When investing in alcohol you need to know what you're buying if you want to make money. Better to buy for pleasure first and profit second, says Jean Eaglesham.
'Beware of false prophets, which come to you in sheep's clothing but inwardly are ravening wolves.' As with so many of life's warnings, this biblical admonition applies even more strongly if alcohol is involved.
Circulars doing the rounds of City workers' desks at present are hyping various weird and wonderful brands of champagne as an investment. The selling point is the predicted surge in demand for bubbly to toast the new millennium. But be careful. 'It's absolute non-sense. Unknown champagnes are completely worthless - they've no resale value,' says Serena Sutcliffe of Sotheby's auction house.
In fact, as with any alternative investment, the current champagne hype highlights the need to know what you're doing if you want to make money - and to be resigned to enjoying what you've bought if the market nevertheless fails to go your way. As well as only buying what you like, the other golden rule for buying alcohol as an investment is to buy the very best you can.
In practice, this means you have a relatively limited choice. Indeed, even the best quality champagnes are seen as a slightly risky investment bet. While drinks company Seagram confidently predicts that 'there's no doubt that champagne sales will soar with the myriad of millennium parties planned', there's no guarantee that any upturn in demand will translate into healthy profits for investors. 'It's a punt. It might happen but there again, it might not,' says Paul Bowker of Christie's auction house, pointing out that 'there's been no real surge of investment in champagne as yet'. If you do need to have a bet on a bottle of bubbly, go for the top brands, such as Dom Perignon, Krug and Bollinger.
Expect to pay top prices for the privilege. A giant bottle of the exclusive Roederer Cristal, to take an extreme example, will probably set you back over £2,000. If you want, and can afford, something like this for the millennium then perhaps it actually is advisable to buy sooner rather than later. For champagne of this class 'you'd better get your buying boots on', says Sotheby's Sutcliffe.
Most people who want to achieve the happy combination of drinking and making money are perhaps better advised to stick to the classic investment wines. Wine experts, for example, generally scoff at the idea of anyone buying New World wines as investments. 'There is no doubt that the good vintages of Bordeaux represent the best investment - most other wines can be quickly discarded,' advises John Armit of John Armit Wines, a renowned expert on the subject. The best policy probably involves limiting the wine you buy to a select few Bordeaux from only 30 or so chateaux, including the first growth (top class) Bordeaux: Chateau Margaux, Chateau Mouton-Rothschild, Chateau Latour, Chateau Lafite and Chateau Haut-Brion.
This strategy can be a route to drinking fine wine for free. The theory goes like this - you invest, say, £5,000 in top quality wines, bought very young (the spring following the autumn harvest); store the wine cheaply for five or so years; then sell half of it for more than £5,000 and enjoy the rest for free.
As with champagne there is, of course, no guarantee that this strategy will work - indeed, if the wine market falls, you could face a loss. But Bowker of Christie's points out that 'historically, the wine market's got a very good track record'. Viewed as a medium-to-long-term investment, wine has consistently kept ahead of inflation.
Indeed, the market's been doing so well recently that it's becoming difficult to gauge whether it's still a good time to invest. 'It's questionable whether the market's going to be able to sustain the very substantial annual price increases of around 35-40% that we've seen for the last two years,' says Armit. Nevertheless, he predicts price rises of around 15-20% next year, driven by rising worldwide demand for limited stocks of the top wines.
It is, of course, very important to buy a good vintage, as this has a huge effect on the future value of your wine. For example, £10,000 invested in 1982 vintage Bordeaux (one of the best years) would have been worth over £89,000 in 1995; £10,000 invested in 1983 vintage Bordeaux (not a classic year) would have been worth just over £30,000 last year.
This difference in returns underlines the importance of getting expert advice. Most top wine merchants are happy to give private investors free advice, as well as guidance through the myriad practicalities. To take just one example, buying the wine 'under bond' and keeping it in a bonded warehouse means that you can avoid paying VAT and import duty until you take the wine out of the warehouse for selling or drinking.
Finally, remember that investing in alcohol should be enjoyable first and profitable second. 'Buy wine for the pleasure of the wine itself, not for its investment potential,' counsels James Maitland of wine merchant Lay & Wheeler. And as an Oddbins flyer succinctly puts it: 'Don't forget, Champagne investments can go down ... but that's the best bit.'.