I was in my early teens when I bought my first stock. At that time, I wasn't old enough to open my own brokerage account, so I got a little help from my dad but I promised to pay him back. Soon after the purchase, I told my late grandfather that I was gunning to be a bona fide investor.
He took my scrawny arms and put his face near mine so that I could see every crease in that weathered face of his. 'There'll be plenty of opportunities to get in at a great price down the road,' he told me. 'But always remember when you board the bus, you must know when to get off the bus.'
His words of wisdom still ring true today. Picking a stock is hard but knowing when to sell can be even harder. Many punters, for instance, enter a trade without any idea of an exit strategy. They take premature profits or, heaven forbid, let their losses run to the downside. Invariably, knowing when to get out correctly if you're wrong and when to take profits if you're right can be mind-boggling.
But assuming you've made the 'right' decision to exit, how you dispose of your shares is relatively straightforward - you sell them to the public on a stock exchange. In other types of investments, however, one's exit strategy gets a tad more complicated. Simply knowing when to lock in your profits or when to minimise your losses is not enough.
For alternative investments such as wine, for instance, investors need to understand what exits are available to them and then consider how they want to respond.
Let me illustrate. I bought Australian wines three years ago through a broker. Fresh-faced and wide-eyed, I was ready to tread into the sophisticated world of wine investments. My wines were stored at a temperature-controlled warehouse run by Cougar Express Logistics in Boon Lay Way.
It was my first foray into wine investing, having figured that I wanted to hold fine wine as part of a diversified portfolio of traditional financial assets. My broker had priced the shipping, insurance and three years of storage fees into the cost of my wine bottles.
When my storage contract expired, I didn't renew it, as I wanted to 'test the market' to see how much my wines could fetch. With my broker's help, I sold my bottles, reaping a return of about 12 per cent in three years. While my gains were not spectacular, I do count myself fortunate, as I could have ended up with zilch returns, or losses, or even a damaged liver from being forced to guzzle every drop of wine to clear it.
I have come across people in the wine investment community sitting on tens of thousands of dollars of wine, as they are unable to 'offload' them to buyers.
The more prominent brokers in Singapore include the Australian Wine Index, Premium Liquid Assets and Universal Assets Group.
Clients often invest at least $10,000, if not more.
There are at least thousands of investors who use the services of wine brokers, although the actual numbers are not known. One such investor I spoke to last year said his broker had advised him that since 'market conditions' were not good, he should hold on to his wines for the time being, or add more wines to his collection to diversify his holdings.
Yes, that might sound like a legitimate reason, but other investors I've spoken to say they are fed the same argument - or one of its variations - day in and day out. When they raise the issue with their broker several months later, they hear the same spin rehashedagain.
In other words, investors find they can't cash in their wines.
Some investors have voiced their concerns with the Consumers Association of Singapore (Case), but the consumer watchdog informs them it 'does not handle investment issues'.
To be fair, it is tricky for Case to come down hard on brokers when it pertains to something as subjective as one's investments. After all, brokers argue that the risk of being unable to liquidate one's wines is real, and their customers should do their homework before signing on the dotted line.
In my policy agreement with my broker, for instance, there was no statement which 'guaranteed' that my wines could be sold.
Perhaps, managing one's 'exit' risk is part and parcel of wine investing. Unlike investing in stocks, there are no regulatory bodies like the Monetary Authority of Singapore to make sure everything works smoothly.
That said, it is easy to see why some investors are disgruntled, as it is likely that they are unaware of exit strategies that would be suitable for the wines they bought.
One method by which investors can sell wines is through auction houses such as Christie's and Sotheby's. But my Elderton 2001 Ashmead Cabernet Sauvignons - they don't exactly fall into what you would call the 'blue chip' category of wines - would likely not cut it. And sadly, I wasn't privy to such knowledge when I bought them.
Then there are accounts of investors who are told they can sell their wines to international markets such as the United States and Europe. But when they do their sums years later, they are shocked to find they can hardly break even after deducting various fees.
Despite my fortuitous attempt at wine investing, I know that when I make my next purchase, I will be more careful. While I'm glad my broker helped me snatch a profit, I will, as with other brokers I do business with in the future, scrutinise their ability to sell wines. Brokers should have adequate exit strategies, backed by an international network of dealers, importers, traders and auction houses.
I would also like to keep my risks low by sticking to the most reputable wines in the best vintages. Vintage basically refers to both the year the grapes were harvested and the wines made from those grapes. Warmer seasons will produce riper grapes and better wine, while a poor growing season can lower a wine's quality.
If you feel confident about investing on your own, you can always buy wines from distributors such as Crystal Wines, Condale Consultants, Vinum and Grand Vin. If you rely on brokers, they undertake the difficult and time-consuming task of researching the wine market for you.
If you are very wealthy, some private banks offer wine funds. Lest I forget, there's another exit strategy that can help you. In my late grandfather's words, 'get off the bus'.
If your wine doesn't make money, you can always drink it. But hopefully, you won't have to toast to your mistakes.
This article was first published in The Straits Times on September 14, 2008.
