Bull Market In A Bottle Worried that the stock market is about to turn sour? Invest in a blue-chip Bordeaux. Wine prices are already taking off--and a coveted new vintage is on the way.
(FORTUNE Magazine) – This April, at chateaus across Bordeaux, merchants and selected oenophiles from around the world will gather to taste the first sampling of a vintage rumored to be among the best in years. The wines, still kept in wooden barrels for fermentation, won't be available for sale until later this summer and will not arrive in the hands of customers until 2006. But the patience of enthusiasts will likely be rewarded--especially if they use the tastings as an opportunity to do some market research. Lucky buyers who secure a few cases as an investment will almost certainly be richly rewarded without ever popping open a bottle.
Few asset classes have performed as well over the past decade as premium wines from France and California. The average "blue chip" Bordeaux has gained 10% a year in value, while highly sought-after vintages have seen prices race to record levels. Indeed, wines made from cabernet sauvignon, cabernet franc, and merlot grapes have been appreciating at rates that would make the most successful tech-fund manager drunk with envy.
Witness the performance of 1998 Le Pin. The limited-production Bordeaux, known for its rich, intense flavors, is up sevenfold since its first offering in 1999. Not to be outdone, California's 1993 Screaming Eagle has soared from $75 when it was released to the public in 1996 to $1,995--a 2,500% gain. Among recent offerings, top wines from 2000 have gained 50% in value over the past two years even though many observers scoffed that the prices for the millennial vintage were too high.
The pool of investors reaping these gains, however, is mostly limited to wealthy collectors, and for good reason. Wine investing can be tricky. For starters, most shops don't even carry the most coveted wines when they are first offered (although the market is much more accessible to the average investor than the IPO market for stocks). To find them requires going through an established merchant like Sherry-Lehmann (www.sherry-lehmann.com) in New York City or a web directory such as wine-searcher.com. And timing is everything. The biggest gains come for buyers who get in early. For example, a bottle of 2000 Chateau Margaux that cost $300 two years ago is $525 today, but experts at Sotheby's doubt the price will increase much again until the wine becomes drinkable in four or more years. (Prices could then jump.)
That raises another problem: Where to keep the wine as it matures. The dingy bottom of a closet by the heater won't do it. Great wines must be pampered--cool temperatures and not a lot of moving around--or else auction houses or individuals will be reluctant to buy. Assuming your brother-in-law doesn't mistake Chateau Lafite for Two Buck Chuck and uncork the wrong bottle, selling the wine is another endeavor. Wines can be auctioned for a 15% commission at houses like Sotheby's or Christie's, sold through wine merchants, or traded via word of mouth.
All that said, turning a profit on Bordeaux can be a lot easier than picking the right stock. Unlike equities, the number of investable wines is limited to a grouping of 25 "blue chips," including Chateaux Margaux, Chateau Petrus, Chateau Lafite-Rothschild, Chateau Haut-Brion and Le Pin. These wines account for a mere 1% of total annual wine production and are produced in quantities as small as 500 cases a year. Because the names are well known in wine circles, there are plenty of sources for understanding the quality of particular vintages. And each wine is given an easy-to-look-up score between 0 and 100 points (90 to 100 is considered the best rating) by experts like influential critic Robert Parker.
The higher the rating, the greater the demand for the wine. And therein lies the key to investing success. Since most people buy wine to drink it, the number of available cases of a specific vintage is certain to decline over time. As global supply declines, prices move higher. Consider that a 1982 Chateau Petrus initially sold for $63 a bottle. It now sells for $3,000. Last November Sotheby's sold six bottles of 1945 Chateau Mouton-Rothschild for a then-record $70,500--4,650% above the original pricetag. Says Michael Aaron, owner of Sherry-Lehmann: "Every time someone draws a cork on a 1998 Le Pin or a 2000 Margaux, prices will go up."
These same wines will continue to be the focus in the future, says Sotheby's wine chief Jamie Ritchie, because of their heavy following. Among the 2003 vintage, speculation is that the deadly hot summer in Europe, which also halved the grape harvest in key locations, added a richer flavor to the new wines. That's heightened the buzz ordinarily surrounding the Bordeaux offering. Does it guarantee a big return? Think of it this way: If you buy a stock, you could lose everything. But if you buy a classic wine and for some unpredictable reason the price doesn't appreciate, you'll still have a great bottle to enjoy over dinner.