This scammer tells me that "no one has ever made a negative loss" with this wine investment...
Last week the Guardian's money section printed a fascinating story. It contrasted the predictions a wine selling company had made at the beginning of 2011 and of 2012 with what happened.
Two years ago, it “conservatively” forecast a 21% gain. The reality, from the Liv-ex 100 index - a measure of top wine prices - was a 15%. At the start of 2012, it promised ideal conditions to buy into fine wines. The Liv-ex fell another 9%.
The fund could argue the index includes many wines, but the fund's picks were all winners. It's the same as the fact that you can outperform the FTSE100 with good stock selection. Alternatively, and additionally, it could say wine is not a one-year investment. Like the liquid itself, it needs time to mature.
As I was reading that, the phone rang. It was a cold caller from a wine investment firm. Describing himself as a “junior analyst", his role was to soften me up for the “senior analyst” who was the “real expert”. Regular readers will know about the junior/senior game – these titles are interchangeable.
He told me I would gain “at least 11% a year and while the papers suggest 70 to 80%, I can't promise that”, though he could tell me that “no one has ever made a negative loss”. I know what a loss is but “negative” means the opposite so either he was mangling English or warning me that no one has ever made a profit.
The tax position
The glossy brochure (similar to a large number in my collection) also promised zero capital gains tax (CGT) on profits as wine is a “wasting asset”.
[SPOTLIGHT]HMRC Tax Bulletin 42 (issued in 1999, but still in force) says ports last longer than 50 years and are subject to CGT, while cheap wine turns to vinegar in a few years and hence is a non-taxable wasting asset.
It continues: “Between these extremes, there are a number of fine wines which are quite drinkable after a substantial period although of course the taste alters over that time. With these the basic consideration, in our view, is whether the wine has turned to vinegar or has merely matured. Of course in practice, most wine is drunk well below the age of 50 years and in that sense it is very difficult to consider the issue in isolation. However, where the facts justify it, we would normally contend that wine is not a wasting asset if it appears to be fine wine which not unusually is kept (or some samples of which are kept) for substantial periods sometimes well in excess of 50 years.”
It's not when you sell it or when it is drunk but whether it could be palatable in 50 years time. And certainly, the wines I would later be offered at around £800 a bottle would come into the very fine and very long lasting category.
Investing in the top tips of 2009
The brochure came with reprints of articles in favour of wine investment. One, from The Guardian, dated back to November 2009. A second, whose source is unclear, was written in April 2010. Would anyone buy into stocks, shares, property or invest in bank account on the basis of newspaper stories from around three years ago?
That afternoon, I was phoned again by the “senior” analyst. I said I was interested. He called again on Wednesday, sure he would get my money. He came up with the usual stories about vintages that could never be replaced - “how could you make more 2009?” and the apparent huge demand from China where, and this must be an urban myth, they don't like the taste of £800 a bottle wine so they dilute it with Diet Coke.
I would have no trouble in selling the stuff in two to three years' time as they had “links” to corporate hospitality which, apparently, pours really pricey wine and “not the rubbish stuff from Tesco” down their guests' expensive throats. The only fee I would pay would be 10% of any gain on selling.
He offered me six bottles of a Chateau Margaux for £4,850 – down from a recent £5,500. Assuming his description was correct, I could find the same wine online for £3,635.
Sensing that I did not have £4,850 (I would expect to pay £48.50 for six bottles absolutely tops), he offered me two 12 bottle cases of Margaux Pavillon Rouge for £2,400. This could make me 20% so he would get just £48! Hardly enough for him to spend half hour with me.
Online I found two cases of Pavillon Rouge 2009 for £900. Equally I could find a wine of that description for £10 a bottle (or £240 for two cases).
You need to know what you're paying for
You need to know more than just Margaux and Pavillon Rouge – these descriptions cover a wide number of producers so until you have the precise name of the maker, you could end up significantly overpaying.
My friend at FSA Towers in Canary Wharf tells me you should never buy from someone you have never heard of, from anyone who cold calls you or anyone who suggests an investment of which you have little or no knowledge. This one ticked all the boxes. I expect him to try again in a day or so. He will be disappointed – so he'll need a good glug of wine.