Liquid assets - investing in wine

Entrepreneur, May, 1996 by Elsie Marienberg

The stock market just finished its best year in the past 40, and bonds aren't far behind. But that's old news. Unless you're living on a desert island or in a cave that can't get cable, the wonders of the financial markets are in plain view.

But where can you find an unpretentious little investment, with firm structure and understated yet concentrated intensity, balanced yet with enough stamina to thrive more than a decade before reaching its full potential? If the idea of buying an asset whose supply is limited but whose demand is increasing sounds attractive, dial your broker--your wine broker, that is.

The ancient Romans believed "in vino veritas"--wine bespeaks truth. But if you don't know a Chablis from a Chardonnay and think Napa is a kind of Chinese cabbage, just choosing a wine for dinner is challenging enough. Why add to your stress by investing in the fruits of the vine?

Because wine is hot, according to Don Zacharia, owner of Zachys Wine & Liquor, an internationally known wine retailer in Scarsdale, New York. Some of the most impressive gains have been noted in the top-of-the-line or first-growth Bordeaux (Chateau Latour, Margaux, Lafite-Rothschild, Cheval Blanc, Haut-Brion, Petrus and Ausone). Vintages from the bellwether year 1982 and some from 1989 and 1990 are up 30 percent to 50 percent; the same wines from 1983, '85 and '88 are up 20 percent to 30 percent.

But we're advancing too quickly. As a famous winemaker once said, we will invest in no wine before its time.

Taste Test

Investors in financial markets can judge an investment by reading the company's annual report, the mutual fund's prospectus or the bond's offering circular. Though you can't judge a vintage by its label, wine mavens have similar sources of information. The Wine Advocate, self- published by Robert Parker in Parkton, Maryland, and The Wine Spectator Magazine describe and rate wines available for purchase. All kinds of wines are covered, with issues delving into wines from the same grape variety (such as Merlot, Riesling and Cabernet Franc); wines of the same vintage, region or country; or a comparison of the differences among producers.

But don't make a mistake common to many novice wine lovers: buying whatever tops the list of publications solely because of its rating. Like mutual fund investors who invest in the top-rated funds without regard to their contents and investment strategy, you may end up with wines that are similiar in taste and price--and, worse, you may not like the wine you've collected.

Before you become a devotee of any wine-rating service, taste the wines they recommend and see if your taste buds are in agreement with the author's palate. If so, you can purchase with impunity. If not, try another rating service.

When tasting wines, remember that they are made to go with food. The best kind of tasting is one that carefully pairs wines with complementary courses. Chuck Richards, president of Reid's Wine Club in Charlotte, North Carolina, hosts more than 15 "wine dinners" annually. Club members taste a different wine with each course, learning more in one evening than an entire week of reading would teach.

Buy, Sell Or Hold?

Buying wine can be as tricky as tasting it. Highly rated wines get that way for a reason, and they are usually the first to fly from the vineyard to the cellar. The best way to get the most for your money is to develop a relationship with a reliable wine shop. Special bottles can then be put aside, and once the merchant knows your taste, recommendations can save you from having to learn from your own mistakes.

Whether you're buying for your own future use or as a collector, some wines appreciate more in value than others. At the top of many lists are the first-growth Bordeaux, made from wines produced in the Bordeaux region of Southwestern France. They are widely sought after, but only a small number of cases are produced each year.

If a wine is expected to be spectacular, those in the know can sometimes purchase "futures"--purchasing the wine before it is released. Like buying corn or soybean futures, this can be risky business, and not all vintages are good enough to warrant their release as futures. For those willing to take a chance, Zacharia says the 1995 Bordeaux, which will probably be sold as futures by many American retailers, could be a spectacular opportunity.

With some top vintages, futures are the only way to get bottles. And unlike some investments, wines purchased as futures are often less expensive than the same bottles after their release. To find out where to buy futures, check your paper for advertisements, or ask your local wine merchant.

How much can wines appreciate? When it was released in 1984, says Zacharia, a dozen bottles of Chateau Petrus sold for $1,000; today, collectors pay that much per bottle.

Going Once, Twice . . .

Don't get the wrong impression about wine, however: You don't have to be a millionaire to start a collection, and anyone can attend a wine auction. If you've ever visited an art auction, you'll find many similarities. A catalog is usually released prior to the event, and you can bid by mail. If you attend the auction, you receive a paddle if you intend to bid and may be asked for a bank reference or credit card. For a small fee, auctions provide a pre-sale tasting, allowing attendees to try some of the wines. If you don't like the wine, don't bid on it, no matter how high its rating.