Wine is for drinking, not for investing in!

Tony looks at how to distinguish between legitimate and phony fine wine retailers.

I like a glass of wine. And I'd rather quaff a decent claret than something in a plastic container from the back streets of Bulgaria.

But I won't pay more than a tenner for a bottle in a supermarket. I once shared a €550 a bottle wine in a French restaurant (some big firm was paying) and I was distinctly underwhelmed. I know I couldn't tell it apart from one costing a twentieth or less of that in a blind taste test. And there have been enough, more scientific, tests to show that even so-called wine experts can't tell the drinkable, but affordable, from a bottle that requires a second mortgage.

Above all, wine is for drinking. If I want to invest, there are stock markets, bond funds and unit trusts. So why am I continually cold-called by firms trying to sell me a case of wine (12 bottles) as an “investment” with prices per case ranging from £5,000 upwards?

There is literally a score or more of firms now pushing wine as an asset to trade rather than to drink. And I would rather drink five litres of the aforementioned Bulgarian plastic plonk than hand over a penny to any of these people. Wine sales are not, of course, regulated by the Financial Services Authority so it is pretty much anything goes.

But while there are loads of cold callers with names on the wine theme, there is only one “script” the salespeople read out.

After the usual attempts at empathy – the “how are your investments doing today” line – you are informed that investing in “fine wine” is “extremely high yield and very low risk”. Well, if that is true, then whoever wrote all those investment books (and that includes me with my Investing for Dummies) must have drunk a good deal before hitting the keyboard.

For the correlation between risk and reward is clear. Zero risk means a deposit account and earning very little. To gain more, you have to take chances. And the greater the potential upside, the greater the possible financial pain. Bonus-chasing bankers thought they could slice and dice high risks to make them low risk. Then came the banking crash.

They will say “wine has outperformed every other investment in the UK”. It is always possible to point to a particular wine over a particular period just as I could find individual shares that have zoomed over some time-frame or other.

To prove it, they say that wine values have increased by 12%, 20% or 25% a year over the past year, five years, ten years – you take your wine pusher and you choose your figures.

Even if true, what about the obvious fact that past performance is no indicator of the future – if it was, we would all be stuck in a perpetual groove. And if wine prices did advance at 25% a year, they would double in three years, quadruple in six, and be eight times higher by 2020.

This super-stellar performance is, they say, all down to the Chinese who will pay anything for a posh bottle. But you have to question how long the Chinese will continue to inflate this bubble before something cracks – the most benign exit is that they switch their attention to some other Western luxury. There has never been a single asset in the history of the world that keeps on increasing. Ask those Dutch people who bought into tulip bulbs a few hundred years ago.

And as always, if this was such a sure-fire winner, why invest in call centres and incentivise sellers when promoters could just buy it for themselves?

One reason is that you don't actually know what you are getting – there are hundreds of so-called “fine wines”. And selling can be difficult as well as expensive – in investment terms, wine is not a “liquid” investment. Pushers claim to be experts – most are not, except in parting you from your money. Some are run by people not long out of school.

You can buy wine now to drink in several years time – perhaps at a significant birthday or other future event - and that may prove to be a bargain.

So here's a crucial hint in telling a legitimate wine retailer from an investment pusher. The real wine merchant will have premises somewhere and, if it is internet-only, its website will have a large listing of wines from around the world at all sorts of prices (OK, not the £2 stuff in plastic). The wine pusher will have no premises for you to visit, and while websites will be full of pretty pictures, past performance and platitudes, you won't find a single wine listed for you to buy.

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