Non sens or nonsense?

It's far from their greatest label, but who would want 1987 Mouton?

It’s far from their greatest label, but who would want 1987 Mouton?

An interesting new study on wine investment is introduced in this month’s unusually compelling Decanter magazine (August 2014).

A new, very serious (and complex) work by three leading academics entitled, “Wine Prices” follows and analyses the evolution and effects on price, and a rather nebulous “multi-definition” of value, by following the five first growths from 1899 to 2012. Mouton’s pre- 1973 status not withstanding.

Be warned there are a lot of complicated formulae and algorithms, or at least what I think they are algorithms (if I actually knew what one was). More generally, the simplified introduction gives you an accessible overview of what they are doing and trying to say. It makes an interesting counterpoint to the regular bulletins that London’s Liv-Ex send out, albeit because their focus is on a much more  extended period,. See Liv-Ex’s market bulletin of yesterday:

 

 22/07/2014

Back to a chart that we have run on several occasions this year – and one that you can run anytime you wish by using the charting tool. The LX50 vs LX1000. Or put another way, the performance of the First Growths against the performance of the broader market, including Burgundy, Italy, Champagne, Rhone and the New World. Over six months, one year, two years and five years the Firsts have under-performed the broader market. Indeed, over five years they have only returned 20% to the collector. Better than cash perhaps, but well behind the previous five years of 135%. We have not been running the index for long enough to give you a long term average return, but if theLiv-ex Investables (since 1988) can be used as a guide, the number lies somewhere between the two, suggesting the Firsts are now running below their long term potential.

So over the period, wine has returned an average of 4.1% per annum to investors, higher than gilts, art and stamps but not, very importantly, equities. Liv-Ex’s 20% return over the last five years would reflect then the huge creation of new wealth and the rapid development of wine as an investment vehicle from a rather secret niche investment into the mainstream. (See There, but by the grace of God, go I for further thoughts on that and Liv-Ex’s piece on the ever so cute -and now perhaps ill considered – SWAG investment acronym.

There is also the very strong premise that wine investment, per se, is a relatively new phenomenon at least in a macro sense. A small group of knowledgeable people used it in the past, but largely either to finance their own own consumption (ie. buy two, sell one, keep one for free), to take advantage over  Capital Gains Tax or both. However, for the major part, I suggest, First Growth purchases would have been for personal epicurean gratification and nothing more. Their investment goal was nil.

However, what I do find contentious, nay ludicrous, in Decanter’s comments and in a wider sense in the report, is the assertion that lesser vintages catch up with greater vintages over the long term in terms of price and “value”. Firstly “value”; although a misguided or obsessive”collector” might pay a premium for a case of, say, 1931 Latour to “complete the set” of his vertical collection, this kind of purchase would be extremely rare and more akin to stamp collecting than wine in an epicurean or pecuniary asset.

Their multi-interpretation of the idea of “value” as both pecuniary and self-satisfying seems extremely self-serving.

Secondly in terms of pecuniary gains, in a relative terms (and this is why wine is considered a diminishing asset and thus escapes Capital Gains Tax) a wine’s drinkability diminishes over time, and so its hedonistic potential fades to nothing. Great vintages’ investment potential declines rather than offering real gains for the weaker ones. The only reason for gains in either greater or lesser vintages becomes the rather empty value of “rarity” for rarity’s sake. In reality both great and poor vintages will coalesce at a point of undrinkability.

Apart from a few anally retentive obsessives who really wants a case, or bottle of phenomenally terrible wine in their cellar?

I just don’t buy it (sic).

About matthewhayesbrognon

Wine Merchant
This entry was posted in VF - Pour encourager les autres. Bookmark the permalink.

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