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Business News/ Mint-lounge / Indulge/  The Itinerant Investor
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The Itinerant Investor

Business ideas aside, travelling is also a great way to learn more about alternative assets such as wine and whisky

Travelling is also a great way to learn more about alternative assets such as wine and whisky. Photo: iStockphoto (iStockphoto )Premium
Travelling is also a great way to learn more about alternative assets such as wine and whisky. Photo: iStockphoto
(iStockphoto )

It is a universally acknowledged fact that travelling broadens the mind and lightens the wallet. But it need not be so for an astute man with investment ideas in want of a large fortune. Entrepreneurs have long credited the enriching experiences of their travelling for some of their big ideas and continued business success. This peripatetic pursuit of profit was also cited in The Economist, which gave the example of Les Wexner, the owner of Victoria’s Secret, who takes a month every year to travel the world in search of ideas to adopt. Business ideas aside, travelling is also a great way to learn more about alternative assets such as wine and whisky. For an investor looking to diversify out of traditional asset classes such as stocks, bonds and gold, these alternative assets are promising from a risk-adjusted return perspective. And the best part about wine and whisky is that even investment mistakes can be enjoyed.

The greatest choice of destinations is afforded to the budding wine aficionado and investor. There is no need to restrict your travel to the French Bordeaux region, despite the fact that wines from that region dominate the investible wine asset class. The neophyte, at the outset, only needs generalized knowledge about wine and winemaking that can be gleaned at any wine-producing region. In addition, the actual investment transactions do not require a physical presence in a particular region. There are major vineyards in all the five inhabited continents of the world, as the map shows.

Had enough of holidays in the US and Europe? Then travel all the way to Chile and Argentina to not only discover a new continent and culture, but also find out about New World wines, making rapid inroads into the market. Can’t go anywhere except a beach without inciting a family rebellion? Why not raise a toast to the winemaking region of Languedoc-Roussillon in southern France with its lovely beaches on the Mediterranean.

Sceptics might question the necessity of spending precious vacation time in some back-of-beyond rural area just to invest in wines. Surely reading up and going to a few wine tastings in the city should be good enough. The answer is that wine, like most alternative assets, requires specialized knowledge that cannot be captured in reports and spreadsheets. The investor needs to know how to differentiate the good wine from the bad, and to make judgements about aroma and flavour. A visit to a vineyard is not only an opportunity to understand wines, but also a chance to understand the entire process that culminates in a fine wine. The influence of terroir, grape variety, the viticulture method and prevailing weather conditions cannot be understood at a wine tasting and lecture session within the confines of a seven-star hotel. Observation and personal experience are key elements towards acquiring knowledge. And they allow you to appreciate expert analysis better while making investment decisions.

Further, visiting winemaking regions makes for an unusual and spectacularly picturesque holiday without sacrificing on luxury. Vineyards are located in beautiful countryside, which, depending on the region, could be interspersed with pretty little villages, undulating hills, unspoilt sea views, and, especially in Europe, medieval churches and chateaux. It is not about visiting one or a series of vineyards while desperately trying to remember the salient points about terroir and vintage. It is an experience that needs to be savoured like a premier cru. Every area has chateaux, hotels and bed-and-breakfasts, catering to the oenophile and offering a luxurious getaway far from the maddening crowd. During the day, you can partake of activities such as hiking, cycling and fishing, or lounge around the spa or pool before getting down to the serious business of expanding your knowledge of wine. Popular destinations such as Napa Valley in California also hold events such as music concerts, farmers markets and art exhibitions to make the experience more enriching. There are several companies offering wine tours both in the Old World and the New World. Whether you take a packaged tour or adventurously make it up as you go along, visiting vineyards, talking to winemakers, and savouring different wines, this is a great way to learn about this alternative asset. It will also enable you to form networks that will prove useful once you seriously start investing in wine.

Although recently, the performance of fine wines has been tarnished by the global economic crisis and the consequent tight correlation of global asset classes (see Graph 1), it is still an asset that has delivered an average return of 10% annually over the last decade. The absolute return may not be as racy as that from Indian equities or gold, but wines seem to provide a better risk-adjusted return, that is, the average monthly return divided by the standard deviation of return (0.31 for wine compared with 0.12 for Indian equities and 0.23 for gold).

Moreover, since the supply of each vintage is fixed and decreasing as bottles get consumed, prices have a natural tendency to rise. This can lead to disconcertingly rapid price increases due to demand squeezes such as the one from 2009 to 2011. The recent bubble was caused by easy money and huge Chinese demand. But it seems to have popped and prices are returning to more attractive levels. Such price rises provide a great opportunity to cash out and reinvest in more recent vintages whose appreciation potential is further in the future.

If wine and wine investments appear too tame for your taste and you desire a racier asset, then maybe whisky will tickle your palate. It is an alternative asset similar to wine that enthusiasts should consider adding to their portfolios. And rather than visit vineyards, you can tailor your holiday to study malt magic.

And magic there certainly is, since, according to some claims, returns from whisky have beaten gold. However, these need to be taken with a pinch of salt given the large variation between whiskies and the lack of standardized historical data for evaluation. Whisky Highland, a Scottish firm, has created an index that gives an idea on the potential returns as well as potential losses from whisky investing (Graph 2). This shows the critical importance of choosing the right whisky for investment.

Evaluating whisky investments is similar to wine despite the differences between the two. Provenance, age and distillery are important determinants of the value of whiskies akin to provenance, vintage and vineyard for wine. And, similar to wine, nothing beats visiting distilleries to understand the “asset".

Deciding where to travel is easier since all flights lead to Scotland. But you can still customize your holiday based on your preferences. The stunning natural beauty of Scotland can accommodate everyone’s interest, from the coastal walker to the mountain climber. And for the whisky enthusiast, they have a unique malt whisky trail that takes you through seven distilleries. You can also try some less famous single malts from smaller distilleries. Even if you don’t uncover a hidden investment gem, the chances of discovering a great drink are high.

In the final analysis, wine and whisky are promising asset classes that investors should look to add to their portfolios. The best part is that evaluation of this asset class is much more exciting than for others that require poring over dry financial ratios and spreadsheets. It adds an extra dimension to an investor’s holiday and provides a great excuse for being drunk every night (and day).

Shashank Khare is a London-based investment professional, learning from the capital markets what they didn’t teach him at IIM, Ahmedabad.

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Updated: 04 Sep 2012, 06:58 PM IST
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