Investing in wines: caveat emptor

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#1
Business Times - 10 Mar 2012

Investing in wines: caveat emptor


It's best to deal with regulated entities and to be clear about exit procedures

By GENEVIEVE CUA
PERSONAL FINANCE EDITOR

INVESTING in wine would seem to be an attractive proposition: an alternative investment that supposedly zigs when the market zags. What's more, price appreciation of the finest French wines has been stratospheric, thanks to voracious buying by the Chinese.

But many investors here who have invested anywhere between tens of thousands of dollars to well over $100,000 in wine have found themselves in a pickle. Notably, there have been three failures of so-called wine investment firms - Premium Liquid Assets, Universal Assets Group and Asset Wine Investments - with police investigations reportedly underway on a couple of them.

Over the last 12 months, grumblings have also intensified in the blogosphere over Australian Wine Index (AWI), a firm set up in 2003 to advise and help clients invest in Australian wines, dubbed 'New World' wines. AWI procures wine on clients' behalf. The wines are stored locally in clients' names and the firm is supposed to help clients 'exit' or sell the portfolios, hopefully at an attractive rate of return.

But clients complain of hard-sell tactics by AWI brokers and of the inability to sell their wines. Clients are apparently told by some brokers that a 'proper' wine portfolio must have at least three lines. Clients are then reportedly pressured to buy more at the risk of not being able to exit at all.

Along with alternative investments such as offshore land banking - where clients have come to grief - wine investment is a murky, unregulated area.

This means that while you take advice from a broker who propositions you with so-called investment-grade wine that supposedly has appreciation potential, such brokers are not licensed and do not have to comply with any disclosure requirements. This is unlike regulated financial investments such as unit trusts, where advisers are subject to strict licensing and education requirements, and all marketing materials must comply with strict rules, ranging from restrictions on performance forecasts to the size of any fine-print details.

Says Wine Exchange Asia's Lou Ghirardello: 'We've seen some spectacular failures such as Premium Liquid Assets . . . There is almost a blind trust that the government or regulator will protect local investors here . . . Unfortunately, it's predatory behaviour on the part of brokers. They have the knowledge, they know the market - and they prey on the gullible.' Wine Exchange Asia conducts Internet auctions and sales of fine wine, and also offers a managed cellar service.

Mr Ghirardello adds: 'What's disturbing is that when you make a phone call with a view that you expect to sell the wine on the basis of some huge investment value, there is - if not a legal responsibility - then a moral responsibility for the seller to inform the buyer what the true market is for the wine. That's where I believe there is a fundamental breakdown. People are buying wine based on pricing which is either not easy to discover or totally subjective insofar as they may be paying retail price for the wine.'

AWI managing director Alvin Lim concedes that the exit strategy hadn't been thought through in the past. 'We are trying to help clients exit their wines.' Last year, the firm partnered an auction house in China and two auctions were held. He says the firm has helped clients to sell $6-8 million worth of wines at auctions.

But the China auctions are halted for now. Response to the second auction was poor, and Chinese buyers who have the option of buying in Hong Kong baulked at duties of 48 per cent should they want to consume the wine. Most China buyers, he says, buy for consumption.

While he is negotiating with AWI's China auction partner for better terms and with other Hong Kong auction houses such as Christie's, he is also planning to set up a 'New World' wine exchange platform to provide another avenue for clients to sell their holdings. The platform, which is expected to launch in May, is likely to be open to clients who have invested for at least 3-5 years. It will be open to buyers globally.

Based on ACRA filings, AWI reported revenues of $10.7 million in 2010 and a pretax loss of $851,000. It has total assets of $4.3 million and total liabilities of $5.08 million. Its paid-up capital is $130. This writer asked Mr Lim to explain the assets and liabilities as the company appeared to be technically insolvent.

He said: 'Australian Wine Index is a fully audited business which operates legally and is above board. As a privately owned company, we do not comment on internal matters like our paid-up capital or our balance sheet.' However, the financial strength of the company is arguably an important issue for investors to ascertain.

Mr Lim, who first joined AWI as a broker in 2005, became a director in 2010. 'I made it my goal to help clients trade their wine successfully with a reasonable profit.'

On hard-sell tactics, he says turnover among brokers has been high. 'Trading wine is done by our team of traders, not the brokers, and there is no restriction which says a client must have more than one wine or a certain specific minimum quantity invested with us. Neither is it in our stated terms and conditions. However, certain collectors do prefer to buy collections of wines rather than individual vintages - hence, we try to sell clients wine for them both individually and as collectors.

'Having said this, based on the investor feedback you've brought to us, we will review the practices and sales techniques of all brokers and traders working at AWI to ensure they comply with company policy on this.'

Exiting or selling wine is a costly exercise as well. Investors have to pay AWI a brokerage of about 5 per cent and the auction house may take a commission of about 12 per cent. There are also moving and storage costs.

The rub, however, is the purchase price: are investors buying at retail or wholesale prices? In answer to this, Mr Lim points to the sale of Hewitson 2009 Private Cellar Barossa Valley Shiraz en primeur at S$158 per magnum (1.5 litre) bottle, including refrigerated shipping, three years' storage and insurance. The same Private Cellar 2009 is quoted by Hewitson Cellar Door at A$70 (S$93) per 750ml bottle, he says.

This appears to be an Australian retail price. If exported to Singapore, it must be discounted by a 10 per cent Australian GST and 29 per cent wine equalisation tax.

But based on a search on www.wine-searcher.com, the price of the 2009 vintage is reflected as at about S$39 a bottle by a merchant in Finland. The price includes sales tax.

Clients who want to find alternative ways to sell through merchants here are also caught between a rock and a hard place. This is because while some wines are reportedly of good quality, the rush to exit causes a surge in supply which then predictably dampens prices.

Meanwhile, on the question of possible regulation of alternative investments such as wine, the Monetary Authority of Singapore (MAS) says it 'strongly encourages' consumers to deal only with regulated entities. 'If consumers choose to deal with persons who are not regulated by MAS, they forgo the protection afforded under laws administered by MAS. We have also provided resources to enable consumers to conduct some checks on parties they intend to deal with.'

These resources include a register of representatives and a consumer alert on the dangers of dealing with unregulated persons which can be accessed at www.moneysense.gov.sg.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#2
It may do well to advise that wine is more like a collectible, not an investment to be confused with shares that have an underlying business model with growth potential. Wine doesnt generate free cash flow, hope less ppl get sucked into this whirlpool of greed.
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#3
If you want to invest in liquid go for the premium stuff only, not the kind you find in pubs or ktv for the masses. I think it is much easier to invest in whisky at least can see the demand. We talking investing in premium well aged whisky more than 25yrs old and in limited edition for long term.

Recently there was a limited edition 50 year old Suntory whisky, only 150 bottles priced at 1million yen each (S$1 ~= 60 yen) that was totally snapped up by local demand.


just to add, don't invest in anything that you can find in local supermarket, rule of thumb anything priced at $100+ that you can find on the shelves of supermarket is useless better to throw the money in penny stocks at least still got chance to make a punt.
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#4
A nice story I found on internet on whisky investing for those who are interested. Also good example of what I said buy the best and not something cheapskate that you find on shelves of supermarket. Also this is something you can do on your own by yourself, unlike wine investing no need to plonk down thousands of dollars to an agent of some company to get them to buy for you and definately no need special temperature controlled environment. Big Grin

source: http://shops.st701.com/resources/article...cy/a/51420

[Image: 51420__1330913479.jpg]

In 2007, business analyst John Foo went to Glasgow, Scotland, to watch a football match between Spanish teams Sevilla and Espanol.

The football fan returned with an unusual souvenir: a fiery passion for whisky. 'After I had a sip, my gums tingled, my throat burnt and my belly felt like it was on fire,' recalls Mr Foo, 36.

'I had not drunk water but the water of life,' he adds, a tad dramatically, his enthusiasm unmistakeable.

That first encounter with malt whisky has spurred him on to amass in four years a collection of his favourite tipple worth about $100,000 today.

About 50 bottles are displayed in a wood-and-glass cabinet artfully lit with spotlights - the first thing you notice when you enter the three-room apartment near Aljunied which he shares with his preschool-teacher wife Jessica Kou, 26. The couple have no children.

The three most expensive bottles - a Bowmore Bouquet 1966; a Laphroaig 1970; and a Laphroaig 1967 from Silvano Samaroli, an Italian whisky bottler - are worth €3,500 (S$5,814) each.

These rare finds were sold in the 1980s. Only 720 bottles each of the Bowmore Bouquet and the Samaroli-bottled Laphroaig, and 60 bottles of the Laphroaig 1970 were produced in the world.

Mr Foo bought them online in 2009, for a price he declines to reveal, from a collector in Italy.

'It is amazing that a drink so complex and diverse could be made from simple raw materials. The whisky is left to mature in oak casks where 'conversations' take place between the spirit and the wood over the years. It is a fascinating alchemy,' explains Mr Foo on what attracted him to whisky.

Apart from the unique flavour that each dram of whisky offers, his fascination also lies in the historical significance of each bottle. His collection centres on single-malt whiskies from Islay, Scotland, and old blended whiskies that were imported to Singapore in the 1950s.

Single-malt whisky is made at one distillery using one particular malted grain, such as barley or rye. Blended whisky is made by blending different types of whiskies, such as mixing one or more single- malt whiskies with other grain whiskies or spirits.

He says the old, imported specimens are his favourite acquisitions, as they are revealing of the times in which they were produced.

One bottle of James Bucaanan's Black and White has a label that refers to Thailand by its old name of Siam. Another, by White Horse Cellar, states 'by appointment to his Majesty the King' - that is, King George VI of Britain, who reigned from 1936 to 1952, making that bottle of whisky at least 60 years old.

'I will never open these bottles due to their historical significance,' he says.

Then, there is the bottle that bears personal significance: a 10-year-old Laphroaig whisky with a personalised label - 'specially bottled to commemorate the honeymoon of John Foo and Jessica Kou'.

It was carried back from his honeymoon to Islay in May last year. 'It was gifted to us and signed by the distillery manager. I cannot put a value to this bottle. Fond memories are priceless.'

Memories may be priceless but whisky, on the other hand, has high investment potential. 'Whisky can be kept for more than 100 years. Antiques can never be consumed but whisky can. Meaning that as more bottles get drunk, fewer are left, increasing the value of each bottle,' says Mr Foo.

His collection, which has not been appraised, has appreciated about 30 per cent since he first bought it, he says.

Apart from whisky, he also finds himself owning accessories such as the tulip-shaped glasses which hold the aroma and whisky jugs from distilleries.

'My wife is supportive of my collection. The whisky may be too strong for her, but she does the nosing of whisky with me,' says Mr Foo, who usually drinks his whisky with his friends.

He is meticulous with his whisky collection, purchasing only from reputable collectors and companies.

Care is evident in how he uses parafilm, used in laboratories, to seal his opened, half-drunk bottles to prevent leakage and evaporation.

'Now that I am trying to start a family, I am cutting back on the whisky buying. I buy one every two months now.'

He has a special bottle reserved for a joyous occasion - the €3,500 Bowmore Bouquet 1966 - for the day his firstborn graduates from university.

'That is, when your parenting days are over and you can finally relax and drink some whisky.'
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