Because you can’t get drunk on convertible bonds!

For many, the world of wine is shrouded by mystery and governed by a language of indecipherable terminology such as the infamous Terroir.

This unfamiliarity means that most people are more than content hosing back Jacob’s Creek Chardonnay – and why not, at least it does exactly what it says on the label!  Spending thousands of pounds on the stuff is a decadent pastime, accessed only by the super-rich. Right? Wrong. Look at it this way, at a time in which your share-portfolio might be looking less valuable than the plonk with which you use to drown your sorrows, it might be worth considering wine as a serious investment alternative.  This year, the only commodity to outperform wine is oil. In 2007 the Liv-ex 100 fine wine index rose 39%, outperforming gold, and the FTSE, Dow Jones, and Nikkei for the third year running.

The advantages of investing in wine are numerous. The demand and price of wine is not highly correlated with the stock-market, which in today’s market is a good thing. Moreover, the price of wine is relatively stable, which makes it a safe investment. The biggest bonus is that wine is regarded as a wasting asset and is therefore free of Capital Gains Tax so modest increases in value can look comparatively favourable to traditional types of investment.

Investing in wine is not only lucrative but it is also a good deal more fun than fixed-income securities. Firstly, you can enjoy drinking your investment (if it goes down in price it might as well go down your throat). Secondly, visiting the area of Champagne to sample possible investments is much more exciting than staring at numbers on Bloomberg. Lastly, wine is the product of a craftsmanship which you can appreciate, and that’s not just the wine. For each vintage of Chateau Mouton Rothschild a celebrated artist is invited to create the label. Contributors include Pablo Picasso (1973), Andy Warhol (1975), and Prince Charles (2004).

Knowing what to invest in is the first hurdle. For long-term investors, a diverse and well selected portfolio should generate an annualised return of 10-15%. However, returns can be much higher with some vintages increasing in value by 40% a year. In recent years, the best wines have produced the best returns. The five ‘First Growth’ wines (Premier Cru) from the 1855 Bordeaux classification have done exceptionally well. This all-star cast includes: Château Latour, Château Lafite Rothschild, Château Margaux, Château Haut-Brion, and Château Mouton Rothschild. A case of Château Margaux bought in 1990 at a cost of £550 is now worth £3,500. Similarly, in January 2004 a case of 1996 Chateau Lafite Rothschild would have cost you £1,700. You could now sell it for over £6,000.

The cause of this increase in value is that the current demand for fine wine exceeds a supply which is strictly controlled. Recent City bonuses have of course contributed to this, but it is increasingly affluent buyers from Russia and China who are the ones with seemingly unquenchable thirsts. The second step is knowing where to buy the wine. No house sells directly to the public so you need to go through a merchant. Majestic Wines does a jolly good job and will adequately sort you out. But if you want to be truly entertained and inspired go to Bibendum in Primrose Hill and ask for Willie Lebus.

Like any investment, fine wine needs to be properly looked after. For wine, this means storage in the correct conditions. This is the third and most important aspect of investing in wine. Exposure to light and fluctuations in temperature and humidity can cause the wine to age too quickly which will cause it to devalue. Keeping it down the back of your sofa simply isn’t good enough, but finding the room and facilities to store wine can be difficult.

The answer to this problem is specialist wine cellars. The Big Yellow Company has just opened the first purpose built self-storage facility in the UK. The new facility, in Fulham, has 1,200 state-of-the-art wine storage cellars. Humidity is kept at 67% and temperature is set at a constant 15-16 °C. Conditions are electronically recorded so when you come to sell you can prove to a buyer the exact conditions in which the wine has been stored – thereby ensuring that the proper value is realised. The difference between Big Yellow Storage and traditional wine cellars is that it is self-storage, which means that you can deposit and pick up wine whenever you please without having to notify anyone.

 Ralph Sellar - BPP Law School