Building a collection sensibly

Start with a budget

A budget is a plan for how much money you will spend on something over a set period. For a collector it answers a simple question: how much can I spend on wine each year without it affecting anything more important? Rent, food, savings and emergencies come first.

Setting the budget in advance protects against the most common collecting mistake: buying on impulse because something is rare or "only available today". Scarcity is real, but there will always be another lovely wine next year.

Buying wisely: where and how

Most collectors do best buying from established merchants and wine shops with a physical address, a long history and clear terms. A good merchant will tell you how a wine has been stored, offer advice on drinking windows, and deliver what you paid for. Comparing a few prices before buying is simple and often saves money, because the same wine can be priced quite differently by different sellers.

It also helps to think about value in the glass rather than value on paper. The most famous names carry a large premium for their reputation. Wines from the same regions made by less famous producers, or from good but less celebrated vintages, can give a great deal of pleasure for a fraction of the price. Learning to enjoy them is one of the most useful skills a collector can have.

Finally, the lessons on fraud apply to collectors as much as to anyone. Be cautious about unknown sellers online, unusually low prices for rare wines, and anyone who contacts you out of the blue. Ask for invoices and provenance on anything old or valuable.

If you inherit a cellar

Some people first meet fine wine when a relative's cellar passes to them. The right steps are calm ones. First, make a list of what is there and photograph it. Second, keep the wine where it is, or somewhere equally cool, rather than moving it to a warm house. Third, gather any invoices, letters or storage records, because those are the provenance.

Then think about what you want: to drink some, to keep some for family occasions, or to sell some. If selling, ask more than one reputable auction house or merchant for an estimate, and remember the fees and round-trip costs from chapter 4. Be especially wary of anyone who contacts you unprompted offering to "value" or "manage" the collection.

What this track has taught you

Every economic idea from the previous chapters shows up in a sensible collection:

• Scarcity and reputation explain why a tiny share of wine is collectible.
• Supply and demand explain why the top can rise while everyday wine does not.
• Release price, allocation and margin explain how wine is first sold, and opportunity cost explains the price of paying early.
• Fees, spreads and liquidity explain why buying and selling is costly.
• Carrying costs and provenance explain why storage and paperwork matter.
• Scarcity plus high prices explains fraud, and guaranteed returns are a warning sign.
• CAGR, real returns, volatility and survivorship bias explain how to judge any claim about returns honestly.