One of my great passions, besides investing in stocks is buying and drinking fine and rare wines. I’ve been doing it for nearly ten years. While I’m not an expert, I’ve built up a solid knowledge base. I’ve made many mistakes and learned from them. And I’ve put in place a good network of suppliers, brokers for reselling wines, storage providers, and so on.
Collectible, or investible wine is a unique asset class, which as long as your wines are properly stored, in the right climactic conditions, should never go to zero. Worst-case scenario, if the prices drop, you just drink them and enjoy them.
Fine wine also has the unique characteristic that, as it ages, it becomes better and more desirable, so the demand rises; but at the same time, as it is drunk and consumed over time, the supply shrinks. Rising demand and falling supply are a recipe for much higher prices in the long term.
There are wines from 1945 (Mouton) or 1947 (Cheval Blanc) in Bordeaux, France, which are still drinking perfectly and today command prices in the tens of thousands of dollars per bottle.
Obviously, those are freaks of nature. But I have had the great pleasure of enjoying many wines from 1982, including the legendary Mouton Rothschild from that famous vintage, in recent years, and I can tell you, they are every bit as good as the hype says they are.
There will always be demand from those people who have the means to indulge in fine wines. They never go out of fashion.
So, even if you pay standard market prices for your wines, assuming you are patient and hold onto them for a long time to allow market forces to work, you will almost certainly be rewarded with a return that keeps up with, or beats inflation.
Odd as it may seem, I therefore view my wines as a capital preservation tool in many respects. Unlike cash in the bank, it’s one that I have complete control over. Wine that I have selected and purchased, sitting in a storage facility of my choosing, under my full control, sure beats money sitting in a bank on time deposit, where you have no clue what the bank is doing with your money.
But the reason I’m buying wines for my collection right now is that the value proposition this year for wines from from Bordeaux in France (2019 vintage En Primeur futures) is better than it has been in more than a decade.
I feel I am buying at a discounted price this year, not just at the long-run average price. So, I might do even better than normal on these wines, if I hold them long term.
Due to the pandemic-related economic crash, the owners of the famous Bordeaux Chateaux have recognized that only by drastically dropping their prices temporarily will they sell their wines in any quantity this year.
And so, the 2019 Bordeaux vintage, which by all accounts was a very high-quality year and is currently maturing in barrel at the chateaux, is throwing up some of the best bargains that I’ve seen in a very long time.
Don’t get me wrong, the collectible and investible wines from Bordeaux are never cheap in absolute terms. You’ll always pay hundreds of dollars per bottle, and sometimes thousands, for the best names.
But this year they are cheap relative to recent history. And that’s brought out the value hunter in me.
So, it’s with some excitement I can report that 2019 Bordeaux wines fit the bill.
For good value drinking wines, you might check out Branaire-Ducru, or Domaine de Chevalier.
Or, for something you’re unlikely to have heard of, which I’ve bought for everyday drinking myself when it matures in 5 or 10 years, you could contact one of my good suppliers Alex Cox at Farthinghoe and see if he’s still got some Chateau Pedesclaux. He highly recommends it this year.
I have also bought some of the pricier, First Growth and Grand Cru Classe A wines, such as Cheval Blanc, Mouton Rothschild, and Haut Brion for investment purposes. Two of the suppliers I use are IG Wines (ask for Jonathan Dart) and Grand Vin Wine Merchants (ask for Martin Lea).
Prices are down as much as 30%+ from last year. The vintage is as good, or maybe even better. So, in my book, it qualifies as a no-brainer.
If you consider Mouton Rothschild, one of the five, famous Left Bank “First Growths” in Bordeaux, for example, its superb 2009 and 2010 vintages are currently selling for around 5,400 British pounds per case of 12 bottles. But I just bought the 2019 vintage – which is in the same league – for 3,588 pounds per 12 bottles.
I think the 2019 vintage might be every bit as good as 2009 and 2010. The critics who have scored the wine so far are certainly singing from that song sheet. So, all else equal, you’d be looking about a 1.5x pop in your money over the next 10 years – with a view to selling in 2030 at 5,400 per case, versus 3,588 now.
But the market may do way better than that, too. The 2010 vintage has traded over 7,000 pounds per case of 12 bottles at times. No reason the 2019 couldn’t do the same.
However keep in mind wine pays no dividends and actually costs money to store professionally and insure. I pay about one pound per bottle per year (+VAT in the UK), for insurance at replacement cost, and storage with a company called Private Reserves.
So, if holding a case of 12 bottles for 10 years, there’s approximately 120 pounds in storage costs. And that does not include the VAT slug on top. So, it’s more like 150 pounds.
Then, there will be a brokerage charge when you sell. Wine is like real estate. Brokers get paid a lot. Some brokers still charge 10%!
But if you have a more obscure wine in your collection, selling through a broker is sometimes your only choice. And much as I grimace at the costs, I still do better selling through a broker most of the time. They have other clients who they know love particular wines, and they are able to achieve better prices than I can myself.
These platforms still charge much higher commissions than what you will be used to on stocks, for example. But they are cheaper than the brokers. Cavex, for example takes 3% from the seller and 3% from the buyer.
There is also a platform in Hong Kong called Wine Word Xplorer that’s worth checking out, but I have not used it yet. Then there is a company called B.I. in the UK that actually makes markets in the most widely traded wines and will guarantee a price you can immediately sell to them at for instant cash.
This article is only intended as a brief introduction to fine wines, and a “heads up” that, for anyone looking to enter the market, 2020 might be a good year to dip your toe in the water on the 2019 Bordeaux vintage.
I can talk for hours about wines and wine collecting. But I know it’s not everyone’s cup of tea. So, I’ll leave it there for now. If you are interested in exploring the topic yourself or picking my brains on it, please get in touch.
Until next time,