May the Forts be with you
10.04.2018 – Fine Wine Investments –
Our recent series of articles depicting the performance of wines both favoured and otherwise by the algorithm since the market rallied at the end of November 2015 has proved very popular. Before moving on to other things this week, we’ll answer a question that has come up regularly, concerning the Second wines.
Second fine wine investments
This sector is interesting because pricing doesn’t appear to follow the same dynamics as other areas of the market. A First Growth or Super Second off-vintage, for example, will cost considerably less than an on-vintage. Most people who claim to know anything about wine will be interested in vintage. This isn’t just wine-snobbery – though much else is.
The quality of vintage is considered a key determinant in the ultimate quality of a wine. You’ll occasionally find superior scoring wines costing less than other wines from the same producers, simply because they come from inferior vintages.
The pricing of Second wines, however, is much more homogenous. Nine of the last 10 physical wines from Petit Mouton range in price only from £2,100 to £2,300, with the 10th being something of an outlier. The Robert Parker scores span 93 to 87, with the pricey 2007 being a lowly 88.
In such a world, could the algorithm have helped engineer outperformance at all?
Backdating the algorithm
Leaving aside Forts de Latour (for a reason we’ll discuss later), let’s look first at Petit Mouton. We’ve input the scores from 1st December 2015 into the current algorithmic variables, to see what would have been thrown up as top buys and sells at that date, and then compared them with the actual performance since then.
Top buys for Petit Mouton were 2009, 2010 and 2014 (then available en primeur), whilst the top sells were 2001, 2003 and 2007. Since then, the ‘buys’ have risen by an average 97%, whilst the ‘sells’ average around 46%. Of course, 46% looks like a perfectly decent performance, but that’s not the point at issue here. What we are aiming for is maximum potential return, and the ‘buys’ have outperformed the ‘sells’ by an astonishing 110%.
Fine wine investments: buy or sell?
The more interesting thing to note in this case is that one of the sells would have been the above mentioned ‘outlier’ from 2007. At its unusually high price of £2,400, it rose a substantial 105%. And yet even with this kicker, the ‘sells group’ still performed. Imagine the underperformance had it not been quite such an outlier!
Carruades de Lafite tells a similar story, even with the ‘buy’ vintages. In this case, the average rise of 2009, 2010 and 2014 is an even more impressive 113%. The ‘sells’ differ, in that the bottom three were 2002, 2004 and 2007, with their average rise being 50%. Not to be sniffed at, perhaps, but an even greater underperformance of 126%.
We’re getting used to reappearing vintages in this study and Pavillon Rouge doesn’t disappoint, even if the outperformance does, at a paltry 40%. The trio of ‘buys’ is the same, but for Pavillon Rouge, on the ‘sell’ side, the ubiquitous 2007 is now joined by the 2000 and 2002.
We can say with some degree of confidence, as a result of this analysis, that the algorithm would have been very useful at identifying exactly which wines to buy at the start of the rally. Not only that, but in most cases the degree of outperformance is really significant, which suggests that it has considerable wine investment value.
Forts de Latour
I mentioned that we would return to Forts de Latour. We at Amphora think the market finds the Latour stable a bit of a challenge, but it is replete nonetheless with opportunity. Latour pulled out of the en primeur game after the 2011 release, and we are happy to discuss this in detail – should anyone be interested.
Suffice for the moment to say that the Château stores the wine by itself, releasing to the market when it thinks the wine is ready for consumption.
What it also does is, seemingly randomly, release stock later in the drinking window, at a premium to the going-rate. This is a practice we’ve been critical of at various times in the past. The suggestion that you should invest in fine wine with these ex-Château releases doesn’t seem to have been a winning strategy thus far, and, in our view, they’ve simply helped to cloud the wine investment picture.
In light of this, it may not come as too much of a surprise that, over the last 20 months or so, the algorithmic ‘sells’ for Forts de Latour have done just as well as the algorithmic ‘buys’. We would however contend that far from invalidating the analysis, this reinforces the current opportunities. Ultimately, value will out.
Today’s best wine investments
It is very unusual for a Second wine to score in the high 90s, the typical range being between 88 and 92. In 2010, undeniably a fabulous vintage, Forts blew the lights out with a 97, the highest score ever achieved by the Second wine of any First Growth producer. This wine is available more inexpensively than the 2000, 2001, 2003, 2005 and 2008, all of which are inferior efforts.
Latour is undoubtedly doing something with its Second wine which the other First Growths are struggling to match.
We’ll look more into this in the coming weeks. But for the moment we recommend you buy Forts de Latour 2010.