Tuesday, December 26, 2006

Wine investing: buyers, cellars and liquid assets

At this time of year as many investors rebalance their portfolios, a growing number are keeping some of their investments truly liquid - in wine.

"There has been a phenomenal growth in the collection of premium wines," said Peter Meltzer, the caretaker of the Wine Spectator Index, a gauge of the most frequently sold premium wines, mostly Bordeaux and Burgundies.

"Right now the index is standing at the highest point ever - 250. Prices for the Domaine de la Romanee-Conti -- particularly from the 1978, 1985, 1990 vintages -- have just gone through the roof."

Meltzer, author of the recently published "Keys to the Cellar: Strategies and Secrets of Wine Collecting," said six magnums of that premium Burgundy sold earlier this year for $170,375. A few weeks later, a single bottle of Chateau Latour 1955 sold with commission for $28,440.

"That was up 262 percent over the current Wine Spectator Index price," he said.

Capgemini Merrill Lynch noted the surge in wine investment in their 2003 World Wealth Report, which found that the rich were devoting 13 percent of their assets in so-called alternative investments. The category also included art, hedge funds, and foreign exchange.

Meltzer likened investing in wine to investing in art with one important exception: "To enjoy it, you've got to destroy it. You don't get much of a kick sitting in a dark, dusty cellar."

Opening a bottle of a very fine expensive wine can be "just an incredible kick and impress a client with a like minded palate perhaps even more than showing off a painting."

Then there is the phenomenon of someone "who just can't stomach drinking the wine at the readjusted price," said Meltzer.


For instance, a case of Mouton-Rothschild 1982 cost about $400 (or $33 a bottle) when it was first available for sale. At a recent Sotheby's auction, 50 cases of the wine were sold for $1.05 million - or $1,750 a bottle, he said.

"Now it may be one thing to drink a $30 bottle, but you may hesitate to drink a $1,700 a bottle."

Who is buying those wines? Commodities brokers, hedge fund managers, real estate investors, investment bankers, successful 30-somethings and "you'd be surprised at how many of them are really pretty knowledgeable" about the market, Meltzer said.

But Meltzer, who has been amassing his own wine collection since 1982, insisted one did not have to bring down a seven-figure salary to begin a collection.

He tells of a New Jersey couple - he works for an importer of Belgian chocolates - who have amassed a comprehensive cellar, balancing rare acquisitions with a larger collection of every-day wines on a generous but not open-ended budget.

It is possible to start collecting for $5,000.

But novice investors are cautioned that when it comes to wines the less is more approach is best. It is better to have one case of a first-growth Bordeaux than four cases of a fifth-growth, experts agree.

The Wine Spectator index is currently published twice a year. Meltzer hopes to have the index updated monthly and available online in 2007.

Copyright © 2006 Reuters Limited.

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