2012 looks to be happy sailing for those wanting to enter alternate investing, as indications   are its a buyers market for those starting out in fine wine. Lets have a look at the market.  Fine wine prices fell by 15 per cent in 2011 as the market corrected from the sharp rises of 76 per cent since the end of 2008, and some stockholders took profits and returned to cash given the uncertain economic conditions in the eurozone.  The 2011 fall proved to be somewhat of an exception.

 One of the best reasons for entering  fine wine investing is diversification into alternate investments. Fine wine makes a good choice in this regard as movements in fine wine prices tend to be uncorrelated with those for other assets such as equities. What makes wine attractive as an investment in relation to other assets, is that, it remains a consumable that people will, at some price, buy to drink. This quality and  the fact that it is a physical commodity, immune from inflation and government debasement – keeps it  attractive to investors as a store of value in uncertain times. Similar to gold investing, its popularity rests in its tangibility. As in the case of wine, a whole industry in storage and valuing sprung up.

The Bordeaux futures situation last year showed that 2011 would prove to be a tough year even for the kings of the wine world. Buying wines as futures while they’re still in barrel, known as en primeur, used to be considered the way to obtain top Bordeaux at the lowest cost, however that’s no longer guaranteed.

Prudent Wine Investment  has consistently given good returns the only two previous bear markets for fine wine in the past 25 years (1998 and 2008) saw the market hit a low point in December and recover sharply the following year. Since 1988, when reliable records began, 1998, 2008 and 2011 are the only years that prices fell significantly in a calendar year. These were closely linked to systemic financial difficulties: in 1998, the Asian financial crisis and the collapse of the American hedge fund Long-Term Capital Management; in 2008, the banking/credit crisis and the collapse of Lehman Brothers; and in 2011, the Eurozone crisis and the possibility of a European government debt default.

Liv-ex, the fine wine exchange, also points to the possibility that the market is close to a low point,  meaning getting in at the bottom now can present a good opportunity.

One should consult a good broker for guidance into where to start.

Wine storage investment options have recently come under criticism due to rogue firms and deals. There are still good options. It is possible to keep a cellar at home, after some assistance in setting it up and maintaining it. future articles will cover this.

Risk to the  bear market for wine may arise  from a failure of the eurozone stabilisation plans or a significant slowing down of the Chinese economy.

In a  worst-case scenario, it is hard to imagine further price falls of more than 5 per cent, while increases of more than 15 per cent are a definite possibility.