Pleasure, pure and simple, is not usually high on the list of options offered by portfolio managers, nor is it usually on the radar screen of private investors, most of whom have absorbed the popular notion that pleasure is what you spend money on.
Now that we have grasped the notion that sport can be played for fun and profit, perhaps it’s time to dispel the belief that fiscal prudence is intrinsically parsimonious.
Once you get to grips with the idea that pleasure can offer financial as well as sensual profit, it becomes so obvious you wonder why you never tried it before. Indeed, if you are as good at investment in the things that give you pleasure as some are at commodities or real estate, it is possible to make financial gains that are in many cases better than those that could be made elsewhere.
This is especially the case in two areas that are ripe for New Zealand investors, wine and art. Both have enormous pleasure potential, as well as the often-ignored capacity to provide great status to those who are comfortable in their relative cultures.
They also have very acceptable downside as long as investors don’t lose sight of their pleasure quotient. If the wine market should collapse, you can always drink your investment. And house full of art can still be considered an asset, even if the art itself has lost monetary value.
Given that is as bad as the downside gets, you should always hedge your investment against such an outcome by investing in what you like. This is the pleasure trigger, and is key you should never lose sight of when investing in this area – only buy what you like.
That makes it important to know what you like; to prime the trigger as it were. Mostly this is matter of confidence. Shake off what you think is respectable opinion, certainly on the wine front, and develop your own – irrespective of what you believe is going on in the marketplace. It may be worth engaging consultant who can help boost your confidence and give you some pointers. It’s also worth remembering that your tastes will change, that you will become more sophisticated the more you get to know the field, either in art or wine.
The pleasure trigger is also key part of the return, for the process of learning, understanding and growing your taste is as rewarding as just owning something you love, or drinking it.
But you should never lose the economic perspective of your investment. While always buying within the parameters of your taste, your purchases should be guided by the potential financial return expected from mature investment. Both art and wine are long-term investment projects and unlikely to produce high financial returns in the short term – although the pleasure return is more immediate.
Art
Art is an established form of investment. It’s been around for while and is likely to be in there for the long term. Even general media perspective illustrates how dynamic this market is, with tales of huge price increases in the works of artists such as van Gogh and Monet as common as fairy stories about handsome princes finding true love with servant girls.
This is as true of New Zealand artists as it is of internationals. McCahon is the most notable, but there are number of younger artists whose ability and vision could be equally well rewarded over similar, or shorter timeframe. There are also many senior artists whose work has been overshadowed by myopic art world perspective on McCahon, but is of quality able to achieve similar status.
Recent bursts of interest in Bill Hammond and Ralph Hotere are not out-of-the-blue surprises, but reflections of long-held respect for their work.
This time lag between art world respect for an artist and market response is exactly where the art investor should be operating – and it doesn’t necessarily relate only to the young lions of our art world. One of the startling things about New Zealand art is the number of generally neglected artists whose work could form the foundation of excellent investment portfolios looking to return in 20 years or so.
To find these, all you need is pair of eyes and the confidence to use them in harmony with your brain – it doesn’t take degree in art history. Buy within the bounds of what you like and go to original sources – art dealers or even artists. Dealers in particular are good advisers, being well acquainted with their artist clients, and having vested interest in giving you long-term support.
Artists and winemakers are also excellent tipsters. They usually pick winners in their respective fields well before the fashion gurus of the art and wine worlds.
Wine
Wine is less well established as an investment option in New Zealand, as the secondary market is seriously underdeveloped. However, that will change just as it has in Australia – to the advantage of those enthusiasts who invested in Australian wine decade ago. It’s doubtful that any wine investors anywhere have made similar profits to those Australians. The same scenario could apply here – perhaps even more so, given the potential for our best wines to enjoy stellar international reputations.
Where wine is different proposition from art is in its clearly defined life span. Past certain point, it is undrinkable. It also has the capacity to be broken up into single bottle lots. While it’s hard to sell pieces of your McCahon, case purchases can be partly consumed and the remains sold for healthy profit – so meeting the demands of both pleasure and financial returns.
However, the investment approach is similar. Once you know what you like, your buying should be governed according to your palate, but guided by the three realities of wine investment.
First you invest in wineries, their personnel and culture, not in individual wines. good producer makes good wine most years, trophy-winning wine is one-off and virtually worthless as an investment. producer such as Penfolds in Australia has winemaking culture that is virtually unchanged since the early 1960s for its top wines, unusual for Australia. That is key reason its wines fetch such high auction prices.
Second, wine is about tradition, so you should restrict your purchases to wineries with either an established tradition or with the potential to develop one. The best wines in Europe are those that sustain high prices over long periods wines are made in certain style, without variation for generations. The same is important in New Zealand, although the scope for comparison is somewhat limited. Those winemakers who were making top wine in 1985, and still are in 2003, are the ones to back.
Third, keep your portfolio refreshed. Investing in wine is not buy-and-keep deal like art. You need to keep recycling, buying wines under the clear proviso that you will sell them at set time in the future, then reinvesting in another lot for similar time period. You should have balanced portfolio that has you recycling wines at regular intervals, allowing you to use the momentum of your investment gains to keep abreast, or even ahead, of the field.
It’s best to have wines coming into maturity in intervals of five, eight, 10, 15, and 20 years. Chardonnay is in the five-year cycle, riesling, merlot and pinot noir in the eight-year one, cabernet merlot, syrah and top pinot noir at 10, top syrah and cabernet sauvignon at 15, and best cabernet-based reds at 20.
These breaks are also the ultimate opportunity for pleasure investors, as they offer the chance to drink bit and sell the rest.
If you are clever, you can have lifetime drinking fabulous, mature wines while gazing on your stunning art collection, and still reach retirement age with 50 cases and three Hoteres to take to the beach house – and enough cash to keep you smiling at the sunsets for years to come. M
Keith Stewart is well-known New Zealand wine writer and art critic.
