Does Vintage Really Count for Fine Wine Investments?
Eagle-eyed readers of last week’s post have pointed out that you can ‘throw a blanket’ over the prices of five quite different Petit Moutons, and are wondering what exactly this means for a tactical approach to the market. Does it mean, for example, that considerations of quality are irrelevant and that all wines eventually polarise to the same spot?
Further to this particular discussion, the Liv-ex recently highlighted that activity in Australian wines has broadened somewhat. But the article also illustrated some interesting price performance over the last year for a range of Penfolds vintages. Over the last year, the 98-point 2002 has moved from £3,300 to £4,442, whilst the 98-point 2006 is stuck at £3,200.
So what’s up?
What does this mean for fine wine investments?
These situations remind us that the fine wine investments market remains in its infancy. In mainstream markets, by contrast, almost all inefficiency is arbitraged away. The principle behind this is quite simple: if two things look alike, and indeed to all intents and purposes are alike, they should be pretty much priced the same.
The fine wine market will move in this direction, but only when sufficient people spend sufficient money on the tools to enable them to understand where the arbitrage opportunities lie. Over time, this will happen, despite the wailing and gnashing of teeth from people who would prefer the market to stay in the Dark Ages.
In the meantime…
Happily for us, we have our fine wine investments algorithm, which helps inform our decisions on what to buy and sell. Nonetheless, as we’ve pointed out many times in the past, you have to be alert to opportunities, regardless of what Liv-ex says about the liquidity and breadth of Australian wines, since illiquidity tends to equal volatility.
Though its Insight points out how the 2007 vintage outperformed, the last trades on the Liv-ex platform were in 2015.
What this means is that you have to be opportunistic and patient at the same time: opportunistic enough to take advantage as stock you are interested in comes along, and patient enough to be able to sell over time at the price you want. So what might we be interested in right now?
Today’s fine wine investments vintages
In recent years, 2010 is the stand-out vintage of the Barossa Valley, scoring an excellent 96 points. I mention this because overall vintage quality does count.
In 2008, Penfolds Grange produced a wine to which Lisa Perrotti-Brown has successively awarded 100 points (in tastings in 2013 and 2014), but which has since demonstrated more sluggish price inflation.
The 2008 vintage score is a lowly 85. The evidence shows that producers don’t get awarded premium prices for producing brilliant wine in an indifferent year.
We all know this anecdotally, I believe. In reality, this trend isn’t difficult to believe. How often do you hear people say ‘Well, I know the vintage was poor, but isn’t this wine fantastic?’ It’s probably fair to suggest that consumers are more conditioned by vintage than anything else, and ultimately it is the consumer that sets the price.
It may sound banal, but it’s possible that Penfolds Grange 2010 will eventually benefit from being produced in a year which seems to have been spectacular worldwide. Given the climatic complexity that goes into the creation of a good vintage, it is quite remarkable that regions as diverse as France, Italy, Spain, California and Australia should all have been so blessed in 2010.
This leads us back to Petit Mouton. As we noticed last week, an indifferent vintage like 2011 can cost more than a great vintage like 2010. This is actually sufficiently bizarre as to be unsustainable. The Pauillac vintage scores for 2010 and 2011 respectively were 98 and 88, an enormous difference. The individual wines scores were 93 and 87 respectively. Go figure.
What has happened with the group of Petit Moutons in the current phase is that, temporarily in our view, buyers have lost sight of the fundamentals. Even in mainstream markets, this happens quite regularly.
We all remember Alan Greenspan’s ‘irrational exuberance’ worries back in the 90s, and there are plenty of commentators and strategists around in equity markets today who think it’s all a bubble.
A couple of weeks ago, we argued that many investors seem to believe things which are actually wrong. It is equally true that there are times when it is possible to know that the market has got it wrong.
We’re quite aware that the dear old market can go on ‘getting it wrong’ for longer than investors can stay solvent. That’s why a short trade is so much riskier than a long trade – so we have to be careful how we tread.
We believe the market has got it wrong at present. The evidence:
London wine investment
If you’re involved in the fine wine investments market, you’re likely already aware of the complex factors that influence the price of wine. If you think, as we do, that the market has further to run, then buying a few cases of Petit Mouton 2010 from your favourite London wine investment specialists seems a decent way to play it.