Monday, 4 July 2011

Wine Investment - The Complete Novice Way - 1 year on

Hello all,

A while back I wrote about our Wine Investment so I thought it was time for an update on how things are going, with it being a year since we made our purchases. Oh and please read the disclaimer below!

*Disclaimer* - you really should seek sound, professional financial advice before investing. Investments can go down as well as up. This is not a recommendation to invest all that you have in wine, it is purely our story!

As I said, D and myself are saving for a house deposit and with the pathetic rates offered by savings accounts at the moment, we opted to invest in wine. As complete novices, it was a bit daunting, but we read around the subject a lot and decided to go for it. Our goal was simple: make as much interest as we can over the next 5 years and try to beat the best ISA or Bond we could find. I think the best one we found was a 6% bond with 5-year lock-in of capital.

What did we get?
The 2009 vintage was expensive, but hailed as the "vintage of a lifetime" and "not to be missed". We were advised by Berry Bros to concentrate only on the 2009s as they would be the ones with the most re-sale potential in a few years, given the outstanding vintage. However, I didn't fancy the risk of putting it all into one vintage, "What if the 2010 vintage, or the next, or the one after that is better than 2009" were my thoughts at the time, and luckily, spurred-on by some cracking advice from Bordeaux Index, I decided to get a few back-vintages. The rest we did spend on 2009s. As luck would have it, the 2009s haven't really returned anything over a year but those back vintages...Wow, I wish I'd put the whole lot into them! Anyway, here's what we bought and what they would cost now to buy...

Ch. Pontet Canet 2009: Purchase Price (PP) then £1150, PP now £1300.
Ch. Lynch Bages 2009: PP then £1040, PP now £1250 (we also bought another 6-bottles in the first tranche from Berry's at a much cheaper £432!).
Ch. Montrose 2009: PP then £1350, PP now £1600.
Ch. Sociando Mallet 2009: PP then £315, PP now £330.
Ch. Mouton Rothschild 2002: PP then £2900, PP now £4000.
Ch. Pontet Canet 2003: PP then £600, PP now £1030.

So how well have we done?
The 2009s have increased by about 20% on average in a year. A fine return you may think, but, if we were to sell them back to the merchant we would probably be charged about 20% commission, wiping out any return. Also, the prices have remained flat almost since this time last year. Were they released at too high a price? Who knows...But, all is not lost. I think there will be a price movement next summer when the wines get shipped and become physically-available rather than lying in a barrel at the Chateau. Hopefully, this will stimulate some trading.

Well, the positive note comes from the back vintages. Pontet Canet 2003 (Parker score = 95) has been a stellar performer. Even at the merchant buy-back price of £850 it has returned nigh-on 42% in one year!!! If I'd had the presence of mind (or a crystal ball) to invest everything in this wine I'd now be a happy bunny! I'm not aware of any other investment with similar risk profiles that has done that well this year! The First Growth; Mouton 2002 (Parker score = 94) has also performed well, returning nearly 21% at the buy-back price of £3500. This proves that the high prices of the 2009s (and now 2010, but more on that below...) has had a great effect on the resurgence of the back vintage, and not necessarily the best ones. 2002 and 2003 are far outshone by 2000 and 2005 but have performed significantly better in terms of Return on Investment. If you were lucky enough to hold some of these, plus the 2004/2006 vintages then you will have made a killing lately!

So, after one year, if we were to sell up now, we would probably make about 21% return. Beat that you crappy 3% ISA! However, we're in it for the 5 year term (at least) so we won't be selling anytime soon, unless of course, the bottom falls out of the market and prices head South!

So what about this year? 
Well, this year (2010), funnily enough, was another "Vintage of a lifetime! Not to be missed! But different to 2009, more classic!". That left many people asking "How the hell...?" and whether it is climatic coincidence or sales rhetoric, there's no doubt that the critics really rate this vintage. Comparisons with 2005 are abound and contrasts and similarities are drawn against the 2009s. Release prices for the majority of chateau actually rose in 2010 (with the exception of only a few) despite the huge prices of last year. With release prices higher than any available vintage of the last 10 years (with the possible exception of the 2000 millennium vintage) it's hard to see how any short term returns can be had. Many exceeded even the high-estimate release prices of many merchants.
Did we buy any? Yes, but only one case; Ch. Pontet Canet 2010 - luckily on the first tranche (ish) for £1200. Was that a good idea? In all honesty, I don't know. The last tranche price quickly rose to £1395 but has now dropped back to about £1320 due to lack of demand. What's slightly worrying is that our merchant still has a load of the 2009 unsold and lots of the 2010 too. Is demand waning, or is the price too high? Only time will tell, I guess.

Any advice?
To anybody looking to get in now? Value is hard to find now. I would be very careful. Back vintages are catching up fast with consumers buying the (now) "underpriced" wines of 1996/2001/2004/2006. But, these may be approaching their peak. Even the once very expensive 2005 looks underpriced compared with the last two years.  If I were getting into it this year I'd have a much tougher time of picking the right wines. If all else fails then follow the sage advice of wine investment: If you've got plenty of dough then First Growths are probably a good bet. Historically they've always done well. The Chinese demand for Lafite is insatiable, and although there are signs of demand slowing, prices will probably going to continue to rise. For those of us not on City Bankers' salaries - "super seconds" and other "Blue-Chip" wines are a better bet, but the prices for these are also approaching stratoshperic. Cos, Palmer, Pontet Canet, Lynch Bages, Beychevelle, Pichons, Leovilles, etc - the usual crowd. With my personal affinity for Pontet Canet, I'd say there might be some mileage in the 2006, rated at half a point above the 2003 (at 95+) and about £200 cheaper, but on the move upwards! But hey, it's a gamble. Get good advice from a reputable merchant before buying anything and remember to sprinkle a little healthy skepticism on everything they try to sell you too!

So what does the future hold...?
Luckily we got in at a good time. We have a decent enough return to see us over the next year. However, I'm not selling my 2009s yet and we have several years to go (four, at the very minimum). It will be nice to see a rise next summer when the wines get shipped and become physically-available. Hopefully, Robert Parker will be kind in his re-scoring and things should take a turn for the positive. With regards to the 2002/2003 bottles we hold - I think I'll keep a keen eye on them. If there are signs of a negative slope perhaps it would be prudent to sell, but history says to hold onto them - in general, value goes up with time.

If you're thinking of taking the plunge - good luck

As always, speak to you soon!



1 comment:

  1. If you are buying for investment, maybe you guys ought to consider Ch Rieussec 2010 for en primeur; is offering it at £315 per case 12x75cl whereas BBR is offering it at the equivalent of £480 per case 12x75cl. BBR is a fantastic merchant, but its worth looking at other merchants for better deals, there is value to be had looking around.