Investment
When wine stoops to folly
Harry Eyres
Imust begin by declaring a moral pre- judice. The purchase of wine purely as an investment is a perversion of the natural order and therefore wrong. Wine is a sacred substance ordained for man's com- fort, inspiration and aesthetic delight: it was not ordained to sit entombed in a box for ever or to be used as an instrument of exchange. Many centuries or even millen- nia ago, man invented neutral, easily trans- ferable instruments of exchange: money, bonds.
More recently, the advent of high infla- tion led people to look for 'cast-iron' commodities whose value would hold firm in volatile economic circumstances. The British Rail Pension Fund, and others, invested in works of art. I do not like the idea of investing in works of art, but, so long as the works remain accessible to public view, it need not be more than a monstrous joke played on people like Van Gogh — and a waste of money which could be invested in the living economy. The case of wine is more perverse, because the effects of investment in wines is to push their price so high that they can no longer fulfil their primary, their only true func- tion: to be drunk.
The story of Baron Elie de Rothschild, owner of Lafite, has been told before but it is worth telling again: in autumn 1971 he came across a photograph in Time maga- zine of a bottle of Lafite sitting in a bank vault. 'I assembled my staff,' he wrote later, 'and told them, "The crisis has started." Indeed, from the moment you start to think of wine as an investment and not as something to be drunk, that's the end.' It is unfortunate that Baron Elie did not back his own words by keeping the price of Lafite at a reasonable level, but those words remain true. And DOW the language of economics has caught up with the language of morality: people who bought wine for investment in the last four or five years are caught in a delicious bind: they cannot afford either to sell it or to drink it.
Even Christie's, whose auction rooms provide the main facility for the buying and selling of wine as an investment, proclaim the simple, natural message: corks must be pulled. 'There is, to use an appropriate metaphor, a bottle-neck in the fine wine market,' says Duncan McEuen, a director of Christie's wine department. 'The sequ- ence of very long and very good vintages, 1982, 1983, 1985 and 1986, following slow- maturing ones like '66, '70 and '75, has meant that there is an enormous amount of wine in the market, most of it not yet ready to drink. The bottle-neck can only be eased by opening some of the bottles.'
Having got this off my chest, I should make one or two things clear. When talking about investment in wine, I am referring above all to claret, and to a lesser extent to sauternes and vintage port (whose production is minuscule compared to that of cru classe bordeaux). Other
FOOD AND WINE
kinds of wine are considered too unreliable (burgundy) or untried (top New World wines) to be blue-chip investments. In the case of claret, it became fashionable from the late Sixties and early Seventies to purchase en primeur, that is, in the summer following the vintage. At this stage the wine is still in cask: the price paid is 'ex-cellars Bordeaux', that is excluding UK duty, shipping and VAT charges which are levied when the wine is shipped in the spring of the third year after the vintage. The disadvantage of financing the wine's maturation (an onus formerly carried by wine merchants) is theoretically out- weighed by a low initial purchase price. The theory worked with vintages like '66 and '70, the initial cost of which was, even in real terms, extremely modest by today's standards. More recently, however, the en primeur theory has become distinctly shaky.
Take 1983, hailed as a very fine vintage, perhaps more classic than the exceptionally ripe '82, and the youngest vintage currently appearing in the auction rooms. A mixed basket of a case each of 11 classed growth chateaux (Lafite, Margaux, Mouton- Rothschild, Haut-Brion, la Mission-Haut- Brion, Palmer, Pichon-Lalande, Ltoville- Poyferre, Cos d'Estournel, Beychevelle and Grand-Puy-Lacoste) bought from a representative merchant in June '84 cost £1,954, which is to say an eventual cost including duty, shipping and VAT of £2,402. If that same portfolio had been sold at Christie's on 2 June this year, it would have made £1,974, net of the auc- tioneer's commission, which represents a loss of nearly 20 per cent on the total purchase cost. If that amount (£2,402) had been invested in a savings account paying ten per cent annual compound interest in June '84 (admittedly there is a small distortion here, because a certain amount of the purchase price, around £450, would have been paid two years later) its value would have increased to £3,403 by June '88, an increase of 42 per cent. Over the same period the FT 100 share index in- creased by 80 per cent. Looked at in these terms, '83 clarets do not look a particularly good investment. It would, it is true, cost more to purchase that portfolio of wines now than in June '84: the purchase price of the portfolio at Christie's on 2 June was £2,738, inclusive of ten per cent buyer's commission and VAT.
However, it does not take a financial genius to work out the advantage of investing the original sum for four years and then buying the portfolio, at an extra cost of only around £300 set against an interest gain of over £1,000. Perhaps '83 is a special case; '82 certainly presents a more favourable picture for the investor. A top second growth like Pichon-Lalande now fetches at auction (net of commission) almost exactly twice its initial purchase price of £127.61. A good lower growth like Grand-Puy-Lacoste, which originally cost £88.34, now makes £135 net at auction. The former has certainly represented quite a good, though not, considering the incon- venience — bulk, fragility etc. — of wine as a means of exchange, an exceptional investment; the latter a moderate one.
It is more likely that the '82 vintage (really exceptional years, like '61 and '82, have always been worth buying), and to a lesser extent Chateau Pichon-Lalande (the Medoc's most consistently popular and successful, chateau, according to Robert Parker) are the exceptions. Middle-range '81 clarets now fetch, on average, rather less than '83s: their initial cost was perhaps 15 per cent lower, but, considering their two years' extra age, their investment performance has been, quite frankly, pathetic. As for '84s, an inferior vintage which some people were foolish enough to buy at similar prices to '83s, Christie's say there is no market for these wines.
In the last three or four years, a con- siderable amount of money (the estimates range from £5 to £10 million) was invested in claret by the BES companies, taking advantage of a tax dodge intended, one presumes, for the encouragement of job- creating industries. That loophole has now been closed, but it is not yet clear what the companies are going to do with their stocks of over-priced claret. The wines are mostly too young to sell, for Christie's, worried about the glut of earlier vintages, are strongly discouraging potential vendors from entering stocks of '85 (another fine and huge vintage) at auction.
I find all this vastly encouraging. It looks at last as though the dazzled bordeaux market is being brought to its senses: it is not possible to go on selling wine if people are not drinking it. Meanwhile vintages like '79, '81 and '83, and the underrated '80 are beginning to look quite good buys — for drinking, I need hardly add. Of course, the prices might come down still further, but that is investor's talk.
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