ausone for instance, 1200 for Le Pin), these wines have become so prohibitively expensive from any normal wine drinker’s point of view that they’ve more or less lost their value as wines and become instead, investment vehicles.

Global demand is such that the tide has risen. No longer just the first growths, Pétrus, Le Pin and La Mission, an expanded new swath of ‘superseconds’ has moved from the realm of wine drinkers’ wines to investment wines: Palmer, Ducru Beaucaillou, Léoville Las Cases, Cos d’Estournel, Vieux Château Certan, Angélus, l’Evangile, L’Eglise Clinet, Bellevue Mondotte and Pavie, while wines such as Pichon Lalande, Montrose Léoville Poyferré, Figeac, Trotanoy and Pontet Canet hover on the fringes.

Limited in number despite the relatively large quantities made, they are the ideal vehicle for investment companies, wine funds and the new Asian rich looking for a blue chip investment in wine without having to worry about whether they’re actually going to be consuming the product at the end of the day or decade. They are lost to you and me, to be sure, but can we take the moral high ground and declare that wine investment is a bad thing and no-one should do it?

We may not like it, but if it happens there’s not much we can do about it. Which reminds me of the comment of an ex-editor when I complained someone else had usurped my Saturday column that week: ‘it’s like someone else sleeping with your wife: you may not like it but there’s not much you can do about it’. Do we have the right to be holier than thou about others investing in wine? Only if we’re going to take a moral stand on any business transaction under the sun carried out for the purpose of making money.

Parker’s Potentially Perfect Posse

L'Eglise Clinet 98-100
Château Haut Brion 98-100
Château Hosanna 98-100
Lafite-Rothschild 98-100
Château Latour 98-100
Château Margaux 98-100
La Mission Haut Brion 98-100
Cos d'Estournel 98-100
Château Cheval Blanc 98-100
Château Clinet 97-100
Château Trotanoy 97-100
Château Pontet-Canet 97-100
Château Léoville-Poyferre 97-100
Château Léoville-Las Cases 96-100
Château L'Evangile 96-100
Château Montrose 96-100
Château Pavie 96-100
Château Petrus 96-100
Château Clos l'Eglise 96-100
Château Angelus 96-100
Château Bellevue Mondotte 95-100

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