How to get a nose for a tasty profit

Anthony Rose explains how to invest in wine - the ultimate in liquid assets

There's a saying in the wine business that the best way to make a small fortune is to start with a large one. It's usually applied to the latest grandiose winery scheme but the same could be said of investing in wine, because the field is littered with the detritus of money squandered on ill-informed investment decisions.

There's a saying in the wine business that the best way to make a small fortune is to start with a large one. It's usually applied to the latest grandiose winery scheme but the same could be said of investing in wine, because the field is littered with the detritus of money squandered on ill-informed investment decisions.

Why invest in wine at all, you might ask, when wine is a perishable product designed for drinking? I would estimate that a good 95 per cent and more of wine is bought for drinking and consumed, if not within 48 hours, at least within a few weeks of purchase.

But old masters are a different life form from reproductions, and fine wines are the old masters of the wine world. They improve with time spent in the bottle, which is why we have cellars for laying them down. Where there's a cellar with more wine than its owner can or wants to drink, there's a secondary market. This provides both an exchange mechanism and, with online trading on the increase, a useful tool in establishing price transparency. For this reason, fine wine is a thriving business, populated by auction houses, wine merchants, online brokers and, lest you forget, piranhas.

If you want to invest, you'll need to bone up on the subject. There are plenty of people already making a nice living from sitting at their desk, following every twist and turn of the market. If you're not on top of it, you can be taken to the cleaners - like the innocent victims of the so-called "claret web" scams, now scotched by the DTI. Typically, professionals with too little time to check facts were lured into parting with large amounts of cash by con men promising a crock of gold which never materialised.

However sound anyone's buying judgement, expert or amateur, wine is subject not only to vintage variation but also the vagaries of the wider marketplace, from exchange-rate movements to unforeseeable catastrophes. The Asian crash of 1997, for instance, and, to an extent, 11 September, played havoc with the wine investment market, which has only just started to recover. Exchange rates are also a factor, and the current plight of the dollar is another damper on the global investment market, as Americans feeling the pinch pull out of wine collecting.

So where to start? While France may not be the supreme power it once was in the world of wine, it is still the dominant force in the investment market. Bordeaux, having stood the test of time, accounts for two-thirds to three-quarters or more of trading activity among auction houses and wine brokers. The five first growths, Haut-Brion, Lafite, Latour, Margaux and Mouton-Rothschild, are the primi inter pares of blue chips, along with Cheval Blanc, Ausone and Petrus from the "Right Bank". These icons head the list of the four dozen or so Bordeaux châteaux that are the bedrock of investment.

Not all potential investment wine is confined to Bordeaux. At the highest quality level, France also offers red and white Burgundy, Rhône, Alsace and champagne. These wines are often made in limited quantities and, once sold out, can achieve a scarcity value faster than Bordeaux. This is also the case where there is an excess of demand over supply for renowned wines in the right vintage from Germany (2001), Tuscany (1999), Piemonte (2000), Rioja (2001), Ribera del Duero (2001) and Priorat (2001). Vintage port is a staple of the auction room, although currently out of favour. The New World has yet to really take off, although Californian and Australian fine wines sell well in their own countries.

A number of fine wine merchants offer wine investment portfolios or monthly investment schemes with regular payments. The best way to buy, though, if you have an eye to selling later is en primeur. The success of this system, developed by the top Bordeaux châteaux for cash-flow purposes, has encouraged its expansion to other regions and countries. As soon after the vintage as is seemly, the wines are offered first to wine merchants and thence to the public at an "opening" price. The risk that wine's future prospects are a relatively unknown quantity is balanced by the attraction in securing the wine at, ideally, the most advantageous price.

If you expect to turn a profit, however, it's only worth buying in this way (a) in an excellent Bordeaux vintage such as 1990, 1995, 1996, 2000 or 2003, (b) if the château has excelled itself in the vintage and (c) if the price is right. To know if the basic three pre-conditions apply, you must do your homework.

Enter America's Robert Parker, whose journal, The Wine Advocate, is the investor's primer. Parker has levelled the playing field and his judgement counts. When he rates a wine 100 points or as near as dammit, you can hear the ring of the till at the château. Yet his Midas touch is not universal. Speculative Johnny-come-latelies such as Valandraud and Mondotte, for which the word "Parkerised" has been coined, have plummeted in value lately.

You also need to bear in mind that it's one thing to buy, another to sell. If you're buying with an eye to investment, you need to know the best escape routes for your wines, not forgetting the possible tax implications. Wine is regarded by the taxman as "a wasting asset" and not normally liable for capital gains tax. But it might be, if the taxman thinks it can be kept for longer than 50 years. Traditionally, the best route to market has been the two major auction houses, Sotheby's and Christie's, which will hammer your wine down and take a seller's premium on a sliding scale from 15 to 10 per cent downwards, according to the value of the wines sold. Bonhams also sells wine and there are country auctioneers such as J Straker Chadwick, in Abergavenny, whose premium is lower.

Few wine merchants will offer you cash upfront. Most merchants and brokers such as the online uvine.com, will list your wine and take a commission on sale, typically in the region of 10 per cent, but caveat vendor. When recently I decided to offload a case or two of claret, I approached Christie's and three brokers for estimates. Neither Wilkinson Vintners nor Reid Wines bothered to respond with an estimate. Christie's and Farr Vintners gave market estimates and did a professional job of offloading the wines at the market price less 10 per cent commission.

Investing in wine can bring the conventional consolation that if you can't sell your wine, you can always drink it; but if you can't drink it for whatever reason, there will always be a market out there for it - if the price is right.

'I've never bought a case thinking I'll make money'

This Morning presenter Phillip Schofield recalls that there was never anything more exciting than Liebfraumilch on the table when he grew up in the 1970s. The turning point came after he was asked to introduce a video for Jason Donovan in 1992. As a thank you, two cases of 1990 Burgundy arrived from Stock, Aitken and Waterman. One was of Louis Jadot Puligny Montrachet, the other an Armand Rousseau Gevrey Chambertin. "The Gevrey was the wine that really lit the touch paper," he says.

When he moved from Chiswick to Oxfordshire, his house happened to have a wine cellar, but it grew too quickly. He then excavated a sturdy, outside cellar, which now contains his most treasured wines.

"It's not so much a financial investment as an emotional investment. I'd like to be buried here, preferably about six months before I depart. Three things conspired to cost me a lot of money: the two cases that got me going, moving into a house with a cellar and joining the Wine Society."

His favourite wines are unashamedly French. "I find Bordeaux fascinating. I've been four times and knowing the geography helps to understand the winemaker, the people and the place."

He still buys his own wines from the Wine Society, and from Farr Vintners, Corney & Barrow and Loeb. He adores Côte Rôtie and Château de Beaucastel. "I think Rhône is still good for value for money. I had a fabulous couple of days in the southern Rhône sitting in little cellars with people who are passionate about their wines. I wish I had more time to do that."

Among his most treasured bottles, the last 1990 Gevrey Chambertin apart, is a bottle of 1988 Pétrus that his wife bought. But he never feels that wine should be so revered that you shouldn't drink it.

"I won't sit and look at a bottle and wonder what occasion is good enough to open it. I've never bought a bottle or case thinking I will make money, but I'll occasionally sell back six bottles from a 12-bottle case and get something else."

FACT FILE: INVESTING IN WINE

* Aim to buy en primeur. Against the risk of buying wine before bottling or delivery, this method should achieve the best price, thus the best chance to make a profit.

* Read Robert Parker, look at auction results in Decanter magazine, talk to a wine merchant you can trust. Ask yourself (and your adviser): what are the important factors - such as scarcity, quality, vintage, demand, fashion - likely to increase the wine's value?

* Buy from an established wine merchant, who will, if necessary, store your wines for you, and, if you don't drink them, sell them for you.

* Condition and provenance command a premium, so store your wine in temperature-controlled storage facilities, free from heat, light, excessive damp and vibration.

* Stick to mainstream names, avoid cult or "garage" wines, buy only in the best vintages and shop around for the best prices.

* From the Bordeaux first growths, aim for Lafite, Latour, Margaux, Ausone and Cheval Blanc. At "supersecond" level: Pichon Lalande, Léoville-Las Cases, Cos d'Estournel, Montrose, Léoville Barton, Palmer, Lynch-Bages, Angélus, Lafleur.

* Rhône names to look for: Chave, Château de Beaucastel, Château Rayas, Vieux Télégraphe.

* Burgundy names: Coche-Dury, Rouget, Comtes Lafon, Domaine Leflaive, Leroy, Méo-Camuzet, Ramonet, Etienne Sauzet, Armand Rousseau, Dujac, Comte de Vogue.

* Champagne names: Krug, Roederer Cristal, Dom Pérignon.

* Icons from Italy and Spain: Sassicaia, Ornellaia, Gaja, Giacosa, Masseto, Solaia, Pingus, Vega Sicilia, Unico, L'Ermita, Artadi El Pison.

* California: Opus One, Dominus, Harlan, Screaming Eagle, Araujo, Bryant Family, Maya Dalla Valle, Colgin, Marcassin.

* Australia: Penfolds Grange, Henschke Hill of Grace, Wendouree, Mount Mary, Yarra Yering, The Armagh, Giaconda, Leeuwin Estate.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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