There Is Still One Born Every Minute

Without a shadow of a doubt, the old adage “a fool and his money are soon parted,” was certainly proved last year when two wine investment companies went belly-up in spectacular fashion. For years, people like me have been openly writing and talking about the stupidity and incredible risk associated with investing in wine, especially through brokerage companies, and although these comments may have saved some people from financial loss, there were thousands of investors that lost millions of dollars.

Therefore, I was quite surprised to receive a spam e-mail addressed to “Mr,” (I didn't know I had changed my surname from Einstein to Comma) from Australian Portfolio Wines urging me to “invest as little as $5,000” in a wine investment scheme. Although I have absolutely no interest in investing with them, I thought I would "check it out" for my readers.

When I had a look at their web site, the first item on their main page is titled “About Us." That's normally a good place to start, because if I'm going to invest my hard-earned, I want to know exactly whom I am investing with, their background and their expertise. Here is what the "About Us" actually says; “Australian Portfolio Wines sources, supplies and stores a selection of premium wines in a secure, temperature-controlled environment for collectors, connoisseurs, or investors looking to diversify a portfolio.  You retain ownership of the wine, and can sell it, drink it, or sit on it for as long as you like. As little as $5,000 can get you started, or we can tailor a portfolio around your individual requirements.”

Now that may tell me what they do, but unless I am absolutely and completely 100% stupid, (no wisecracks from the peanut gallery please,) this “About Us” section tells me he exactly nothing about who they are, their background, or their expertise. That immediately raises grave suspicion is in my mind. Thinking that this pertinent information may have been somewhere else on their web site, I crawled all the way through it and even went through all the attachments in their e-mail, but I was still none the wiser about who is behind the scheme, the experience, how long they have been in business and the background of the people involved. What are they trying to hide? Or do they just feel it's not important for people to know who they trust their money to?

Under the "Opportunity Section” it states "Australian Portfolio Wines clients benefit from our buying power accumulated through years of experience, and the forging of strong relationships with key industry players.” When you invest in wine, or anything else for that matter, it is important to buy at the right price, so let's examine how well they managed to achieve obtaining good deals. When you have a look at their Report on Earnings the page very helpfully shows how much they paid for wine. 

The 2000 and 2001 d'Arenberg Dead Arm cost them $64.94 (which included three years storage cost, but in this case both vintages were sold within twelve months) so guess how much I payed for mine? $48! The Kay Brothers 2001 and 2002 Block Six cost this investment company $57.40 - now there is a great deal; the cellar door price of the 2001 was $40 and $43 for the 2002. The “advantage of their buying power” continues and whilst some of these wines may be restricted, Dead Arm was freely available in the marketplace and regularly on special for around $50-$55.

 One of their page “Investing in Wine" it states “Over the past 10 years, certain premium and sought-after cult wines have shown strong capital growth, performing consistently well despite the ups and downs of the local and global economies. Wine has also consistently out-performed all other asset classes during the past decade, averaging a remarkable 320%* increase since 1991.”

An interesting choice of words, 1991 was 15 years ago, not 10 years ago! In the APW brochure attached to the e-mail, there is a chart that shows a 10-year asset change in various commodities that had wine at the top of the list showing a growth of over 300%. At the bottom of the chart, it actually states "percentage change 1991 to 2001." The reality of the situation is that they are using some supporting information that asked you to invest in wine based on information that at best is five years out of date. In another one of the e-mail attachments, there is a chart which plots a comparison between the All Ordinaries Index and Langton's Fine Wine Index. This chart clearly shows the greatest growth in the Wine Index took place prior to 1998 and since that time it has been hovering around a fairly narrow band.

There is no doubt that prior to 1998, if people had been smart and bought blue-chip wines like Grange and Hill of Grace there was money to be made. Yes, as per the information contained in the same attachment, 1990 Grange sold for $120 in 1995 upon release, and yes it did sell for $501 in 2001, yielding a 315% percent return, but what this logic, or lack thereof, fails to take into account is that Grange now retails for about $400-500 a bottle, and there are not too many of the past few vintages that are likely to sell for more at auction. 

In fact, the Langton's last sale prices show the following results:-

2000 vintage      $480

1999 vintage      $258

1998 vintage      $383

1997 vintage      $233

1996 vintage      $271

1990 vintage    $392

The likelihood of making masses amounts of money from blue-chip wines like Grange and Hill of Grace are no longer likely as the wineries are now selling the wine for a price that is much closer, and in some cases, higher than those obtained on the secondary market.

That leaves the cult wines. In this category, the investment company really only has two options. The first is to buy through a retailer and actually pay more than mailing list customers, as illustrated in the Kay Brothers example above. Alternatively, they can try and find the cult's before they become recognised, but this is completely fraught with danger as it is feasible they could wind up with a portfolio of unknown wine that no one wants to buy.

Also on the “Investing in Wine" page it states “….And the results speak for themselves. Following are some typical examples of wines, both premium and a number of ‘cult’ wines — that is, hard to get, low-production boutique wines — and their performance over the past few years.” 

Readers, please note the last example of a “great deal” this company can come up with had its release in the year 2000! That’s five years ago and an ASIC search indicates that the company was only registered in 2002 and set up shop (in Sydney) in 2004. One can only wonder what returns they have actually achieved overall, versus quoting selected and outdated, theoretical returns. Heck, I could quote stratospheric returns on any number of companies, but that does not mean that I bought at the bottom and sold at the top; but it does sound good.

The wine market has changed dramatically in the last six years, especially the investment wine market. Before deciding to invest in wine, as well as considering the points made already, the following should also be considered.

1.  It is quite possible, that as the holdings of those who have been burnt in the collapse of the two other wine investment companies come onto the market, there may be a glut of both premium/blue-chip and cult wines.

2. Many of these wines cannot be held forever and some of them need to be turned over fairly quickly as they have relatively short drinking windows.

3. When you invest in a scheme such as this, you have to pay the investment companies overheads. Assuming you have made the decision to invest in wine, the big question is can you do it better by yourself, or is that overhead justified?

If you ask that question to any of the investors of Heritage or Wine Orb, the two companies that recently went belly up; you had better duck for cover.

Readers will notice I was not exactly impressed with this "opportunity" but at this point when writing the article, whilst I was checking the accuracy of a couple of points by referring to their web site, I discovered something very interesting which I had totally missed. Although I had crawled over the site fairly carefully, I had missed one of the most salient points, and although it is spelt out clearly, it gets lost in all the other “stuff.” The critical verbiage is “You retain ownership of the wine, and can sell it, drink it, or sit on it for as long as you like. As little as $5,000 can get you started, or we can tailor a portfolio around your individual requirements.” The reality is, they will advise you of potential buying opportunities, you decide what you will buy, but if I understand it correctly, it is up to the investor to actually work out where, how and when the wine will be sold. There is no mention on the site, that I can see, that states that there will be any support in this regard.

To my way of thinking, this is not so much a managed investment wine opportunity; it's an opportunity for them to sell wine to you.

Finally, I guess it is of no interest to this company that in Australia, sending unsolicited emails (even if there is a causal associated reason for doing so) without an unsubscribe function is against the anti Spam laws.