Fine wine investment: The Art of Destruction

There was a terrible news report at the end of last month detailing the consequences of a fire at Universal Studios in LA back in June 2008. While Sheryl Crow bagged the headlines as it was her recent discovery of the disaster that made the news, she was certainly not the only artist(e) affected. In essence, the master tapes of singers from Louis Armstrong to 50 Cent and multiple famous names along the way, went up in smoke.

Once you get over the emotional scale of the catastrophe and start to think about the consequences, it becomes clear that fine wine stands apart from all other collectibles as an investment medium. We realise of course that not everyone collects things to make money out of them, but it is unarguable that things which people collect have a great deal of value, always to the individual concerned, and often to a lot of other people besides.

It is occasionally pointed out to us that works of art, for example, or classic cars, are better collectibles than portfolios of fine wine, because they can be enjoyed more easily. We might counter that a lot of these things are often kept under lock and key anyway, and in the case of classic cars or jewellery only wheeled out on special occasions.

Clearly you are not going be drinking an investible fine wine every time you pop a cork, but at Amphora we posit that ownership of a fine wine portfolio is the start of a journey into an understanding of wine enjoyment that is more easily achieved if you put your money where you (in this case) would like your mouth to be. There are people who remain distanced from fine wine even as they diversify into it, happy simply to enjoy the investment returns, but increasingly investors see it as an education into the bargain.

Now obviously the very last person you want to be stuck with at an occasion of any note is someone who can come out with something like this: “do you know what captures my attention from this glass of wine are scents of bacon; fresh cherry and raspberry shadowed by their distilled counterparts violet, honeysuckle and acacia; musk, lavender and other resinous herbs along with pungently bittersweet citrus oils”.

If one of Amphora’s twin missions in life is to de-mystify the fine wine investment process, the other is to do the same with the consumption process, and actual and prospective investors are more than welcome to participate in our blind tasting sessions which aim to do just that. The point is that most people like to know why they like or dislike things, and apart from an immediate visceral reaction it helps if you know what you are looking for.

This is also particularly true in the art world. Rather topically there is a programme going around at present entitled: “John McEnroe at 60”, in which is revealed his interest in art. There is a line he comes out with (paraphrased here) which has been repeated many times down the years: “I couldn’t understand it at all until I started to learn more about it, and now I love it.” It is this way too with fine wine, and much else besides.

Another thing that strikes us about the regrettable story referred to above is the element of destruction inherent in the process leading to scarcity. Although in the case of a work of art the loss through fire or otherwise of an individual piece means that the story is basically over for that particular piece, it by definition makes the rest of that artist’s catalogue more valuable.

It is equally true with classic and rare cars. There were only seven Lykan HyperSport cars ever made it takes the awful consequence of someone wrapping one around a tree to make the rest of them even more valuable, and although there are marvellous things you can now do from a reconstruction perspective owning a restoration is not quite the same thing.

If then it takes the notion of loss or destruction to increase value in these instances, what a contrast is there in the world of fine wine, where the worth of what is left is enhanced through the altogether pleasurable activity of drinking a bottle. The difference could hardly be greater!

We should also point out that the essence of a car or work of art (or postage stamp or rare coin or antique) doesn’t actually change during its lifetime, other than increasing in antiquity. As we all know, the very definition of a fine wine distinguishes it from the pack: a wine which improves over time as it ages in the bottle.

Nothing else does this. Not even whisky. Whisky tastes the same when it comes out of the bottle as it did when it came out of the cask. The investment value in whisky is scarcity, pure and simple. It is also hard to contend that a classic car becomes better to drive over time than when it rolled off its first forecourt. Better to be seen in, perhaps, but to drive? We suggest not.

It is the versatility of fine wine that stands out time and again. Hobby, collection, risk-adaptable investment: it’s a beautiful thing!

And it makes you happy.

Philip Staveley is head of research at Amphora Portfolio Management. After a career in the City running emerging markets businesses for such investment banks as Merrill Lynch and Deutsche Bank he now heads up the fine wine investment research proposition with Amphora.