Tag Archives: Fine Wine Investing

Fine Wine Investing – The London International Vintners Exchange

11/04/2013 Portland, Oregon – Pop in your mints…

For those of you who thought we had forgotten to complete our mini-series on Fine Wine Investing, we admit that we nearly did.  Between the excitement of Halloween and painstakingly formatting the print version of our Economic and Philosophical Treatise, a proper completion of the Fine Wine series nearly escaped the steel trap of our mind, until today!

Throughout this series, we have dabbled into a world that, for a time, appeared to be the playground of those with a penchant for refinement or those with enough money to appear refined.  After all, mustn’t one have an intimate knowledge of the Bordeaux region and at least have heard of Robert Parker;s nose before daring to invest in Fine Wines, an asset class which not only carries principal risk, but the risk of direct consumption?

Today, thanks to the world’s leading electronic exchange for fine wines, the Liv-ex, price discovery is now within grasp of the commoner.

The London International Vintners Exchange, or Liv-ex, is like COMEX for Fine Wine.  Since is was established in 1999, it has performed an important public service, as do all exchanges, it allows the commoner a peek into the most recently discovered price points for certain vintages, which can greatly aid them as they begin their adventure in Fine Wine Investing.

Understanding the Liv-ex is crucial to today’s serious Fine Wine Investor.  The following are excerpts from a recent report on the market.  Enjoy!

THE LIV-EX and the Financial Markets

Liv-Ex, London International Vintners Exchange, is the world’s one and only leading electronic exchange for fine wines, based in London, UK. Founded in 1999, Liv-Ex provides a marketplace and online platform for wine merchants, traders and brokers to trade wines freely and easily, just as it is done by equity stockbrokers.

Liv-Ex FEW Compared to other methods of fine wine procurement, such as auction houses, the main difference is that not everyone can trade on the Liv-Ex wine platform; only registered wine professionals/experts who have a proven track record in the industry are able to place bids (buy) and offers (sell) on the platform.

Only investment grade and blue-chip fine wines are traded on the Liv-Ex platform. Moreover, unlike auctions, no antique or collectible items are traded. Therefore, the majority of trades carried out on Liv-Ex are for French wines, usually from the highest rated vintages, mainly the more recent ones.

The Liv-Ex online wine platform also publishes its own price indices based on the amount of transactions made and has developed further into becoming the leading information source for fine wines; current prices, price fluctuations, historical stock data and the fine wine market in general.

Like any exchange, the Liv-ex has also produced a series of indices, which allow the casual observer to gauge the performance of the overall market for fine wines at a glance.  It is these indices that give us the  means to compare the Fine Wine Market’s performance with that of other major asset classes.  The results may surprise you.

The following are the Liv-Ex Fine Wine Indices:

• Liv-Ex Fine Wine 50 Index

• Liv-Ex Fine Wine 100 Index

• Liv-Ex Fine Claret Chip Index

• Liv-Ex Fine Wine Investables Index

• Liv-Ex Fine Wine 500 Index

The Liv-Ex 100 Index is the fine wine industry’s leading benchmark index and even listed on Bloomberg. It includes and represents the price movement of the 100 most sought after wines, for which there is a strong secondary market and is calculated on a monthly basis.

By looking at the trading history of the fine wine market in the last decade, one may notice FWI demonstrated excellent track record which is appealing to absolute return investors.

According to the Liv-ex, FWI has consistently delivered positive absolute return over every.  Next 5-year holding period since 2000. Figure 1 below also highlights that the average 5-year foreword performance since 2000 is as high as 111%!

While the returns on the Liv-ex 50 are compelling, they become even more compelling when considered within the context of other asset classes.  The report continues:

It is also worth to note that while comparing FWI with global equities, FWI generated significant outperformance to global equities over any 5-year investment horizon since 2000, with hit rate as high as 98%, as shown in figure 2 below.

FWI provides diversification benefits to global equities portfolio. Besides outperforming global equities, FWI also gives diversification benefits as the correlation of FWI to global equities is only 0.19.

Whilst the above suggest FWI is attractive, recent trend has been less encouraging. Not only has the correction of the FWI market started to drag down the recent returns and out performance, but the diversification benefits also seem to have been diminished.

 Like any market, the Fine Wine Market must be enjoyed in moderation, as out performance tends to attract attention which generally leads to…underperformance.

It is worth noting that the Fine Wine Market, while unique, has behaved similarly to that of Crude Oil over the past 10 years, as pointed out by this excerpt from a 2011 post in the Sizemore Letter:

From 1990 to 2010, the correlation between fine wine and crude oil returns was a staggering 90 percent!

What is the takeaway from all of this?  While Fine Wines now have an established exchange, corresponding price index, and are a nice way to diversify from equities, they may offer returns similar to other commodities.

In the end, returns are returns, and from a pure numbers standpoint, the higher the returns, the better.  From a semantic standpoint, it is much more fashionable to talk about one’s Fine Wine investments than crude oil in many social settings.  Given this criteria, the answer is clear:

Fine Wine trumps Texas Tea.

This concludes our brief yet informative jaunt into the world of Fine Wines.  Again, if you are interested in hearing more about Fine Wine investing, please email us at the address below.

After one last goblet, The Mint must carry on, for the Bitcoin has nearly doubled in price, and there is much to explore in the fine autumn that is upon us.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for November 4, 2013

Copper Price per Lb: $3.24
Oil Price per Barrel:  $94.62
Corn Price per Bushel:  $4.26
10 Yr US Treasury Bond:  2.60%
Mt Gox Bitcoin price in US:  $237.00
FED Target Rate:  0.07%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,315
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.2%
Inflation Rate (CPI):  0.2%
Dow Jones Industrial Average:  15,639
M1 Monetary Base:  $2,515,000,000,000
M2 Monetary Base:  $10,867,000,000,000

The Secret of Robert Parker’s Nose

10/14/2013 Portland, Oregon – Pop in your mints…

As the political fiasco en Washington continues, it is becoming clear that nearly any asset class that is not the US Dollar stands to benefit were the unthinkable to happen.  Here at The Mint, we have been investigating one of the more tasteful alternative investments:  Fine Wine.

Today, we continue by presenting to you a man whose nose literally moves the Market, Robert Parker.  Enjoy!

Tempranillo Photo credit: Mick StephensonROBERT PARKER “THE WARREN BUFFETT OF WINE”

Robert McDowell Parker Jr. is the world’s most influential wine critic. Born in Baltimore, Maryland (USA) on July 23rd, 1947, he continues to guide the fine wine industry with the tip of his nose, still going strong at the age of 66.

The Robert Parker Wine Rating System

The Robert Parker wine rating system (Parker Points) is a commonly used scoring system to rate fine wines. Although there are various, universally adopted rating methodologies, usually based on 20-point scales, Robert Parker’s 50-100 point scoring method has been very popular in the fine wine industry.

Robert M. Parker Jr. is undoubtedly the world’s most renowned wine critic. Since the late 70’s Robert Parker has been a prominent figure in the world of fine wine; his publication ‘The Wine Advocate’, an independent wine consumer guide, first published in 1979 draws a following of at least 50,000 subscribers to date.

Ever since the relatively new market of fine wine investment has taken off, wine connoisseurs, financial experts and investment brokers have been paying close attention to Robert Parker’s ‘million dollar nose’.

Robert Parker Jr. – the Million Dollar Nose due to the fact that Parker’s ratings have been known to significantly affect the value of wines and cause severe price fluctuations in the market, any investor in the fine wine industry should be well aware of Robert Parker’s opinions.

Robert Parker introduced his own wine rating system because he felt that critics often undervalued or overestimated a fine wine, mainly due to conflict of interest, for example the critic having a financial interest in the wine they are rating. Additionally, Parker felt that the commonly used 20-point system did not offer enough flexibility, and often resulted in unjustified, misaligned ratings. Therefore, Robert Parker’s 50-100 point quality scale (referred to as ‘Parker Points’) offers a widely accepted industry standard by which to gauge fine wine quality.

Robert Parker Wine Rating System

• 96 – 100

An extraordinary wine of profound and complex character displaying all the attributes expected of a classic wine of its variety. Wines of this calibre are worth a special effort to find, purchase, and consume.

• 90 – 95

An outstanding wine of exceptional complexity and character. In short, these are terrific wines.

• 80 – 89

A barely above average to very good wine displaying various degrees of finesse and flavour as well as character with no noticeable flaws.

• 70 – 79

An average wine with little distinction except that it is a soundly made. In essence, a straightforward, innocuous wine.

• 60 – 69

A below average wine containing noticeable deficiencies, such as excessive acidity and/or tannin, an absence of flavour, or possibly dirty aromas or flavours.

• 50 – 59

A wine deemed to be unacceptable.

Strange as it sounds, Mr. Parker’s nose can make or break a vintage in terms of market value.  He has risen to this status by breaking the mold in terms of rating Fine Wines.  What will be your great contribution to the world?  We encourage you to find and pursue it, for every calling, be in sniffing fine wines to pursuing monetary theory down uncharted paths, is a great contribution to the mosaic of life in which we move and breath.  Stay tuned for more information on Fine Wine Investing.  If you are interested in learning more about this asset class, please email us at the address below.

Stay tuned and Trust Jesus!

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for October 14, 2013

Copper Price per Lb: $3.27
Oil Price per Barrel:  $102.21
Corn Price per Bushel:  $4.37
10 Yr US Treasury Bond:  2.69%
Mt Gox Bitcoin price in US:  $146.24
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce:  $1,274
MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  7.3%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  15,301
M1 Monetary Base:  $2,689,400,000,000
M2 Monetary Base:  $10,790,700,000,000

 

Fine Wine Investing – Everything You Need to Know about Bordeaux

10/1/2013 Portland, Oregon – Pop in your mints….

Appellations, Banks, Gravel, and Clay all work together in the Southwestern region of France which has become legendary for its wine production:  Bordeaux

While the word Bordeaux may ring a bell, many of us would be hard pressed to hone in on specifics when it comes to selecting a fine wine investment from this or any other region for that matter.

Until now.

The following is a synopsis of the Bordeaux region and the fine wines that it produces.  Think of it as the Hitch Hiker’s Guide to the Galaxy of fine wines which fall under this prestigious umbrella.

THE BORDEAUX EFFECT AND THE VINTAGES SHE PRODUCES

Red Bordeaux (or “Claret” as the British have always known it) can be the epitome of fine wine. The best wines exhibit a wonderful complexity of aromas and flavours, great elegance and refinement and an ability to age gracefully – some for a hundred years.

Like all of France, quality wine production in Bordeaux is governed by a set of regulations known as “Appellation Contrôlée”, often abbreviated to “AC”. An AC covers a certain geographical district and governs production of wine within the district. The whole of the Bordeaux region is covered by a couple of catch-all, generic ACs: AC Bordeaux and AC Bordeaux Supérieur (the latter is higher in alcohol, but not necessarily better). An enormous quantity of inexpensive, “everyday” wine is made under these ACs. Though this is not the “great” Claret that all the fuss is about, it can provide very attractive, reliable drinking.

There are also many smaller, named areas, each entitled to its own AC: AC Fronsac, or AC Pomerol for example. These more specific ACs are usually superior to generic Bordeaux and have stricter regulations.

To the west of the river Gironde, the vineyards of the Médoc and Graves are based on gravelly soil and are planted mainly with Cabernet Sauvignon vines. To the east lie Pomerol and St-Emilion, two smaller areas of predominantly clay soil, planted with a higher proportion of Merlot. Hence we have “left bank” and “right bank” wines.

The wines from each area can have quite a different character because of the different soils and predominant grape variety. This also means that one is usually more successful than the other in any given year.

Bordeaux Grapes no matter where they are from, almost all red Bordeaux is blended wine: made from two or more grapes. Red wine grape varieties allowed in Bordeaux, in order of importance, are:

  • Cabernet Sauvignon,
  • Merlot
  • Cabernet Franc
  • Malbec
  • Petit Verdot

Bordeaux also produces considerable quantities of white wine. Grape varieties permitted are:

  • Sémillon
  • Sauvignon Blanc
  • Muscadelle.
Bordeaux Wine Regions
Map of Bordeaux Wine Regions created by Domenico-de-ga

Classic Bordeaux Regions – 

The Médoc

The Médoc is home to most of the great, classic Clarets. You will find wines labelled AC Médoc that are usually one step above basic Bordeaux, but the very best wines of the Médoc come from even more tightly defined ACs within the Médoc. The best of these individual ACs include:

  • AC Margaux,
  • AC St-Julien,
  • AC Pauillac
  • AC St-Estèphe.

This region is dominated by large wine-making estates, known as châteaux. Whilst many of these do indeed have a château as their HQ, others have nothing more than the vineyards and a collection of ordinary working buildings. Unlike many producers from other parts of the world, each château tends to produce only one “grand vin” which carries its name. Some of them also make a white wine, and many make a second wine, from vats not considered good enough for the “grand vin”.

Each of the top ACs of the Médoc has its own character:

  • Margaux is home to the most perfumed, elegant and “feminine” wines
  • Pauillac three 1ers Crus. Classic, powerful yet elegant wines
  • St-Julien the epitome of Claret: savoury, well-balanced and refined
  • St-Estèphe wines are structured, tannic, long-lasting, “masculine” wines.

In 1855 Médoc wines were classified. From the many thousands of wines produced in the area, just sixty were thought worthy of classification. These sixty were sorted into five ranks or, in French, “Crus” (meaning “growths”), i.e. “Premier Cru” (first growth), “Deuxième Cru” (second growth) and so on.

There are only five top ranking, Premier Cru wines:

  • Château Lafite-Rothschild
  • Château Latour
  • Château Margaux
  • Château Haut-Brion (actually in Graves)
  • Château Mouton-Rothschild.

All classed growth wines command very high prices, many of these, particularly the Premiers Crus, are bought by investors all across the world. To this day the classification remains more-or-less unchanged and many of the original classified châteaux are still producing some of the world’s greatest wines. Of course strong arguments could be made for promotions and relegations within the classification. A group of wines known as the “super seconds” are generally acknowledged to be Premiers Crus in all but name, and a few of the original châteaux have either gone or have lost their reputation. However, apart from some obvious anomalies, it is remarkable how the bulk of the classification holds up, even after 150 years.

The Médoc Crus Bourgeois

Just below these classed growth superstars of Bordeaux are a host of wines known as the “Crus Bourgeois”. Many fine wines can be found within this classification – some are worthy of classed growth status, yet are available at a fraction of the price. I have found properties such as Chasse-Spleen, Meyney, Coufran and d’Angludet to be consistently good. However, in 2006 a court case found that the classification of the Crus Bourgeois was illegal, and pending a restructuring which means wines will have to be independently assessed for inclusion each vintage, the whole classification was temporarily suspended.

Graves 

Graves lies to the south of the city of Bordeaux. This region produces both red and dry white wines on the very gravelly soils after which the region is named. The red wines tend to express a soft, earthy quality. Like the Médoc this region was also classified, but not until 1959. Only a couple of dozen châteaux are entitled to the words “Grand Cru” on their label. The best vineyard sites of the Graves are clustered in the North of the region. That is where almost all the Grands Crus are situated. In 1987, this area was given a brand new AC of its very own: Pessac-Léognan. Wines bearing these words on their label should be of higher quality than most Graves. The undoubted super-star of the area is Château Haut-Brion. As noted earlier, this property was actually declared a Premier Cru in the 1855 classification of the Médoc due to its exceptional quality. Uniquely, it is allowed to have both classifications on its label: Médoc Premier Cru and Graves Grand Cru. Its sister property, La Mission Haut-Brion, is also capable of the highest quality.

St-Emilion 

Although the area is quite large, the properties here tend to be much smaller and less grand, and the wines (exclusively red) are very different. The soil is clay and limestone rather than gravel, and the dominant grape variety is not Cabernet Sauvignon, but the softer Merlot and Cabernet Franc. The wines tend to be approachable at a younger age and to have a warm-blooded fruitiness. It is an area that requires a little bit of caution because of its classification system. St-Emilion wines are divided into 5 classifications. In ascending order, these are:

  • St-Emilion
  • St-Emilion Grand Cru
  • St-Emilion Grand Cru Classé
  • St-Emilion Premier Grand Cru Classé “B”
  • St-Emilion Premier Grand Cru Classé “A”.

Pomerol

Pomerol is by far the smallest of the great regions. It has 2 basic constituents that determine the character of its wines: the soil is thick, heavy clay and one grape variety dominates: Merlot. Pomerol wines are extremely soft, seductive and full of spice and vivid fruit. The production tends to be tiny in the area, so the wines are generally expensive. Indeed, Pomerol is home to some of the world’s most expensive wines such as Châteaux Pétrus and Le Pin, the latter producing little more than 500 cases each year. You will rarely see these wines in shops as they are snapped up years in advance of production. Look for more reasonably priced wines such as Petit-Village, Le Bon Pasteur and Clos René. The wines of Pomerol have never been classified.

Sauternes and Barsac

The Bordeaux area also produces world class white wines, though invariably in tiny quantities. The most famous of these are the sweet wines of Sauternes and Barsac, including the almost legendary Château d’Yquem. These luscious wines (also classified in 1855) are created by a particular and unpredictable fungus, called botrytis. Botrytis rots the grapes, leaving them high in sugar and glycerine which leads to their eventual silky, honeyed sweetness. The best dry white wines come from the Graves area. Though often of tremendous quality, these tend to be scarce and the famous names are very expensive.

The minor regions

From the inexpensive, soft, fruity and delicious wines of the Premières Côtes de Blaye in the north of the Bordeaux region, to the moderately-priced structured, tannic and impressive clarets of Fronsac or Lalande de Pomerol, the “lesser” red wines of Bordeaux are not to be despised. Whilst the finesse and breeding of the top classed growths might be missing, the red wines of the region are generally very reliable and well made.

The dry whites of the region, from areas like Entre-Deux-Mers or simple AC Bordeaux can produce refreshing, zippy, occasionally slightly tart wines for drinking young. Areas around Sauternes, like Sainte-Croix-du-Mont or Loupiac which lie just across the Gironde, also produce sweet, sometimes botrytis affected wines that can be very good and are moderately priced. Rosé is also produced in the Bordeaux region, often from the Cabernet Sauvignon. It can be delicious stuff with bright, supple fruit and refreshing acidity.

Indeed, the Bordeaux Region and its Appellations are the epicenter of Fine Wine investment.  A basic understanding of the region and the wines that are produced there, which we hope you have gained by reading the above information, is absolutely crucial for anyone who wishes to dabble in fine wine for investment purposes.

If you or any of your clients would like more information on fine wine investments, simply email us at: davidminteconomics@gmail.com with the word “WINE” in the subject line.

More to come on the Fine Wine Market.

Stay Fresh!

Investing in Fine Wines has Never been Easier

Fine wines have always commanded a premium on restaurant menus, but have you ever stopped to consider the other side of the trade on a romantic dining experience?

Tempranillo Photo credit: Mick Stephenson
Tempranillo Photo credit: Mick Stephenson

Fine Wine Investing

Today we begin a short series on investing in Fine Wine.  Fine Wines as an investment opportunity may sound like something that well heeled folks with large estates and walk in wine cellars are equipped to dabble in.  However, as with many things the rich do, they tend to do it because there is money in it.

The market for Fine Wines is remarkably stable and refreshingly uncorrelated with other asset classes, which is why the rich, apart from bragging rights, have no qualms about storing a portion of their nest egg in corked glass bottles.

Today, the stability and out sized price gains in the Fine Wine market are available to almost anyone willing to invest.  The best part is, you don’t even need to build a wine cellar or worry about your retirement account spilling in an unfortunate accident or being accidentally enjoyed at a candlelight dinner at home.  You can now invest in Fine Wines as you would any other asset class, via the internet.

You still own the wine, naturally, you just don’t need to deal with the hassle of transport and storage.  All you need is a minimum investment of 5,000 British pounds and a bit of information.

If you would like more information on this investment opportunity, which is available through one of our partners, simply email us at: davidminteconomics@gmail.com with the word “WINE” in the subject line.

For the moment, we present the following information as a brief overview of the market of Fine Wines.  While it should go without saying, we present the following information as a general overview and cannot and will not comment upon whether or not Fine Wines are appropriate for each individual’s investment situation, this is a decision that must be made by the individual.  However, if you or someone you know determines that Fine Wine investing is agreeable to their taste, we will gladly facilitate the transaction.

Enjoy!

WINE MARKET ORIGINS

From its origins as an exotic drink, wine has become a long standing commodity, with a lineage that dates back to the Greek empire and beginning of trade in 1600 BC. The ancient Greeks carried wine throughout the Mediterranean coast, with Europe leading the way in consumption, production and movement. A major transformation occurred when Napoleon III requested a classification of best Bordeaux wines in France in the year 1855. Following this, wines were classified on a recognised price-based ranking, leading to the grading of the world’s finest wines.

PRESENT DAY INVESTMENT AND MARKET PERFORMANCE

The traditional notion that wine investment is about buying two cases of young wine so that, after a period of maturation, you drink one case and sell the other to finance both may have a certain romantic appeal.

As an investment philosophy, though, it is heavily discounted by today’s serious investor. Investment is all about risk and good investment choices are made when the exposure to risk is clearly understood.

Fine wines has been one of the strongest areas for investment in recent years What may surprise many is that an investment in fine wine has consistently been a low risk investment opportunity compared to oil, the FTSE 100 and even gold. Combined with strong absolute performance and low correlation to other assets, that has led wine to find a home in many serious investment portfolios.

Those interested in accessing the fine wine market have more options available to them than ever before with a range of tax-efficient structures available. The timing looks opportune too: prices came off significantly in 2011, leaving the possibility of a substantial upturn in the medium term, and inflationary fears are enhancing the attractiveness of physical assets.

There is very little correlation between financial markets and fine wine prices. For example, whilst many stocks, shares and markets crashed during the financial crisis of 2008, most wines continued to significantly appreciate in value. Whilst wine prices are not always free of volatility, the market tends to be far more resilient than many traditional investments that investors go for. The reasoning behind this is actually very simple. Fine wine is a completely tangible asset, a luxury product in which supply is always exceeded by demand. As a particular vintage wine is consumed, more of that wine cannot be produced, so the wine appreciates in value.

Fine wines frequently outperform share indices, for example between May 2010 and May 2011, whilst the FTSE 100 appreciated by 15.6%, the fine wine index increased by a considerably higher 21.1%. The Live-Ex 100 Fine Wine Index is the industry’s main performance benchmark, and represents the price movement of the 100 most sought-after fine wines. The price index is calculated on a monthly basis, with the vast majority being Bordeaux wines. Over the last 25 years the very best wines have appreciated by 15-25% per annum, a staggering return on investment very difficult to find anywhere else without very high risks.

THE FINE WINE MARKET AND SUPPLY AND DEMAND

It is the underlying supply and demand characteristics of wine which make it attractive as an investment proposition. On the supply side, Bordeaux (considered by many to produce the only investment grade wine) is a finite geographical area in France with an essentially fixed number of wine producers (châteaux). The initial supply of wine is therefore finite, and over time can only fall as bottles of the wine are consumed.

Meanwhile demand tends to rise, for two reasons. First, the quality of the wine improves over time as it matures, making it more attractive to drink. Second, global demand continues to rise as new markets for the wine open up. In the last 25 years alone we have seen Japan, Russia, Korea and China ‘discover’ fine wine and consume it in large quantities, with countries such as India and South America yet to come ‘on stream.’

Intrigued?  More to come on this interesting and exciting opportunity.

Stay Fresh!