Wine Market Analysis

Given that there is no cashflow for fine wine and it pays no dividends, the fundamentals to assess its ‘value’ are rather elusive. But what it is possible to assess – and therefore, in our opinion, an essential aspect of analysis – is relative value. But the vast diversity of the market makes this highly challenging. How do you compare two different wines from different estates, produced in different countries in different years with dramatically different prices? For this, we have developed our MARRVIN (Mathematically Automated Risk and Relative-Value Investment Number-Cruncher) system.

marrvin

MARRVIN is essentially a sophisticated algorithm which allows us to compare the relative value, risk and financial potential of fine wines. MARRVIN processes market data (critic’s scores, price history and volatility, brand power, production levels, regional vintage quality, optimum drinking age etc.) and calculates various outputs, which when combined help us assess the potential risk and reward for a given wine.

If a wine falls below the relevant benchmark figure we rule it out of our stock selection, allowing us to focus on a reduced universe of wines, and thereby reducing the risk of our recommendations depreciating in value.

Significant performance benefit with wine investment analysis

The chart below demonstrates the effectiveness of MARRVIN. As at Aug 2014 we retrospectively applied the model to the wines that constituted the Liv-ex 100 Fine Wine Index (the industry benchmark) five years prior, ensuring we altered the inputs to MARRVIN appropriately (e.g. by using the Liv-ex Brand Power 100 of 2009, rather than the most recent edition). It was found that 49 of the 100 wines would not have not have met our minimum requirements, and would therefore not have been considered as suitable stock. The results are striking…

live-ex-apm

…but always requiring the ‘human touch’

It is important to note that this model is useful primarily for excluding wines. Potential recommendations would be subjected to vigorous qualitative selection processes which is where our experience and knowledge of the market will help ensure levels of risk are kept as low as possible and potential stock appreciation levels maximised.

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