How To Be Smart About Investing In Fine Wine
“You should always buy wines which are produced in tiny amounts.”
I fell in love with wine from afar. Watching one of the coolest guys I ever met entertaining on the terrace of his old rectory up in the hills behind Nice in the South of France—technically the Côte d’Azur in Provence. Of course, it was preceded by the clanking of freezing-cold ice cubes into long glasses, soon filled with syrupy green Pernod Ricard Pastis 51, which smelled of licorice and added gasoline to the conversational fire. Aperitifs over, the cicadas raised their calf-rubbing to a crescendo, the air resonated with pine sap, and the wine began to flow with the first course of dinner.
Sometimes a petit vin de table, sometimes a classified Bordeaux, or fine Burgundy. Of course, at the time I knew nothing. In fact, less than nothing, as I had never so much as sipped a spiked punch. Let alone dreamt of lunches at Balthazar in New York City, fueled by some of the finest wines known to man, many of them classified Bordeaux. For many, it is seen as the wine of choice for investors. A 1982 Château Margaux for instance, or a 1983 from its next-door neighbor at Château Palmer. Both of these wines are on the list that is one of the foundations of basic wine knowledge. And both are banner years. Epic years. Wines that dreams are made of.
It was in 1855 that the French classified the wines of Bordeaux into a premier league table of sorts. Napoleon III wanted to showcase the very best French wines to be presented at the Exposition Universelle de Paris. So the 60 or so top properties for red Bordeaux wine were ranked by the leading brokers of the day. Price was used as a proxy for quality, and rankings ranged from Premier Cru (First Growth) to Cinquième Cru (Fifth Growth.) The rankings have remained mostly the same ever since, with the notable exception of Château Mouton Rothschild which was added in 1973.
But many true wine aficionados will eventually admit that there is only one grape for the serious wine lover: pinot noir. And that of all the pinot noir in the world, it is that which is grown in the sometimes tiny plots of Burgundy that is the very best. This certainly seems to be the case from an investment standpoint. In a recent study conducted by The Economist, a collection of the most expensive red Burgundy auctioned online since 2003 would have yielded a whopping 497% by late 2018 if you hadn’t inhaled it. Not only impressive, but also nearly twice the S&P 500, which grew 297% in the same period. Perhaps surprising to those who know nothing about wine.
This would also have been shocking news to Philip the Good, Duke of Burgundy from 1419 to 1467. In 1443 the wine capital of Burgundy, Beaune, and its environs were in a state of emergency. Although the Hundred Years’ War with the dastardly English had been de-escalated by the signing of the Treaty of Arras, pillage, plunder and general mayhem continued. So to help out his destitute subjects, Duke Philip’s chancellor commissioned the building of the HôtelDieu de Beaune, a hospital and refuge for the poor.
This hospital is better known as the Hospices de Beaune. Over the centuries, grateful families and benefactors have donated precious vineyards that led to the Hospices having its hands on some of the finest wine land in the world. They started auctioning off the annual wine production in 1859. So if you can get yourself to town on the third Sunday of November, this is one of the most fulfilling ways to fill your cellar and invest in something special—by the barrel (288 bottles after maturation) at a time, if you like.
But if collecting for fun is not your thing, then caveat emptor. Like any opaque, secretive, market, the wine market can be a dangerous one to dip a toe into. Fine and old and rare wine is a murky place of intermediaries, sharp operators, and professionals with serious insight, inside information, and relationships built over decades. Nothing has a price, other than the price a willing buyer is happy to pay a willing seller. And people’s motives are often not clear.
Like Forex trading on margin, if you are not careful you can lose your shirt faster than the blink of an eye. Cash and government bonds may offer low or negative interest rates, but money is flowing into wine trading funds. Some trade in the cracks, taking the spread on global arbitrage opportunities to turn profits on the fly.
Wine auctions, like the Hospices de Beaune auction curated by Christie’s, and moreover, those of other independent auction houses have been posting record growth of late. Zachys Wine Auctions in New York sold $121.5 million worth of wine at auction in 2019. Nearly half this amount was accounted for by sales of individual collections. And over 12% of the 34,616 lots sold in 2019 set world records.
But not everyone has the palate, wits, or wherewithal to afford the luxury of amassing a collection such as that of Ian Mill, QC. The English barrister’s wine collection, including countless bottles of the finest Burgundy, was sold by Zachys Wine Auctions in October 2019 for just shy of $7.8 million. Nonetheless those in the know seem to be stocking up. With the U.S. preposing tariffs of up to 100% on imported French wines (at press time), the smart look may be buying up offerings now. Apparently bids were up 10% at one Zachys event since possible tariffs were announced.
As for what to invest in, and how, Raj Vaidya, Head Sommelier at the legendary two Michelin-starred restaurant Daniel in New York City, says, “Focus on young vintages and age them into maturity as investments. You should always buy wines which are produced in tiny amounts. The vast majority of wines that appreciate well do so on account of rarity more than quality. And if you need something in your collection to appreciate quickly, just pay some fancy sommelier to post it on Instagram.”