Friday, March 21, 2008

Do the math

Boris Guillome

Since we formed our fine wine investment company, Elixir Fund, I have been asked the same question countless times: Why would anyone consider fine wine to be a profitable alternative to traditional investments?

Here are some facts to consider…

According to a recent study, there are currently more than 7 million adults in the World with cash assets valued over $10 million dollars. This number is increasing every day. On the other hand, considering just Bordeaux alone since it’s a wine region of choice for investors, the combined production of the top 10 Chateaux (Ausone, Cheval Blanc, Haut Brion, Lafite, Latour, Le Pin, Margaux, Mouton, Petrus and Yquem) averages only 100,000 cases per year (the volume may vary slightly but it is always limited to the actual size of each estate). Therefore it would take 5 years for the same people, who can surely afford it, to be able to purchase one single bottle of these trophy wines.

Wealth has never been a definite reason for buying rare wine and it’s normal to assume such interest only applies to some. However, if you add into the equation the vast majority of serious collectors who year after year seek out case quantities rather than just a few bottles it’s easy to see the resulting effects on the wine market. It’s a simple game of supply and demand.

I believe the overall quality and consistency of wine in the 21st Century will undeniably surpass anything in previous history. The ability to afford a blue chip bottle of collectible wine is going to be more difficult in the future and when people look back prices will seem cheap by future standards. We have only to go back a few years to see a dramatic rise in prices. Even if you are buying for pleasure and not as an investment, consider the ROI when you can sell a few bottles out of a case down the road and your wines just paid for themselves.

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