Wine - why you should invest in it and not just drink it?

Video transcript

1. Why should anyone invest in wine?

Clients should consider wine as an investment market because they get ownership of a tangible asset. So as a worst case scenario if anything happens to the market or the company then they're still left with a collection of fine wine, which isn't a bad situation to be in. It's a market which has demonstrated a low correlation to equity markets. We can also show its defensive attributes in times of political or economic uncertainty or volatility. And of course, the growth rates are attractive. We can demonstrate our company performance figures over the last three, five or even 10 years of plus or minus 10 to 12 percent. This is not about huge capital appreciation. This is about sensible and safe capital preservation.

2. What's method and process of how they buy wine from you?

What Cult Wines offers is an end to end investment service. You do not have to be a sophisticated investor or a sophisticated wine collector to be a client of ours. We profile our clients to understand their objectives. This means risk profile, long term price targets and the timeframe for the investment. And then we make these suggestions as to what stocks to invest in, how it's traded subsequently and the full sales process as well. We try and de-romanticize the market. As soon as personal preferences get in the way of the investment, then bad decisions are made. So we apply standard CFA analytics to provide risk adjusted rate of returns, correlation to various equity markets to identify where the best value is. From there, we source the stock take care of the full logistics; storage and insurance in the UK in a bonded warehouse right through to trading and the eventual liquidation. Although what we provide is technically advisory by definition, we try to steer it towards being as discretionary as possible. If we are forecasting say 10 to 12 percent per annum for our clients, we can only be held responsible for that or accountable for it if we are left in charge of what happens with the portfolio and the investment.

3. How do you decide what's worth investing in?

We completely look at the wine market the same way private bankers would look at the stock market. We assess our wines as if they were companies. Its value investing and it's cooled with some momentum as well but we're looking at fundamentals of supply and demand that is really how wine works. We've got one of the most attractive models. We’ve got a product which is limited in its production levels not just by the physical size of the vineyard but also protected by law. At the same time, year on year, it's being consumed so it's a reducing market in terms of availability. On the other side, we've got one of a very few products which actually improves in quality over time. Leave a case of wine in storage for 10, 20, 30 years the product becomes better and the value increases on that basis alone.

4. What are some of the risks clients must consider?

In the wine market there are probably three main risks to be wary of. First is liquidity. Because we're dealing with a tangible asset class, we do not have perfect liquidity. We advise our clients to allow between 8 to 12 weeks to achieve full sale on a portfolio and have funds back in their account. On the plus side that lack of perfect liquidity is what gives us some stability in the market because people do not come to their wine collection to get instant access to their cash. Secondly this is an unregulated market so investors do not have the same protection that they would have afforded elsewhere. On the plus side it's an unregulated market. So, we've got freedom we've got flexibility on how it's invested, how it's funded, how it's named. There's opportunities for arbitrage as well and it gives clients or investors an opportunity to hold a portion of their total AUM with slightly more anonymity. They are just buying fine wine in its most basic form. Finally, I'd say that counterfeiting is still a risk that needs to be considered. Thankfully it's become more apparent, more widely known about and talked about these days, no small thanks to a Netflix documentary called Sour Grapes featuring a rich Indonesian called Rudy Kurniawan. Now that people aware of counterfeiting, they know to be careful. For us we counter the problem by only dealing with wines that are perfect provenance, perfect condition, full original wooden cases that have never left the professional storage facilities. We don't deal with home cellared stock or wines which have gone through the auction circuit.