Critics and Parker Points
17/05/2017
It was very gratifying to see Rhone lead the way in last month’s Liv-ex 1000, after we trumpeted the recent fine wine investment attractions of the Lala sorority. In fact, the Champagne wine investment sector also outperformed Bordeaux over a 12 month period. Champagne is the second best-performing sector behind Burgundy, and has a well justified spot in a fully diversified portfolio.
Meanwhile, oil prices rise, gold prices fall, the FTSE breaks into all-time high ground, and talk grows of rising interest rates. What’s up?
Despite all the global political noise, economies are actually doing perfectly well thank you. When economies do well and people feel flush, they don’t tend to buy gold – hence the falling gold price.
Instead, they buy fine wine and a variety of other luxury goods.
Fine wine investments success
Many people invest in fine wine as a store of wealth – similar to how they view gold. The difference is you don’t charge out and buy gold when you get your bonus. You buy jewellery – and you’d have to buy an unfeasible amount of jewellery for it to have any impact on the gold price.
This is not the case with wine. Wine is made to be drunk, obviously. But when times are hard and your belt straps are tight, you might think twice about buying a bottle of wine for £2,000 in a London restaurant. Perhaps this doesn’t hold true for residents of the Sunday Times Rich List who won’t let a few bob get between them and their favourite First Growth, but it does impact demand at the margin, and the margin is more important than most people realise.
So we continue to be sanguine about prospects for the fine wine investments market, particularly since seeing this month’s Liv-ex 50 price action. When markets get nervous, price declines give rise to uncertainty and eventual panic. When investors are more relaxed, they see declines as a buying opportunity.
The difficulty investors have is more psychological than anything; we’d all prefer markets to go up in a nice straight line. The problem is they never do. Logically, this is a great thing because declines give us the chance to buy more stock, but it’s as if we’d all rather pay more for it and constrict eventual returns in exchange for a better night’s sleep. Ho hum. The pleasures of risk and reward.
En primeur concerns
We are now into the famous En Primeur pricing phase and it’s perennially astonishing just how hard the producers seem to find all this. They have a better knowledge of their own fine wine investments market than anyone else, partly because they’re in a much better position to gauge how much potential supply is left in the market. After all, only they know exactly how much was released in the first place.
They also have intimate knowledge of the inherent quality of their wines – for even more blindingly obvious reasons. Their perfectly valid secondary market also lets them know at exactly what prices the marketplace values their back vintages. So how hard can all this be?
Investment bankers come in for a lot of stick, but if they had such information at their disposal every time they did an IPO, they’d be tickled pink.
Today’s Liv-ex market update contains an altogether extraordinary, but eminently credible, assertion. Château Montrose have such a hopeless handle on how much to charge for their 2016 vintage that they have issued the price – but no stock! What a devilishly cunning plan!
When the score shifts?
Whilst we monitor that situation, we note that the Cos D’Estournel demand seems to have taken off on the release of the Neal Martin’s score (98-100). That, at least, is the sales pitch being made by the various distributors. Of course, only they really know. The price was listed on 24th April; the Neal Martin score emerged on 28th. It is possible that the Parker protégé ignited demand for the Cost 2016, but it is equally possible that this traditionally slow-moving market simply took 4 days to mobilise.
This actually touches on a matter of great importance. Is the fine wine investments market ready to accord Neal Martin the position usually reserved for Robert Parker?
It’s early days, but this is something we need to be right on top of. Almost under the radar, Martin has been charging around re-scoring an awful lot of Bordeaux wines, in particular Montrose. Did you know that the glorious double top vintages of 2009 and 2010 now carry Wine Advocate scores of 98 and 99, subsequent to his tastings on 31st March this year?
That is nothing compared to the Montrose 2006. Parker thought it was worth 94+ but Neal Martin has just given it 87? That’s his question mark – not mine. At the end of February, he also downgraded Pontet Canet 2009 to 98 points. Lock up your daughters!
To downgrade
Now it is fair to say that historically, wine investment downgrades tend to have less impact than upgrades, for reasons we have not yet fathomed. I know this from bitter personal experience, having sold a Mouton 2003 for £3,300 in August 2014, when Parker changed it from 95+ to 91 – only to see it now merrily trade above £4,500. But all this may change as the market matures.
Since Parker’s withdrawal from Bordeaux, we’ve predicted that his extant 100 pointers may enjoy a certain additional scarcity value; there never being any more to come. This is another reason the Martin situation is worth watching. If the market place is quite happy with him filling the Parker shoes, not only will former 100 pointers not achieve scarcity value, but they may suffer as a result of such downgrades as have already been visited upon Montrose and Pontet Canet.
Watch this space.
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