Don't waste your money on wine that doesn't exist!

Tony Levene
by Lovemoney Staff Tony Levene on 13 October 2012  |  Comments 9 comments

Wine scammers will promise you that your investment can only rise in value. But half the time, the wine doesn't even exist...

Don't waste your money on wine that doesn't exist!

The august Financial Times questioned the value of a major wine fund recently. It highlighted that the wine market had attracted “billions of dollars” in recent years from private investors and pension funds – attracted by promises of high returns against a generally unhappy economic background.

The billions the FT was referring to went into legitimate organisations with real wine in their vaults.

But I – and many, many others – receive an almost non-stop attack from so-called wine brokers whose only purpose in life is to separate investors from their savings.

Investing in imaginary wine...

I have lost count of how many calls I have received from these so-called experts who claim to have my best interests at heart. But after so many, I can say that they mimic the legitimate funds almost word for word with the same narrative – lots of fine wine buyers with a limited supply so the prices go up. The difference is that the real funds have real wine and will be there in the future, while the people who contact me probably have no wine and definitely won't be around this time next year.

The fund that the FT questioned is real, regulated in the European Union, and there are genuine bottles of wine held in its multi-million dollar vaults. The question is how those bottles are valued. It is a problem that goes to the heart of all 'alternative' investments – anything where there is not an active market.

If you want to buy or sell shares in a FTSE-100 company, you can check its value second by second. There is a small gap between what you pay as a buyer and what you receive as a seller (plus, of course, broker fees and Stamp Duty when buying).

Wine is different. You can't find the selling or buying prices of Chateau this or Bordeaux that online – or at least you can't find reliable prices as wine dealers tend to look at their own stock and what they want to do with it.

How wine is valued

The FT raised questions over the fund because it had managed to gain in value every single month of its life – even when other wine funds hit rocky conditions. That may have been superior skill from the managers. Or it could have been a different valuation method.

Some funds use an independent valuer. This questioned fund looked at prices from auctions and a small number of wine dealers. Neither approach gives investors the certainty they might wish for. They can both be dependent on figures based on just a few bottles. So if an auction sells a case (12 bottles) of a particular vintage at say £10,000, that does not mean that the 100 cases of the same wine in a fund are worth £1 million.

It would be impossible to sell that amount at one go without dragging down the price. The same applies in shares when a seller of, say, 10 million BP or Vodafone shares knows the disposal will force the market down.

With BP or Vodafone or any other mainstream share, it would probably be a penny or so. But with the wine, it could be 20 or 30%.

All this was in my mind when Stephen phoned me. He told me he was working for a major wine dealer which had an investment fund. At times there was so much background noise – his colleagues making similar calls to other potential punters – that I had to ask him to repeat details.

It can only go up!

He promised me that the wine could only go up; that rich Chinese and Indians would only buy the finest vintages; and that my investment would be kept in a safe place. I could start with as little as £2,000 and, once I was happy with that, I could go higher.  Some of his clients, he said, were investing £50,000 or £100,000. He asked if I would be happy at that level if I was confident.

“You bet,” I replied. “This sounds fantastic.” I was, of course, using the word “fantastic” meaning fantasy but I doubt if Stephen understood this.

The FT's questioning of the wine fund concerned the value it placed on the various bottles. But these bottles existed. The proposal I received had no details of the bottles in question or where I could inspect them. They could be non-existent (true for some wine scams) or more likely there would be a collection of Chateau Rotgut, Australian plonk, or at best, something good but dramatically over-priced.

And if you still believe that it is possible to put a value on a bottle, take a visit to your local supermarket.  I recently saw a bottle of red wine at £11.99 (a bit above my pay grade). But the sticker said I could have two bottles for £12.50 - more like it! So was that worth £11.99 a bottle or £6.25?

But if there is such a discrepancy in the supermarket, just what faith could I have in Stephen's insistence that I would make a fortune?

More on scams and rip-offs:

QROPS: the overseas pension scam to avoid

The coloured diamonds scam

Don't fall for this gambling tipster scam

Large current account balance? Don't fall for this rip off

UCIS: FSA clamps down on exotic investments

The email phishing scam that relies on your stupidity

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Comments (9)

  • ambahall
    Love rating 21
    ambahall said

    EVERYTHING is only worth what people are prepared to pay for it. There is no definitive value to wine any more than to art, land - or shares.

    But investing in wine has always baffled me because it will, eventually, become undrinkable. It's like buying a property with a 99 year lease - the longer you hold onto it the less likely you are to be able to sell it and the lower the value.

    I suppose you have to wait around for an "end user" who is prepared to pay megabucks for wine in order to appreciate it for it's own sake and not as an investment opportunity. In which case, making sure what you have bought actually exists and is probably a good idea!!

    At least art and property don't self destruct - well, not often.

    Report on 13 October 2012  |  Love thisLove  0 loves
  • Grapesofwrath2
    Love rating 0
    Grapesofwrath2 said

    The people who are now involved in selling teak in Costa Rica under Global Green Service - were previously involved in Bordeaux wine fraud.

    Fraud is a seamless web. Carbon credits and teak today - yesterday wine fraud.

    The teak one is a more elaborate hoax.

    Report on 13 October 2012  |  Love thisLove  0 loves
  • edwardmk2879
    Love rating 65
    edwardmk2879 said

    Back in the eighties, I was dealing with a company called Marshall Wineries. Unbeknownst to me, the erstwhile reputable company had been taken over by fraudsters. Initially they sold genuine products, then over-priced products, and finally just took money for nothing. It took Scotland Yard years to catch up with them and most investors lost a lot of cash, including me.

    One good lesson was that all of the purchases made by credit card were re-imbursed with the help of a solicitor who had also been burned and took up cudgels on behalf of everyone. Purchases made by debit card were lost.

    I still own two hogshead of whisky which I'll bottle when I retire. Just sampled them both, and the Tobermory malt is in fact very good.

    Those came from the first purchases with Marshalls before management changed!

    Report on 13 October 2012  |  Love thisLove  0 loves
  • muira
    Love rating 30
    muira said

    i sometimes waste some of my money on wine that does'nt really exist until it is fermented..

    when i have brewed it along with the beer that i also waste some of my money on i get

    totally wasted!!!!!

    i find i only have to waste a small amount of money on wine and beer that don't actually exist at the point of sale..

    but after about 2 weeks become aforementioned wine etc,that appear to exist

    at levels that could blow your head clean off..(sorry about the dirty harry reference)

    i sometimes wonder why i am still existing!!

    invest in home brew,it can and will exist!!..if you follow the instructions..

    ps,,never kept it long enough for it to be an investment,or involved in fraud..

    too busy sending it down my neck

    Report on 13 October 2012  |  Love thisLove  3 loves
  • UKinformedinvestor
    Love rating 3
    UKinformedinvestor said

    Since the late eighties we have been running the Bordeaux Managed Wine Investment Plan. Wine is known as a "wasting asset" . The main attraction being that any profit made on wine by a private investor is basically free of tax. However an actual Wine Fund being a collective like a unit trust would be taxable. Quite simply we have always insured that each client has his/her own portfolio which is reviewed by a renowned wine expert and is held in an independent bond in the client's name. This has worked for our clients for over 25 years. It is very simple for the investor to ensure that the wine is indeed in the bond in his/her name. Such investments should only be in the very finest wines.

    Report on 14 October 2012  |  Love thisLove  0 loves
  • isobelsgrandma
    Love rating 41
    isobelsgrandma said

    I have recently been targeted by "Bordeaux Fine Wines" who may or may not be genuine but, for me, it is academic because I have no intention of risking my small savings in a wine investment. However thay have been very persistent, insisting that the returns of 8% - 12% which, of course, far outweigh my savings account interest make it no risk at all and sending me a very smart brochure which I had insisted I didn't want. I've no idea where they got my name, address and phone number but, thankfully, they obviously don't have my email address. The last person to phone me, Malcolm, told me that he just wanted to give me some information "like Jesus did in the Bible". I gave him very short shrift and hung up. I'm not expecting a further phone call but I shall be involving the OFT if I should get one.

    Report on 14 October 2012  |  Love thisLove  0 loves
  • jonclapham
    Love rating 0
    jonclapham said

    I was targeted by this scam whilst shopping in ASDA back in August. I could not get rid of the guy despite telling him several times I was busy and this was neither the time nor the place. Several phone calls followed whilst I was on holiday in Turkey. When I said I wasn't interested, his manager called me to ask why and this was. This was followed by a call from the manager’s manager basically begging me to part with my hard earned cash. By this time I’d worked out this was a scam - by the way they would simply not take no for an answer. In the end I didn’t hold back. After several more calls I told him if it was that good an investment he’s be putting his own money in there and not bothering me. In the middle of a Turkish beach I ended up shouting go forth and multiply (you know what I mean) and hanging up – I didn’t receive any further calls but it certainly turned heads on the beach!

    I’m pleased to read this is a scam and made the right decision! However, I would never part with my cash to a cold caller.

    Report on 31 October 2012  |  Love thisLove  0 loves
  • electricblue
    Love rating 785
    electricblue said

    If Jesus were offering a deal on wine I might be interested as he had a very rapid production process worked out, I believe. Other than that, I'll stick to buying cheap plonk for my own consumption, which I regard as a very satisfying investment.

    Report on 04 November 2012  |  Love thisLove  0 loves
  • teamgreenzx7r
    Love rating 1
    teamgreenzx7r said

    I have had a number of high pressure calls from Capital Vintners of London over the past 18 months, offering me seemingly amazing investment deals on cases of wine costing around £6,500. They have very little concept of `No thankyou, I`m not interested`, and continually talk over you when you are trying to decline their investment opportunity diatribe.

    I am not one for being overtly rude to people trying to sell things on the phone, but I can now make an exception for these people.

    Report on 03 January 2013  |  Love thisLove  0 loves

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