Investment Rubrics and why you should include wine in your portfolio

Mahesh Kumar’s renowned book Wine Investment for Portfolio Diversification: How Collecting Fine Wines Can Yield Greater Returns than Stocks and Bonds, provides a careful outline of the rubrics of wine investment in a technical manner. Starting with the basics such as the history of the most prolific and profitable region Bordeaux, the quality of Bordeaux wine that merits its investment-grade status and the different markets involved with wine (eg. En primeur), Mahesh Kumar adds trading strategies that would maximize returns.

With these he expounds financial analysis of wine investment using sound and rational economic principle with modern portfolio theory and capital asset-pricing models using a constructed Fine Wine 50 as an embodiment of the investment-grade wines, not forgetting the risk assessment of fine wine investment.

Winner of the 2006 Gourmand World Media Award for the Best Wine Education Book in the World, Mahesh Kumar’s book has been seminal in the wine market. The book demonstrates the attractiveness of holding a portfolio of fine wine either on its own or as part of a diversified portfolio of traditional financial assets. Mahesh Kumar also adds seven characteristics of a good investment portfolio:

· Investment portfolios must not be too expensive to buy into. This therefore eliminates those multi-million dollar minimum hedge funds.

· Investment portfolios must offer superior returns. The Fine Wine 50 Index offered superior returns unlike money-market funds. On the other hand, this is also characteristic of the FTSE 100 Index and the Dow Jones Index.

· Investment portfolios ought to have low volatility. The RiskGrade™ for the Fine Wine 50 Index is less than that of the FTSE 100 Index and less than that of the DJI. This study demonstrates that a portfolio consisting of Fine Wine and equities has a lower volatility than one consisting of equities and bonds only.

· Investment portfolios must consist of assets that are either uncorrelated or negatively correlated with other assets and states of the economy. The Fine Wine 50 Index has a very low correlation with the FTSE 100 Index, the Dow Jones Index, the UK Government Bonds Index, and with the US 30 Year Treasury Bonds Index, thereby offering significant diversification benefits.

· Investment portfolios should require very little active management and still deliver superior returns. Fine Wine can be held in storage at a cost for a number of years whilst appreciating in value, unlike those mutual funds that change direction whenever its manager changes.

· Investment portfolios should consist of assets that have low transaction and associated costs. Fine Wine does have additional transaction and incidental costs but these are often offset by substantial tax advantages or currency exchange fluctuations.

· Investment portfolios should be tax-free or at least tax-efficient. Fine Wine investment is tax-exempt, offering significant cost savings; unlike traditional financial investments that often attract income and capital gains tax. In the United States, Capital Gains Taxes may apply subject to record keeping and the markets in which the wine is purchased and sold.

To justify this, wine has shown little or negative correlation with the stock market indices, with lower price volatility. Over the 8 year course, as shown in the graph below (click the picture for a clearer view), the Liv-ex index that is composed of the premier 100 investment-grade wines, has shown little comovement or correlation with the major stock market indices. In fact, Liv-ex 100 Fine Wine Index does not move with S&P 500 Index. This characteristic of fine wine is particularly beneficial for significant risk diversification of your portfolio as shown in Mahesh Kumar’s book.

This is also stated by the recent Liv-ex Monthly Market Report; the wine market, defying the odds encountered by the global economy in the recent months, has shown resilience and greater potential. Despite the extended break, trade in December was surprisingly strong, at just 1% below November’s level (traditionally a far busier month) and 124% up on last year, in comparison to the FTSE 100, S&P 500 and Nikkei 225, all of which has decreased by at least 30%.

More specifically, Bordeaux continued its landslide dominance of the Wine Exchange. From the table below (from Liv-ex) we can see the market power of the Bordeaux brand, with an increase in market share over the year and over the previous month. What better way to diversify your portfolio than investing in the best Bordeaux produce!

Assetton incorporates the investment fundamentals which Mahesh Kumar has laid out in his influential book, into our investment strategy. We provide high-quality advisory on investment-grade wines from the premier region Bordeaux. We offer wine as an investment tool that is hassle-free, tax-free, and has the potential to make your portfolio risk-free. Benefit from the significant risk decrease fine wine can give you by emailing us at info@assetton.com.

Source: Mahesh Kumar’s Wine Investment for Portfolio Diversification, Fine Wine Investment website, Liv-ex Market Report

Wine is the new gold

Coming back to the basics

In this article from the Financial Times, the chief of the JPMorgan Chase has announced uninviting prospects in the year ahead. Mr Dimon has predicted deterioration of the economy in 2009, with the rising worry that shares on both sides of the Atlantic will have fallen, that banks might need more capitalization and consumer retail will sag further. JPMorgan, which has fared better than its rivals, has just reached break-even in its 4th quarter results.

Mr Dimon has told the FT that JPMorgan was prepared for an expected deterioration in consumer-oriented businesses but added that if things were to get worse than expected it would have to cut costs again. He further added that the bursting of the credit bubble would force the banking industry to refocus on its traditional businesses of advising on deals and lending to companies and individuals.

With the current state of affairs, more and more industries are going back to the fundamentals of economic principles. We at Assetton have always believed in the value of REAL PHYSICAL INVESTMENTS that follow REAL ECONOMIC PRINCIPLES that yield REAL SUSTAINABLE RETURNS. We offer the best wine, art and land investments that will give you the safest and timeless investment vehicles that ensure no such deterioration that banks and indices report these days.

Satyam Computer Services scandal/Why you should look farther than the stock market

One of the biggest software companies in India, Satyam Computer Services, reports a case of fraud that involved overstating financial statements, showing hugely inflated profits and fictitious assets in the hope of hiding a poor performance. In his letter, Mr Raju said Satyam’s accounts in the quarter ended last September included a cash pile of Rs53.61bn ($1.2bn), of which 94% was “fictitious”.

Among other anomalies, the group’s operating margin was inflated to 24% of revenue compared with an actual figure of 3%, due to mis-stated revenue and profit figures, Mr Raju said. The company had rigged its results over a succession of quarters to show a large operating profit margin, in the range of 20%, versus the actual margin in the September quarter of just 3%.

Satyam’s clients ranged from Unilever and Nestlé to Cisco, GE, Sony and, until recently, the World Bank. Satyam was audited by PwC and was the first Indian company to list on three international stock exchanges – Mumbai, New York and Amsterdam – yet the fraud went unnoticed for years. The fraud is India’s biggest corporate scandal since the early 1990s and its first high-profile casualty since the start of the global financial crisis, with many labelling it the “Indian Enron”.

The news sent shares on India’s stock markets tumbling. And it’s effects are not only immediate but far-ranging: While its revelation will ring alarm bells for hundreds of Fortune 500 companies across the world that entrust their most critical data and computer systems to Indian outsourcing companies and threatens to damage the country’s reputation as a place to do business, the scandal also raises questions over how outsourcing companies are regulated and audited around the world. PwC could face a problematic start of the year as Satyam is listed in the US, where there are legal precedents for auditors held accountable.

The stock market is highly volatile these days and we can hope that such news of financial overstatement will be exposed in the climate of asset liquidation and institutions filing under Chapter 11.

The stock market has always been volatile. In fact, referring to the graph below (click the image to have a clearer version), the stock market price as embodied by major stock indices, exhibits variation that is not only unpredictable but also random in itself. The randomness can be attributed to its susceptibility to news, rumors, political instability and mass panic. The recent Satyam hoo-hah serves to demonstrate the effect such a scandal can have to the stock market; The Mumbai exchange’s benchmark Sensex index fell 7% as shares in Satyam plummeted nearly 80%.

We at Assetton believe in the importance of economic fundamentals and clear-cut rational principles. Our investment-grade wines, contemporary pieces of art from the Baron of Batik, and bankable lands in Canada follow real economic principles. You can be sure that the intrinsic value of these assets is not inflated by tampered financial statement.

Bordeaux: A trip to the land of fine wine

Bordeaux wines are the most extensively tracked wines in the world because of their importance to the market. The wines are rated three times before they ever reach the consumers, twice before the wines are bottled.

The name Bordeaux is synonymous with wine investments. This is attributable with the rich history and strategic location of the region. Red Bordeaux wine has an established resale past and is primarily the investment medium. Red Bordeaux remains the leading investment grade for wine auction prices. Also, the value of a Bordeaux wine is more readily identifiable, the 150-year old 1855 classification providing a framework for evaluating wine most widely held and traded.

Through centuries, the top Bordeaux wines have proven an exceptional ability to live long lives. IT is the foundation of their attractiveness among consumers and the foothold of their success among investors. A 50-year-old Bordeaux are as young and vibrant today as the day they were released. Bordeaux’s amazing ability to age enables investors to trade these wines repeatedly, from collector to investor, to finally an end consumer who is willing to pay up for a distinct rarity of the best Bordeaux.

The longevity and predictability of Bordeaux give collectors and investors the conviction that young wines will age gracefully and be worth more in the future, and gives them the confidence to buy and hold other vintages, knowing that they will improve in flavour and appreciate in price. History has shown that investment-grade Bordeaux dependably trends higher with the passage of time. Ultimately, no other region can be proud of so many wines that possess both the longevity of Bordeaux and the huge, established market for back-vintage wines.

As a result, as of 2008, the 118 Bordeaux chateaux account for 90% of the entire dollar volume in the investment-grade wine market, which includes the finest wines from every other region in the world. Amazingly, 25 of Bordeaux best chateaux account for approximately 80% of the dollar volume in the industry.

In fact, the new index Liv-ex Claret Chip Index, that is comprised of only the best, the Bordeaux Left Bank First Growth, has outperformed not only the Liv-ex 500 and Liv-ex 100 indices, but also the S&P 500 and FTSE 500 indices. This is evident in the graph showing the relative prices of the mentioned indices below.

We at Assetton primarily trade the region’s First-Growth wines that have the best winegrowing potential including Haut Brion, Lafite Rothschild, Latour, Margaux and Mouton Rothschild. These are the most sublime, sought-after luxury goods in the world, with the most solid, bankable track record.

Source: David Sokolin and Alexandra Bruce’s Investing in Liquid Assets: Uncorking Profits in Today’s Global Wine Market, Liv-ex, Bloomberg

2008 round-up of the wine industry

Wine trading is increasingly popular as shown by the fact that the Liv-ex Fine Wine Exchange had a strong year, with trade up 78% on 2007. Trade was again dominated by the Bordeaux First Growths.

Trade in Bordeaux was concentrated on the 2000 and 2003 vintages (accounting for 23% and 20% of trade respectively) as some of the top names turned over at reduced levels. Interestingly, trade in 2005 also increased significantly, as recent price falls of as much as 30% encouraged buyers to step in. The vintage’s 15% share of turnover was the highest we have seen since the heady days of June.

The Asian market has shown optimism despite the economic downturn. In Japan, the recent strength of the yen is a push-factor that enables Japanese to buy from Europe with less. Wine shops cleverly advertised this as one very good reason for wine lovers in Japan to buy now. Consumption continued although in a less public manner.

A new breed of rich investors and wine drinkers in China, India and Russia have sent en primeur prices so high, even bypassing the influence of the Robert Parker scores.

The tax on imported wine in Hong Kong was scrapped in March, after dropping from 80% to 40% last year, further boosting Asian demand. More specifically, there seems to be an apparent valuation paid to the brand than the quality. Lafite, for example, is particularly popular in China because of its status.

Assetton is a company that deals with wine investment on the widely-tracked wines from Bordeaux, France. We primarily trade the region’s First-Growth wines that have the best wine-growing potential, including Haut Brion, Lafite Rothschild, Latour, Margaux and Mouton Rothschild. These are the most sublime, sought-after luxury goods in the world, with the most solid, bankable track record.


Sources
Liv-ex December 2008 Report
The Impact of Credit Crunch on the Asian Fine Wine Market, from eRobertParker.com
‘Buyers and Cellars’, The Economist
The Henley Centre, Consumer Research Unit
‘The Grapes of Math’ from Investing in Liquid Assets by David Sokolin and Alexandra Bruce

Krugman explains the malaise in the economy/An important reason why REAL ASSETS tick

Paul Krugman, the 2008 Nobel Prize winner, wrote a very interesting and honest article published on Today this past weekend. He talked about the Wall Street using the recent $50 billion Madoff scandal as a good exposition of the incumbent problems in the global financial industry.

In the article, the notoriously-frank erudite made clear the degree of risk and corruption involved in the Wall Street - loss is incurred by investors even though financial managers keep their high fees. The only difference between Madoff and the rest of the fund managers was that the former philanthropist-cum-investor was not in such a formal arrangement.

Paul Krugman also talked about the corrupting effects of the attractive remuneration on the society, estimating $400 billion a year in waste, fraud, and abuse, not to mention that the brilliant minds in the society have been attracted in rent-seeking rather than creating wealth.

Krugman just uncovered one risk unbeknownst to many. The economic zeitgeist in the US can never be dwarfed in its effect on the global economy and the global financial industry is an outright reflection of the numerous risks involved in various financial instruments. The widespread consequences are yet to be fully discerned for governments to conclude the right fiscal policies that will lead to the end of the global economic meltdown.

It remains, after all these uncertainties involved in attractively-packaged investment vehicles, prime to invest your money in REAL PHYSICAL ASSETS that follow REAL ECONOMIC PRINCIPLES and give REAL SUSTAINABLE RETURNS.

We, at Assetton, specialize in safe alternative investments that won’t give you a headache whenever gloomy economic predictions are pronounced in the news. We offer avant-garde investment-grade wines from the chateaus of Bordeaux. Wine, one precious commodity that has always been a luxury item, snowballs in value in scarcity and offers the lowest risk possible. In fact, it has been historically established that the average annual return for those who invested in Bordeaux wines was between 7.5 and 9.5 per cent higher than would have been predicted by factors that account for risk.

The grim prospects in the next year call for alternative ways of investments. While many have lost faith in the financial markets, wine (especially the red Bordeaux) remains amazingly resilient to these effects. Assetton champions the fine wine’s attribute as an investment treasure and seeks to pursue widespread popularity of wine as an intelligent investment in these times.


Source:
Bloomberg
TODAYonline, 20-21 December 2008
University of Wollongong research
Yahoo! News