Fine wine can be enjoyed as far more than a delicious drink. For some canny investors, resisting the temptation to drink, and instead trade wine can be very financially rewarding. However, successful experiences in fine wine investment tend to be the exception rather than the norm.
Wine investment is often presented to potential investors as a long term investment that is sure to bring profit. But unfortunately, this is not always true. The wine investment industry is rife with risk – not just from scammers but from companies that simply cannot deliver what they are promising.
Is wine investment fail-safe?
Investors are often sold wine on the belief that it is a fail-safe investment. One of the common arguments made by wine fraudsters is that once you buy a case of respected wine the price can only appreciate. This is due to its rarity, and there is some truth to the statement.
Wines with the best reputations are usually made in very small quantities. This leads to good wines having very high demand and low supply, which drives the prices of these wines up. The increased price and scarcity of the wines adds to their reputation and legendary quality. A rare, expensive wine is inherently more prestigious than a cheap, common wine regardless of taste. This has been referred to as the ‘scarcity principle,’.
But it doesn’t always work like this.
Like all kinds of investment the value of fine wine can depreciate. Investors need to be aware of the other factors that affect the value of fine wine. These can range from the economic climate to changes in taste and demand shocks.
How easy is it to be scammed with wine investment?
One of the biggest downsides to the wine investment industry is the high concentration of fraudsters trying to work the system. From cold callers to the common liquidation of wine brokers, there are many trying to fool investors.
One of the other common pitfalls of wine investment is the fact that investors will often never see their stock. This is due to the fact that they are usually kept in bonded warehouses to avoid tax. This is actually deemed one of the great benefits of investing in wine, as investors do not necessarily have to pay tax on the investment. However this makes it fairly easy for dodgy companies to sell non-existent, fake or very bad quality stock.
If a bottle is damaged it will severely affect the value. As The London Wine Cellar’s free fine wine inspection guidelines show, a bottle can be turned away due to what may seem like the smallest detail to a non-expert. Even gaps or holes being visible in the foil capsule could be enough to render a fine wine worthless.
If an investor never sees their bottle, they have nothing but the company’s word that they are in a saleable condition. Investors may not find out they have lost money until they try to sell their wine on years later.
Wine investment is by no means the foolproof investment it is often sold as. In many ways it holds more risk than many other forms of investment such as property or equity – so if you love wine and are thinking of investing, do so carefully, or perhaps stick to drinking it.