Investing in fine wine
What I like about investing in Fine Wine is that there is a market place, awash with variety and, more often than not, decent volume (although I accept that this can dry up at times). Amongst other things this is what distinguishes wine from things like antiques, classic cars and fine art. In those markets there is only ever one of each item, which polarises activity down to a “single cell”. To me that is not an active market.
One key difficulty about investing in the Fine Wine market place is that it has been totally dominated by merchants, who historically have set the prices for purchase and sale of Fine Wine for investment, as well as for consumption purposes. A merchant doesn’t care what happens to wine after he has sold it, which is fine at the consumption level, but someone has to care about what happens to it after he has sold it as an investment, for obvious reasons.
A merchant will source as cheaply as possible, and sell as expensively as possible, in order to make as much profit as he can. The problem at the investor end, is that this is akin to an Investment Bank pricing an IPO so expensively that nothing is left on the table for the secondary market. The wider a merchant’s spread, the harder it is for an investor to make a return. And if an investor cannot make a return, he will not engage in the market.
It follows, that if the investment market is in thrall to the merchants’ spread, and that spread can be as high as 30%, it is not surprising it takes so long for the investor to make a return. So it is vital to take the business away from the merchants, and be able to deal “inside the spread”. That is what we have been at pains to do at APM in recent months, indeed that is why we have altered our relationship with Albany Vintners, and hence the name change to “Amphora”.
I believe that there is no good reason why a “private client stockbrokerage” approach should not work in the fine wine market. Having been an investor in Fine Wine since 1998, by 2005 I had accumulated what I thought was a sufficiently large portfolio. My brokers still kept coming on with great offers, and didn’t understand when I explained that I didn’t want to increase the size of my portfolio because, against the overall size of my net worth, my exposure to the wine market had become too high on a risk-adjusted basis. The problem was, the brokers had no understanding of the concept of “risk-adjusted basis”. All they “knew” was that the market was going higher. Why would anyone not want more?”
In addition, the salesmen simply didn’t understand when I said: “Okay, if that is so great, what should I sell to make way for it?” “Why would you want to sell anything?” came the reply. The idea of switching out of something which might have run its course, into something which might have further upside, was anathema to them.
What APM is keen to do is engage with clients who want to make money through temporarily owning wine. We don’t want investors to end up sitting on amorphous portfolios that have little direction or raison d’etre. The Capital Gains Tax break is only of use if there is a capital gain!
So what we are doing is behaving exactly as you would expect a private client stockbroker to behave. We will discuss your interest in the market and your objectives. We will suggest the best way to meet those investment objectives, and we will be with you every step of the way.
From myself you can expect to receive a series of observations about the Fine Wine market through the eyes of a career stockbroker. I should be delighted to hear from you direct about any aspect of what you find either interesting or aggravating!
Philip Staveley
13.11.13
Amphora Portfolio Management