Even though his family dynasty was built on banking, Baron Philippe de Rothschild would never have stooped to trading his wines like pork bellies. Back then, wine was collected for pleasure, not profit. The buying and selling of wine like stocks, art, horses or jewelry, is a more recent phenomenon.If you were one of those far-sighted people who invested $2,200 in top-tier Bordeaux wines in August 1997, you would have reaped a windfall. Five years later, your purchase cashed in at $3,850—more than twice the investment yield in blue chip stocks, according to the British merchants Farr Vintners. Furthermore, the stellar 1982 vintage yielded even greater returns. A case of Château Margaux bought for $750 on release is now worth $12,000, and Château Pétrus jumped from $3,685 to $29,525. Even New World wines command huge premiums. A bottle of 1993 Screaming Eagle, a California cult cabernet, cost US$75 when released in 1996 currently sells for US$1,600.Investors have different reasons for buying blue chip bottles. Some just want to pay for the wine they drink by selling some of their collection as it matures. Others seek the thrill of trying to pick the winners, and investors buy wine purely for profit. Those in it for the money are also interested in the tax benefits. Since wine assets tend to depreciate rather than appreciate, they are not subject to capital gains tax. However, unlike other investments, money borrowed to buy wine isn’t tax deductible.Wine investing is far from a sure bet. The occasional, stratospheric prices at auction may grab the headlines, but most wines don’t command such gains. Those that do are rare or obscure, which makes them hard to buy in the first place. Besides, the global wine glut, overproduction in many countries is softening wine prices across the board.Ironically, The resale price of wine often lacks liquidity. For one thing, fine wines, like Bordeaux and port can require between ten and twenty-five years of aging. Unlike other assets, they don’t pay interest or dividends in the interim. The only way to earn a profit is to sell the wine at auction or privately, and the latter is illegal in most provinces. Even auctions remain a risk. The timing may not be ideal. Wine prices peak about six to eighteen months after release; again at maturity, when the wine is ready to drink; and then finally in old age, once the wine has become rare. Hopefully, these bottles are still drinkable.In the meantime, you need to pay the cost of storing the wine. You can do this either at a rental facility at a cost of $1-$3 per bottle or in your home. Cellars can run from $2,500 for basic shelving and retro-fitted basements to $250,000 for walk-in dens for Dionysus.You also run the risk of tying up your money instead of pursuing other investments or stock options. And if you sell your wine at auction, count on the auction house taking 15-35% in commission.All of these factors explain why traditionally, the only people speculating on wine were merchants and exporters in the trade. They took a position on each vintage and remained committed to prices while the grapes still hung on the vine (sur souches) or just after fermentation while the new wine was still in the barrel (en primeur). These expert traders reduced their risk with their knowledge of vines, the soil and how the weather affected the crop. They also knew how the producers coped and traders in the market reacted.Today, the resale market has broadened beyond the industry. There are only a few advisors currently guiding investors, and the market remains unregulated in most countries. Often these buyers rely solely on the wine ratings from critics like Robert Parker and TheWine Spectator. Both employ a standard 100-point scoring system. Although trade wisdom says that a wine rated over 90 can’t be bought, and one under 80 can’t be sold, this information isn’t always heeded. Speculative buyers take risks with wine that would be unthinkable for any other financial investment.Initially, most wines are priced according to their production costs and perceived quality, as judged by the vintner in a blind tasting against competitors. But after release, many prices are affected by the critics’ scores. Wines that receive a score in the high 90s have been known to instantly triple or quadruple in price. Scores of 100 are exceptionally rare.Wines are generally cheapest at release, but that doesn’t guarantee you a low price. Usually, you need to be on the allocation list just to buy them. In Bordeaux, wines are sold in lots. The priority list starts with the most loyal, long-term and largest customers. They get the lowest prices, and the costs climb for the lesser clients until the allocation is completely sold out. In California, Screaming Eagle produces only a thousand cases a year. They sell only a bottle or two of each vintage to customers who’ve been on their mailing list for years. Another cult wine, Colgin Cellars, produces only about 700 cases, and has a five-year, 4,000-person waiting list.Prices are often highest at auctions fueled by emotions. A bidding frenzy can drive prices up much higher than any private retail sale. This is particularly the case at charity auctions, where support for a worthy cause is part of the wines’ premium.As with any investment, you need to do lots of research, travel and wine tasting for yourself. Fortunately, that’s half the fun with the wine trade. It’s also the biggest risk to protecting your investment: drinking your liquid assets.