Can an outside enthusiast in wine purely buy and resell for a profit?
People have been investing in wine for decades. However, not everyone knows how to spend their money wisely. Experts in the wine industry advise potential investors to purchase 5 cases of fine wine – 2 to sell and 3 to drink. Basically, the analogy goes like this: don’t expect to invest and sell all because wine investing is just any other form of investment. Sometimes you win and sometimes you lose. But even if you lose, at least you can drink the wine you have left.
Wine vs. other forms of investment – is wine worth considering?
We live in the age of advanced technology and the internet. Novice investors can just as easily invest in bonds, stocks, and real estate. Why should they pay attention to the wine industry considering that the risks associated can be higher? The truth is, if you’re not willing to take a risk it’s literally impossible to make it in this industry. Do you have want it takes to succeed, or would you rather stick to stocks, bonds and real estate because it’s safer?
Does wine have sufficient liquidity to become a profitable form of investment?
Some would say that fine wine doesn’t have enough liquidity to be a profitable form of investment. That’s because when you buy, there’s no guarantee that your product will increase in value. But it could happen, and that only depends on how you invest. The smartest thing to do is to stick with blue-chip wines with a track record. To make your bottles increase in value, it’s equally important that you store your wine in proper conditions. Don’t just put them in your basement and expect to make a fortune 5 years from now. It doesn’t work that way.
For fine wine to have real value, the buying and selling process has to be done right. Get to know the market first; meet with the sellers, ask clearance, and last but not least, check references. A wine’s integrity is established over a period of 2-5 months. Considering the time required to trade wine, you should know that wine auctions shouldn’t be treated as aninstrument for market arbitrage. Just look at it as a trading opportunity in the long-term.
Transaction costs involved when trading fine wine
As far as transaction costs are concerned, average fees applied by most auction houses are somewhere between 20 and 22%. The percentage is often deducted when a sale is complete. As an investor, the goal is to wait for the product to appreciate and at the very least, reach that fee of 20%. Keep in mind that you’re investing in an asset. This means that it has to be maintained in excellent condition until you can sell it.
Considering that it takes time for a type of wine to appreciate in value, you have to store is in excellent conditions to make sure it keeps its value. Note that not all wines are suitable for investment. According to the most experienced wine merchants, wines included in the “blue-chip” category (Burgundy and Bordeaux) have the highest chances of increasing in value.
Before making the decision to invest in fine wine, it’s fundamental that you store it with someone you can trust. Know as much as possible about the fake storage facilities, and learn to steer clear. There are facilities you can trust, such as Mark Anderson and others. The best thing to do is search for merchant with a proven track record before storing your cases. If you’re determined to spend money on collectibles, it’s best to stick with the finest. Burgundy wine, for example, with a vast history of provenance has high chances of increasing in value. Fine wine usually appreciates over a period of several years (5-20 years) as scarcity and quality increase as well.
One of the smartest ways to make a good profit with wine investment is by keeping a close eye on market movements. Some wines don’t have investment material, although the better you understand the industry the better chances you have to succeed. It’s ok to be enthusiastic, but try not to confuse excitement with over joy when spending your cash on wine to diversify your investment portfolio.