While the broader economy tanked in 2008, then struggled through 2009, Michael Wigley’s investment fund earned 32.6%. In the same period Wigley made investors money, the Dow Jones Industrial Average lost 10% and the median home price dropped 4.1%, according to the National Association of Realtors. Wigley doesn’t run a Madoff-style Ponzi scheme. He buys and sells wine.

Is wine a good investment? “Yes is the short answer,” exclaims Wigley. Wigley runs Bacchus Partners, LLC, the first and only wine investment fund in the U.S. He calls wine, “a complicated asset class that’s knowledge based like art and other collectibles.”

But Wigley thinks he’s taken something complicated and made it simple, by developing a system to grade each wine. Developed over 25 years, the system looks at 25 different variables to forecast the likelihood of any bottle of wine increasing in value, maintaining its price or decreasing. So, for example, Wigley’s grading system gives a bottle of 1982 Chateau Lafite-Rothschild an A+. Wigley says it’s currently in its drinking window and he predicts it has 20 to 30 years life left in it.

When it first became available Wigley bought a bottle of 1982 Lafite for $29.77 a bottle. At the end of January 2010 he invested in more at $3,000 a bottle. He says it’s still a great investment because the 50-year average for fine wine appreciation is 15% per year. That means if that $3,000 bottle of Lafite is still drinking well in 30 years it could sell for $198,635.

It’s a shockingly large sum, and other wine aficionados say it’s not likely to cost that much. But consider this: those bottles Wigley bought in 1983 have appreciated at 18.6% annually. As he looks for the next 1982 Lafite, Wigley’s rating system considers the quality, quantity and distribution of the wine. “A wine can be great but if no one’s ever had it, it’s not a good investment,” he says.

He points to Kitchak Cellars’ 2005 Adagio, it won the Double Gold Medal at the 2008 San Francisco International Wine Competition. But it was made in small quantities. So even though it’s a great wine, Wigley would not call it a good investment because only a few people have tried it and it’s hard to get. Still he says, “I’ll pick up a few cases for the fund on the hope it gains value.”

Continue reading Investing In Wine

It’s not that consumers are drinking less – it’s that they’re drinking less expensive wines and liquors, as we’ve reported.

That fact of economic life is causing a great deal of stress in California’s wine country. While France and Italy seem capable of producing “inexpensive young table blends,” California can’t compete. It’s not that they don’t want to – it’s just not economically feasible.

Jason Haas of Tablas Creek Vineyard tells The New York Times, “We realized that just to break even with our farming costs we would need to sell the wine on the wholesale market for about $20 if it were white, $25 if it were red, just to cover the costs of production.” Haas pointed out that in Europe, vineyards are handed down through generations, so the land is “long paid for.” In California, the land and development to turn it into a vineyard might cost as much as $20,000 per acre.[more]

While cheaper California wines exist on the market, they are typically mass produced or of such low quality that they aren’t taken seriously. Some California vintners are now exploring less expensive table wines made from “less fashionable varieties like carignane, grenache and petite sirah, from less fashionable places like Lodi and Mendocino.”

Still, in order for wines to be priced on the low end, it requires “high yields and low-cost mechanized production, both enemies of wine quality.” So until the economy improves and consumers start drinking wines over $15 a bottle again, California winemakers may have to just tough it out.

Source :: brandchannel