People who are passionate about wine will understand that there’s a dissonance between loving to drink wine, and collecting wine. Having a well-stocked wine fridge is one thing. But if you’re someone like investment-banker-turned-wine-trader Matthew Starr, loving and collecting fine wines will eventually lead you to a harrowing question — what happens when you’ve purchased so much wine, you’re unlikely to be able to consume it over your lifetime?
Luxury wines, aside from their gastronomical value, are commodities that can be traded. Like fine art, wine has a firm place as an alternative investment category. Starr realised, however, that the market itself wasn’t favourable to likeminded individuals like him who wanted to invest in wines without having to deal with large costs, or the potential for sloppy practices affecting the returns. Armed with a background working with fixed income in emerging markets, as well as a near endless repertoire of wine knowledge, Starr began WineBourse, an online trading platform for fine wines.
“The issue with investing in wine,” explained Starr, “has always been the high costs that come with entering and exiting a position. WineBourse has solved this by charging three percent commission — a fraction of what it costs to trade on usual market platforms, and it’s completely transparent.”
Starr wanted to implement the standards one sees in major markets to the wine market. All information on a particular wine is made available online, including its individual rotation number, so there’s never any confusion about their ownership.
“There have been too many situations where because of a lack of detail and security, people have lost money. It’s bad news for the industry when poor methods affect the credibility of fine wine trading as a whole,” remarked Starr.
It’s a highly efficient platform that allows private individuals to trade and invest in six different currencies — USD, SGD, Euros, Francs, Pounds and HKD — ensuring no discrepancy ever occurs between foreign exchange rate fluctuations and the profit one would make. All wines under WineBourse are also stored in a third-party bonded warehouse, with the proper environmental factors to keep the wines in top condition.
With the ever-growing interest in luxury wine collection, people are more willing to get their feet wet with wine investments, and something like WineBourse is an ideal platform for that to occur on a buyer-to-buyer level. “When investigating the market, I realised there wasn’t a mechanism for private individuals to be able to sell their wine efficiently. WineBourse was born from this lack,” said Starr.
If you’re someone who has considered the idea of turning your personal love for wines into a source of income, or have a substantial enough collection to profit from, give this avenue a try. Starr himself has proffered our readers with 5 essential things to note before investing in wines. Here they are:
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“A lot of it is research. Also, there have to be preferences. It’s difficult to expect somebody who isn’t a wine lover to jump in and start investing. It will require a level of knowledge.”
“There’s an overwhelming location for investible wines in Bordeaux. The top chateaus in Bordeaux have both the volume and market recognition. They form easily 60 to 70 percent of the investible wine community. There’s also been the emergence of Burgundy. It’s a much more complex market, with a far smaller production scale, but the demand for high-end Burgundy has had a spectacular rise in the past five to six years.”
“There are some tenets that are more important than the wine you’ve bought, to some extent. Firstly, it has to be stored in a UK or European bonded warehouse, which means it is duty-suspended, and VAT-suspended. These have to be temperature and humidity controlled, so the wine can have the ideal set-up to lay in storage for many years.”
“There are implied costs to investing in wine. A storage bill is going to be about £15 (S$27) per year, and that’s regardless of the price of the box of 12. If you have a £500 (S$890) case of wine, that’s a 3 percent negative carry. Compound that over 10 years, and you’re looking at an over 40 percent hurdle before you start making any profit. I would also really focus on your entry and exit levels.
If you’re looking to invest in wine, you don’t have to jump in immediately and spend all your money on what you see. You can sit on the bid, and wait for the market to come your way. There’s probability it might. The overall concept of investing in wine is extremely favourable.”
“Your time scale to turn a profit is a minimum of two years. In terms of a portfolio position, you’re probably looking at 10 to 15 years on the horizon. In this environment of ultra-low interest rates, wine represents a stored value. It has had a tremendous resilience to volatility in developed markets, or in mainstream asset classes. When the financial crisis was melting down, wine was not affected. In fact, it was a counter-turning asset class.”
“When publications and such show you graphs and the like to justify certain wine investment recommendations, it’s important to realise that you’re looking at it in Sterling Pounds. If you look at the past 18 months, it’ll appear that there has been a spectacular increase in the price of wine, which has created a huge bull market. This actually isn’t true, as what you’re looking at is the after effect of Brexit, where the price of the Sterling Pound peaked against the Euro.
If you rebase all those graphs in Euros, you’ll just see a line that’s slightly rising — by no means a bull market. It’s important to note that wine is a Euro asset. The anomaly is that it’s traded in Sterling Pounds, largely.