Fine wine investment: How much have you got?
At Amphora we regularly review client portfolios, and this process is akin to a wealth management exercise. One of the things everyone should do is make sure their long term investments are following whatever strategic goals were made clear at the outset.
Most people don’t do this. Most people live at such a distance from the world of investments that the very mention of their pension plan makes them glaze over.
Equally most people don’t invest in fine wine. Those who do tend to be much more aware of their overall wealth and investment profile, and tend to be well enough acquainted with the opportunity fine wine investment offers to augment their returns while perhaps having a bit of fun along the way. Such people are well aware when their pension fund performance stutters, and with every justification want to know why.
What is quite interesting is that this discipline seldom feeds through to their fine wine ownership, and there is a good argument to say that it should. The only argument to say that it shouldn’t, or at least doesn’t need to, is if it is a collection, and the process of making money over the period of ownership is incidental. Perhaps it is all going to be drunk.
Some years ago we began to offer a free portfolio audit service for anyone with a fine wine investment portfolio, and what quite surprised us was how few people initially took it up. It was as if they were content with knowing they had ‘about a million quid’s worth of wine’.
Now in our experience people who have ‘about a million quid’s worth of wine’ usually have quite a healthy bank balance, and such people seldom enjoy that without being a bit more particular about the pennies.
In fact though, they didn’t have ‘about a million quid’s worth of wine’ at all. They had simply no idea how much wine they owned. Sometimes it would turn out to be well over that figure, if they’d held it for a while, and sometimes well under, particularly in terms of realisable value.
Often there would be pages and pages of wines, a veritable dumping ground all cobbled together seemingly as and when, often comprising endless cases of wines worth under £500 and thereby costing a fortune, relatively speaking, to store.
We are at some pains to stress that it doesn’t need to be this way, indeed if one of the objectives is to make money it shouldn’t be this way at all. Everyone reading this column will have at least an annual meeting with his or her wealth adviser to hear about what is going on under the investment bonnet, and to ensure that nothing has changed in respect of risk and investment term.
Towards the end of this conversation you get asked whether there is anything else (of financial import) you might like to confess. If so it might change the strategy. And there, indeed, is the magic word: ‘strategy’. If you don’t know where you’re going you’re not likely to get there. The same is true of your exposure to the fine wine market. Or could be, if you are that way inclined, and want to maximise your likely return.
The alternative is just to let it all meander along, in hope. You wouldn’t do this with a stock portfolio, nor should you do it with your fine wine portfolio. Fine wines move around in the market place rather as stocks do: independently of each other. If this was not worth talking about everyone would be aware of the fact and do something about it, and the simple truth is, they don’t.
Here’s why this is important. We have pointed out in the past that had you been lucky enough to switch out of Left Bank Bordeaux in mid 2011 and reinvested in Italy, you would have effectively turned 60p into £1.30 over the following two years. That means if you started with ‘about a million quid’s worth of wine’, you would by mid 2013 have ‘about £1.3m’ instead of ‘about £600,000’. A difference of a cool £700,000.
Staying in Bordeaux cost up to 40% from June 2011 to mid 2013. Italian wines meanwhile rose around 30% over the same period. Of course very few people will have made this switch in practice, but you would have had a much better chance of avoiding the mayhem had you been trying to do so.
Then when the market rallied in 2015 the Left Bank outperformed over the next two years by around 20%, before this happened:
Our point is not to illustrate what might have been, so much as how the market behaves. If you are alert to this, and the opportunities it offers, it can only increase the likelihood of your making good money from this space. Obviously no-one has a crystal ball and equally few have 20:20 hindsight, but if you aren’t looking for something you are less likely to find it. Investment is all about gauging probabilities. Alternatively you can carry on boasting about having ‘about a million quid’s worth of wine’ when you have nothing of the sort. You might even be in for a pleasant surprise!
Philip Staveley is head of research at Amphora Portfolio Management. After a career in the City running emerging markets businesses for such investment banks as Merrill Lynch and Deutsche Bank he now heads up the fine wine investment research proposition with Amphora.