Insightful and Colorful Commentary from Warren Buffett on Investing
Wine: An alternative investment that you can experience first hand
Alternative investing in industries like coins, art, and wine has gained attention recently for their performance and prestige. I believe that these are areas clients enjoy to dabble in because it isn’t fixed to the market and allows them to invest in areas that they truly love and enjoy.
The savvy investor knows there is room for both traditional investing with asset classes such as equities and bonds and also alternative investments that may help preserve capital when traditional markets fall in value. It’s all part of the yin and yang of financial management.
The Financial Times points out that the alternative investment trend has heightened as returns from equities, in particular, have stalled and concerns over the stability of the world financial systems have grown. “The traditional buyers of such assets have been joined by the nouveaux riches of Asia, the Middle East and Latin America, which has helped to push prices still higher.”
If you are interested in narrowing your investment focus to the wine industry, you might find that it has been a difficult asset class to benchmark until only recently. Fortunately for today’s investor there are various indices popping up that are providing data for making smart investment decisions. In the past few years, funds have been created so that investors don’t have to go to the vineyard to sip the wine in order to make their financial decisions. Investors can conduct research, read reviews and invest through one of over a dozen funds created to capitalize on the growing interest in wine as a financial commodity.
One of my favorite resources for exploring funds while also receiving input from industry pundits in the wine world is Liv-Ex. This London-based fine wine exchange has become the global online marketplace for professional buyers and sellers of fine wine. Since its beginning in 1999, Live-Ex has grown to offer a trading platform, market data services and Vine - a specialist storage and transport solution for the fine wine trade.
As I watch my clients through the years, I have found that those who are wine investors truly set up to buy and sell at a later date. Other wine enthusiasts unintentionally become investors by finding themselves with overstocked cellars, selling a few notable bottles and realizing that there can indeed be significant gains made. Or perhaps stumbling upon a vineyard moves them to invest in the maker directly.
Interestingly enough, the wine investor looks at Bordeaux, Champagne and even Burgundy as the ideal asset class because prices do not flux with stock market changes. To underscore this point it’s key to note that the majority of the world’s wine is unsuitable for investment. Short longevity, poor quality and large production volume makes meaningful price appreciation impossible. Investment-grade wine makes up less than 1% of the global wine market, with approximately 80% coming from Bordeaux. The remaining 20% comes from the top producers in Burgundy, the Rhone Valley, Champagne, and from Tuscany and Piedmont in northern Italy.
I believe that wine has become big business for investors who are number junkies and truly love digging into the data and enjoy the art of diversifying their investment portfolio. Many of these investors may use Cellar-Watch.com for smart information access.
If you want to dig deeper into an alternative asset subject, I tend to compliment financial information resources with a variety of trusted human resources. When it comes to wine, one of the experts I enjoy is Austin-based Christopher McFall. This well-loved sommelier at Austin’s Paggi House was named by Wine and Spirits Magazine as one of America’s Best New Sommeliers of 2012. Christopher prides himself on going beyond the basic knowledge and offering his clientele unique experiences and insights. Here is what Christopher has to say on the subject of investing in wine:
Q: What do people need to know about investing in wine?
A: To invest in wine is investing time, passion and dedication. The last part of this is money, but obviously an important component.
- When investing in wine, you don't always need to shop at the tiptop. Or just stop in Bordeaux. With the ever-changing, always exciting world of wine, there is a lot to discover. And discovery is what it's all about.
- Italy has some of the most diverse wines and price quality for value on the planet, each region so vastly different and so extraordinary.
Q:Should we hang on every word of a wine reviewer when it comes to investing?
A: While it is a great and useful guide when the media writes about a vintage, remember that it is subjective. The media doesn't always dote on some of the truly great vintages. They are human, but it's really about trying the wines and assessing your own opinion with the tools that bloggers, wine writers, Master Sommeliers, Masters of Wine and the important voice of the vintner, as they provide the heavy lifting groundwork to form an opinion on a particular vintage.
That said, some of my favorite resources for getting opinions about wines include:
Decanter Magazine - a fantastic tool with some of the best wine writing out there.
Sommelier Journal - always a great read, and very current.
Guildsomm.com - one of the very best tools that I have used personally and professionally.
Burghound.com - for the burgundy lover; a great insight into the vintage, vintner and the world of burgundy by Allen Meadows.
Q:If you are investing in the purchase of a case of Bordeaux and you are hoping to auction it off for a profit – what do you need to know?
A: These days it is important to check provenance and pedigree of the wines. Great Auction Houses like Zachys, Sotheby's and Christies usually make absolutely sure the wines are accurately recorded and real.
You should buy wine from people you trust when you are buying serious vintages or serious wines. Someone who knows their stuff inside and out, and can help you with lowered cost. For example, Jon Roenigk at the Austin Wine Merchant and his entire staff, are truly helpful and wonderful for all price points, styles and special orders. A place where everybody knows your name!
Q: If you were buying wine as an investment and/or to enjoy and money wasn’t a concern – what would you purchase?
A: *2006-2010 Burgundy Red and White from great producers -
Mugnier, Leroy, DRC, Perrot-Minot, Barthod, Lafon, Morey-Coffinet, montille, just to name a few.
France: Northern and Southern Rhone.
Italy: Barolo, Barbaresco, Brunello, And Sicily, yes, I said Sicily.
Germany: Rieslings galore from all levels of ripeness.
Austria: Grüner Veltliner.
California: What's happening in Sonoma, Santa Rita, is amazing.
Washington: Walla Walla Reds and whites are extra special.
New York: Finger Lakes.
Lebanon: Musar, and Massaya.
Spain: Rioja Priorat, Bierzo.
Q: Any other words of wine wisdom?
A: Travel. Visit domains, estates, chateaus, and wineries. Take risks and lengthy notes and meet the wine makers. It’s all about discovery! Remember, ratings matter because they are a useful guide but pairing that information by staying current and educating your palate are the most significant and impactful ways to be on track in your investing.
Christopher McFall, email interview by Red Fan Communications with contributions from David Osborne, Austin, TX, November 25, 2012.
David Osborne is the founder of Osborne Advisors, an independent private wealth management firm offering wealth management to high net worth individuals, families, estates and corporations since 1999. An extension of Osborne Advisors, Osborne Advisors Pro, is a sports wealth management offering created solely to focus on the unique financial management needs of professional athletes and coaches.
This article was written and prepared by Red Fan Communications (Austin, TX, 512.551.9253) and David Osborne. David Osborne is a registered representative and registered investment adviser representative of SWS Financial Services, Inc., a member of FINRA and SIPC and a registered broker dealer and registered investment adviser who does not provide tax or legal advice, located at 1201 Elm Street, Suite 3500, Dallas, TX 75270, 214.859.1800. Though information provided in this article was prepared by sources believed reliable, SWS Financial Services, Inc. does not guarantee its accuracy or its completeness. This article may not be duplicated or redistributed without the prior consent of SWS Financial Services, Inc. Red Fan Communications is unaffiliated with SWS Financial Services, Inc.
 Lopez, L. (2011). 10 alternative investments that will make you forget all about your awful portfolio. Business Insider. Retrieved from http://www.businessinsider.com
 Eley, J. (2012). New concerns over alternatives. Financial Times. Retrieved from http://www.ft.com
 Sullivan, P. (2008). Is wine a smart investment? Food & Wine. Retrieved from http://www.foodandwine.com
 Ricardo, M. E. (2012). Fine wine - why it's for more than just drinking. Advisor Perspectives. Retrieved from http://advisorperspectives.com