Investing with a broker vs. "cellar yourself"

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kenlavoie
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Investing with a broker vs. "cellar yourself"

#1 Post by kenlavoie » February 9th, 2018, 3:36 pm

Good evening,
I'm a new member. I am considering buying some wine for investment purposes but I"m a little nervous. The companies I've encountered appear to be reputable but they're not quite as regulated as a mutual fund company, for example. I'd like to invest in Bordeaux', burgundies etc. via a broker who cellars it, and takes care of all buying and selling. I've been in contact with Cult wines as well as Berry Bros which I believe is an actual "wine exchange" who has cellar plans where you can pony up $100-$500 per month and build "verticals". My understanding is that the wine stays more valuable when it's kept in unopened cases and it's ownerships is meticulously dcoumented (provenence?)

That being said, might it be cheaper to do it myself? I'm looking to end up with approximately $25,000 worth of wine over 5 years. Is this enough to warrant buying my own cooler, and insuring, etc? I plan to buy mostly unopened cases, supplemented with single bottles for some enjoyment.

Any bumps in the right direction would be greatly appreciated.

PS: I do love wine for more than investment purposes! My palate at this point is young, however.
Kenneth LaVoie
Winslow Maine

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Daniel H
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Investing with a broker vs. "cellar yourself"

#2 Post by Daniel H » February 9th, 2018, 4:07 pm

Despite what many London brokers claim, wine investing is by no means a slam dunk path to riches. Especially given your "young palate", I would advise focusing your attention and dollars on tasting more wines, especially well-aged wines. Otherwise you could easily find yourself having spent $25k on producers and regions that you largely do not enjoy.
H.e n.n e.s s.e.y

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Chuck Miller
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Investing with a broker vs. "cellar yourself"

#3 Post by Chuck Miller » February 9th, 2018, 10:28 pm

kenlavoie wrote:Good evening,
I'm a new member. I am considering buying some wine for investment purposes but I"m a little nervous. The companies I've encountered appear to be reputable but they're not quite as regulated as a mutual fund company, for example. I'd like to invest in Bordeaux', burgundies etc. via a broker who cellars it, and takes care of all buying and selling. I've been in contact with Cult wines as well as Berry Bros which I believe is an actual "wine exchange" who has cellar plans where you can pony up $100-$500 per month and build "verticals". My understanding is that the wine stays more valuable when it's kept in unopened cases and it's ownerships is meticulously dcoumented (provenence?)

That being said, might it be cheaper to do it myself? I'm looking to end up with approximately $25,000 worth of wine over 5 years. Is this enough to warrant buying my own cooler, and insuring, etc? I plan to buy mostly unopened cases, supplemented with single bottles for some enjoyment.

Any bumps in the right direction would be greatly appreciated.

PS: I do love wine for more than investment purposes! My palate at this point is young, however.
Without meaning to be condescending in the least, $25K over 5 years is not enough to ‘invest’ in wine. For really investable wines, $5K per year might get you a case of wine each year (and maybe not that). The problem is that in order to even have access to the blue chip wines, you would have to spend many times that for many years for merchants to give you an allocation. Your alternative is to buy in the aftermarket/auction market, typically at a much higher price, and without the assurance of provenance. Besides, you have to realize you would be buying at retail, and selling at wholesale. My advice is to find a different investment vehicle.
Chuck Miller
Seattle Wine Storage

kenlavoie
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Investing with a broker vs. "cellar yourself"

#4 Post by kenlavoie » February 10th, 2018, 7:36 am

@Chuck Miller - No condescencion taken!

I have heard of companies though whereby they buy the wine for you, and keep it. They get very low prices and because of provenence, they are able to sell for an above average price. They even buy "en primeur". Then there's actual "mutual funds" that do the same.

All my "buckets" are already full, so this is just a "diversification ploy" (i.e. it may bob when the market weaves, etc.) The more I learn though, the less I'm leaning toward doing this. I absolutely wouldn't do it for my own enjoyment. Some of my favorite wines are $5-$7 and I resist "raising" my pallet because doing so would be too expensive. Always been tempted to see what a $300 bottle of wine tastes like vs. Yellow Tail Cabernet 2017 but ... it might ruin me! haha!

I always had a notion that buying a "baker's dozen" of each wine might end up breaking me even or even putting me slighly ahead (i.e. case of 12 bottles of Rothschild's LaFitte and an extra bottle for me). But thank you for your perspective. I'll keep reading! (and ... you know ... the other educational wine activity...!)
Kenneth LaVoie
Winslow Maine

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Ian Sutton
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Investing with a broker vs. "cellar yourself"

#5 Post by Ian Sutton » February 10th, 2018, 2:20 pm

Hi Ken
You touched on a serious point when you said
they're not quite as regulated as a mutual fund company
. There is a history of crooks working in this area, enjoying that lack of regulation. By this I don't mean a little stretching of the truth, but outright fraudsters, scamming people for a lot of money.

Before you do anything, look up Jim Budd's Investdrinks site. Read it thoroughly and remember that just like the ones Jim has uncovered, there are others taking their place. This is a serious problem area.

Personally I'd recommend buying what you like to drink, and investing in an area that is regulated.
Normal for Norfolk

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#6 Post by dsGriswold » February 10th, 2018, 8:35 pm

Two good rules:
Never invest money that you cannot afford to lose.
Never buy wine that you will not want to drink.
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Mark Y
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#7 Post by Mark Y » February 10th, 2018, 8:43 pm

Or a lafitte. It’s probably made in China! :)
Y.e.

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Investing with a broker vs. "cellar yourself"

#8 Post by kenlavoie » February 11th, 2018, 2:40 am

I've learned more signing up for this forum and creating this thread than I have with all my reading thus far. I'm going to keep researching but so far my thoughts are:

1. Stick with $5-$20 bottles of wine that I truly enjoy. why get myself used to something that costs an irrational amount of money?

2. And/or If I'm really gung ho on owning some of the big stuf, buy a few cases (auction? from someone on this forum?) and if I make a few bucks selling it later, great, otherwise, I've got a great little thing to show off and share with special friends from time to time.

3. Invest in a well-known mutual fund that has been around a long time that invests in these wines with a small amount (1% of my total investment portfolio). This option is the least attractive because the fees are ridiculous, and nothing that makes up 1% of a portfolio will even budge the portfolio one way or the other, regardless of performance.

That last comment on the Lafitte ... I guess fakes are common? I've always wanted to try Lafitte. My grandparents had a case of 1972 in their basement for years. I forgot to ask what happened to it!
Kenneth LaVoie
Winslow Maine

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Chuck Miller
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#9 Post by Chuck Miller » February 11th, 2018, 5:53 pm

Ken, it's Lafite, not Lafitte, which was what the made in China comment was referring to.

And just skip step 3.
Chuck Miller
Seattle Wine Storage

Geoff K
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#10 Post by Geoff K » April 7th, 2018, 12:58 pm

If your palate is in the $5-7 range, not really sure if investing in wine is that great of an idea.
K e @ h

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Peter Papay
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#11 Post by Peter Papay » April 10th, 2018, 5:41 am

Kenneth, all good advice. Its fun to research wine investment but if you are getting serious about it you may want to consider doing some serious home work first. There is lot of good information out there and you will have to take it with a grain of salt depending on where its originating from.
e.g.
https://www.wineowners.com/pdf/Fine-win ... s-2018.pdf

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John S
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#12 Post by John S » April 10th, 2018, 6:26 am

I will echo others. That is not enough $$ to even really try to play that game. Costs etc will eat you up and I am not fan of the Wine Investment vehicles anyhow.

If you are looking for investment diversification there are many more "liquid" vehicles in alternatives, commodities etc than wine. Most people do not have enough non US exposures but I can't speak to your asset allocation. Wine is generally best treated as a consumable with the exception of a few blue chips when cared for properly with documentation.

If you do have your heart set on investing in wine, then figure if doing it yourself if worthwhile and start there. But assume you'll be drinking it in the end and make many mistakes. The wine funds typically charge high fees, purchase stuff pretty easy to get (i.e Bordeaux), and at prices available to pretty much anyone with $$ and at auction/futures. Neither is a big value add.
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#13 Post by NoahR » April 10th, 2018, 5:14 pm

Honestly it’s like investing in Patek or Rolex watches. These things have an exchange value that vastly outweigh ya use value, and the market is based on exclusivity, real or imagined, and demand, real or imagined. To get the really -valuable- Pateks (or, to be simpler, Rolex) you need to cultivate relationships with people who can sell them to you, probably buy a few lesser Rolexes, which are readily available and have little value beyond impressing people who don’t know better, and hope for a chance at the really limited models that collectors go gaga for. If you don’t know what you’re buying, you won’t make a profit. The bottom could always fall out depending on taste, and the collectors are fickle. Lots of fakes, few guarantees...
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Tariq K
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#14 Post by Tariq K » May 3rd, 2018, 1:40 pm

First time poster!

I'm new to wine collecting but not new to wine. Glad to be here.

I've thought a lot about investing in wine as a way to pay for my cellar, but after a moderate amount of research I've come to the following conclusions:

1) Wine is a hit-driven business like many others; predicting what's going to be a hit is very tough.
2) Given recent increases in release prices, blue-chip names will probably appreciate at a rate that matches that of equities over the long term. The arbitrage opportunities are getting more rare.
3) Wine is cyclical, like many other businesses. It's also subject to international fashions (e.g. global interest in Burgundy) that are fickle and impacted by regulatory changes.
4) Yes, you can always drink your wine that is financially underwater - but only if you can actually work up the gumption to do so. People have a hard enough time selling losing shares. And the wine sits in you cellar uselessly while you wait, occupying space that can be better served for things you like to drink.
5) People who are wine industry professionals can probably invest profitably over time; it's a lot harder for hobbyists.

Therefore, I'm not doing it. I don't see what the difference is between investing an equivalent amount in equities and spending the gains/dividends on good wine vs investing in wine. I'll build a cellar I am proud to drink and if I stumble on a hit, well, lucky me.
Tariq K @ s s u m
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Chuck Miller
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#15 Post by Chuck Miller » May 3rd, 2018, 4:43 pm

Tariq, welcome. I think you are right on the money (pun intended).
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Ian Sutton
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#16 Post by Ian Sutton » May 4th, 2018, 11:51 am

Indeed welcome Tariq

FWIW (not that I'd encourage anyone, and I certainly have no desire to do this myself), there are opportunities for hobbyists making small scale 'flipping' gains. Having even as little as 5-10 years enjoying this hobby could make that possible. For instance I've seen sought after bottles (e.g. specific Barolo wines, but also other regions) in plenty of Italian wine shops, that would sell for double or more in the UK or USA. Had it been about the money, I could have bought as much as my baggage allowance would have permitted, lugged it back, cellared it to raise the value further, then put up for auction. Indeed I could even have put it straight up for auction and made a certain but more modest profit.

I didn't do that, because:
- if it's all about the money, then the flights, travel too/from the airport, cellaring costs, sellers commission, and risk of the bottom falling out of the market, wouldn't have been worth it. Yes the flights were already paid for, but I'm on holiday, and much as I enjoy perusing wine shops, I don't want to be doing it with a calculator.
- They weren't wines that I specifically wanted, or feel offer fine value for money (in terms of drinking pleasure). I picked up wines I really want to drink instead.
- I'm happy keeping the wine hobby separate from any thought of making a business out of it. I had to make that decision a while back, when a friend was asking if I wanted to partner in his business as he started to wind down his involvement down. It was a good and successful business, but there was a key reason behind that - he worked bl**dy hard, driving up and down the land, buying anything and everything that was a good price and then finding buyers for what he bought. It's a tale told by many in the Wine biz, that what might seem a money making hobby, generally ends up as very hard work. I enjoy my hobby and would hate to cloud the water of that enjoyment. To this end I've never sold a single bottle of wine - a few have been given away, but every bottle of wine I buy, I buy with the intention of enjoying it once it'd had its time in the cellar.

Apologies for the ramble. You are right. This is really just a little insight into why it might seem viable, but in practice it isn't.

Regards
Ian
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#17 Post by Tariq K » May 5th, 2018, 5:19 am

Hi Ian and Chuck

Thanks for the responses!

Yes, admittedly I probably need to walk back my point #5 a little bit. As I continue to learn more about wine collecting, I too am starting to see little micro-arbitrage opportunities here and there. Maybe not the best example, but a certain famous California wine has a direct-to-consumer futures price that is 40% below the release price. But my back of the envelope math says I'd need about 10-15 of those arbitrage plays going on at any one time to pay for my newly acquired cellaring habit.

Also, I will echo the thoughts of others on this thread - the OP noted his budget as averaging $5k/year - I agree this is too low to really make a dent in fine wine buying. Alex Andraews' book on investing in wine (which is now available for $0.99 at the Kindle store) suggests that $10k/year is a bare minimum. And I would suggest that if the OP wants a truly uncorrelated alternative to equity and fixed income, he's looking in the wrong place - wine is most certainly a pro-cyclical play on economic health, unlike, say, gold.
Tariq K @ s s u m
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#18 Post by Chris Foley » May 5th, 2018, 6:22 am

I've been "investing" about $1K per month in wine for a few years now.
Roughly 30% of the gain on investment is in short term enjoyment of drinking fresh young wines which I found at favorable prices.
60% will be longer term, enjoyment of drinking wines I found at favorable prices which improve over time in my cellar.
About 10% of the gain will be purely hedonistic enjoyment of great wines I can afford to buy, regardless of quality-price ratio. Many of these wines are used as leverage to enjoy wines I will never buy - when I take them to offlines where other people bring great wines I can not afford. [cheers.gif]

WRT the OP's price point for drinking enjoyment, I would suggest that doubling the price range would at least double the enjoyment.
There is a significant improvement to be had by moving upward only a small amount.
Chris F.

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