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

LAND INVESTMENT: Canada

For hundreds of years, vast fortunes have been made in land. It can often be purchased extremely cheaply, and with little or no effort at all it can bring a return that is multiple times its original investment cost. There are more benefits -

• Buying land is usually a good deal compared to buying developed real estate.
• Purchasing land offers flexibility for the buyer. Depending on area zoning, land can be used for multiple purposes and have higher potential value.
• When you invest in land versus rental properties, there is no need for one to devote time, money, and effort to the maintenance of property or attracting and keeping a steady stream of reliable tenants.
• Returns on real estate investments in land can be substantial if you do your homework and invest where the demand is high or will be high in the near future. For instance, appreciation is almost guaranteed when land is purchased on the outskirts of a city in the path of development and held until the city develops outwards.
• The market for second homes and vacation homes is booming, and buying a lot or land is the first step to building a second home for investment, pleasure, or retirement. When new developments open, there are often good deals for early buyers who invest in lots before construction begins.

In Asia, land investment has been increasingly popular. Because land is fundamentally considered indestructible, there’s no depreciation allowed for tax purposes. Investors can potentially achieve annual net returns of as high as 20 per cent on their investments when the raw land obtains development approvals and they exit their investments in five years or less.

Land investment is especially attractive to those who have a medium to long-time horizon and with already sufficient savings to satisfy their liquidity needs. A good diversifying asset to complement the traditional asset classes of equities, fixed income, cash or cash equivalents, one should form at most a small component of an investor’s portfolio, say, 5 to 10 per cent on land.

The most promising are those with good location. Investors should apply similar standards of reviewing real estate investments to a land banking investment. Investing in raw land brings its best return when the land lies along a path or near an area of expanding economic growth and prosperity. Increases in land value are always dependent upon the land’s future use, economic growth, and demographics, which all boil down simply to the fundamental laws of supply and demand.

Consumers have to be mindful that those who had invested in land banking projects had benefited from the bull run in various asset classes over the five years to 2007. Hence, some projects marketed could have delivered high returns. Such projects rode on the appreciation of the Canadian dollar and the real estate sector. For instance, the Canadian dollar has appreciated about 50 per cent against the US dollar since 2003.

Another advantage of land banking is that it is a medium- to long-term investment, so consumers may be able to avoid the constant worrying they experience when they invest in financial markets.

Assetton provides the opportunity for you to invest in the prime land in Alberta, Canada. Alberta has shown tremendous popularity with investors, business and job-seekers. Assetton and its team researches, evaluates and purchases developable land that is in the direct path of urban growth. We ensure all necessary steps are taken to protect and yield the highest rate of return for our investors. Our exceptional price point and opportunity have made investing in developable land easy and exciting for every investor.

Source:
Smart Investor, Straits Times, Financial Web

FEATURED ARTIST: SARKASI SAID

Batik is a form of fabric art where melted wax or malam, is applied to cloth before dipped in dye. This art is associated closely with the Malay people. Yet, many are not aware that batik has a very universal appeal and is an established art form in China, Japan and India. The Malays have used batik in their own unique ways. The renowned batik extraordinaire Sarkasi himself puts it, “A Malay uses batik from the time of his birth to the time of his funeral.” Different types of batik have their individual stories and purpose. In Indonesia, the Batik Larangan (Forbidden Batik) is still the exclusive domain of the Javanese royal house.

Assetton is proud to introduce the works of the Baron of Batik, Sarkasi Said.

Sarkasi’s artistry, spanning more than 4 decades, have toured Singapore, Malaysia, Thailand, New Zealand, USA, Japan and France. They have also found their way into many distinguished public and private collections including the National Museum of Singapore, Her Royal Highness Sultana of Johore, Her Royal Highness Pengiran Hajjah Mariam Brunei Darussalam, the Singapore High Commission in Brunei, Kuala Lumpur and the President of the Republic of Singapore.

His accolades are numerous. In 1974, he won the Pingat APAD, from Angkatan Pelukis Aneka Daya or APAD, a local art group for his contributions to the development of art. This was followed by a string of other awards, including: Best Foreign Entry Sarasota Art Society (USA) in 1981, the First Prize -Abstract Category for The 8th UOB Painting of the Year Award in1989, and Highest Commendations in the IBM Art Award in 1990. More recently, he holds a record in the Guinness Book of Records of having painted the world’s longest Batik painting of 103.9 metres.

Mr Said has also contributed to numerous charitable events. Throughout his eminent art career, Sarkasi has held numerous exhibitions to showcase his works in countries including Singapore, New Zealand, Indonesia, Japan, Malaysia and the United States.

The idyllic kampongs and the Botanic Gardens became Sarkasi’s workshop where he developed his distinctive style that is closely linked with the world of nature. With graceful brush strokes, Sarkasi effortlessly captures on canvas the beauty and wonders of this world with a celebration of exuberant and lively colours, developing a pictorial language that is both distinctive and compelling. It is a vision in which nature and artifice are entwined and which appears to promise images symbolising continuous metamorphosis.

Sarkasi employs colour in order to convey splendour and radiance. And he does so with the full confidence in the capacity of colour to invoke optimism, vivacity and energy. His artistry is firmly rooted in the conviction that art and nature are connected and are mutually inter-reliant.

Assetton is offering a limited number of original Sarkasi Said works of art. Each piece is an original work of art. The 5 themes are: Mother & Child, Floral, Kampung, Abstract and Urban Landscape. No limited editions, prints, lithographs, etc.