Month: January 2016

Wine investing and trading I: the Market

Investing and trading in wine can be a joyful or painful experience. Joyful if you have made a super 300% return upon liquidating a wine which you have held for 5 years or you are making healthy margins at a high turnover rate. Painful if you are shifting some wines very slowly at slim margins or you only just break even upon liquidating some wine which you have held for a while. By the time you factor in storage costs, inflation, logistics, FTSE-index matching, etc.; you will inevitably ask why you put yourself through all these in the first place. When the going gets tough, some traders and investors console themselves by telling themselves that they put themselves through all the pain for the love of the wine – which is acceptable, I suppose. Not in the Epicurean sense, of course, but I digress… In the next series of blogposts, I will introduce a set of trading tools developed by WineQuant (WQ) which can be used to understand the mechanics behind wine trading and investment. Supply and …

In vino veritas

Ever since I moved back to Brunei in April 2015, I have made several trips to Hong Kong. I like Hong Kong very much – it is a vibrant city, filled with culinary delights at every corner. More importantly, I get to see and meet up with old friends I have there, some of whom I have been in close contact since we left a Quaker boarding school a long time ago. One such person is Herman Lam, General Manager of a wine merchant business which he founded back in 2013. We would catch up over very nice wines and delicious food. Hong Kong is a fantastic place to drink wines – especially premium ones. This is mainly due to zero duty and sales tax on wines passed by a former Chief Executive who always donned a fancy bowtie and was very fond of his clarets and cigars. The range of wines one can get and find in the local wine scene keeps expanding and improving. I’ve never failed to be captivated. One gem which I came …

Value & Risk in Fine Wine, Post 5: Age Curves

The fourth and final tool in this series is the Age Curve plot.  Age Curves show the development of market prices relative to initial release prices as wines age. Is a vintage an ageless benchmark or is it a duffer, over-priced at en-Primeur, waiting for a “second release”? That’s the sort of question Age Curves help us to answer. Lafite Rothschild It has been our habit to start with Lafite. And here we go again: the plot below displays the evolving price of the oldest vintage for which Liv-ex has a detailed price history (1982) compared against five other vintages that are often seen as benchmark years. (Note on graph: +/- 2 months because the first traded price after release can vary from one year to the next.) Compared to the 1982 vintage, the price levels of the more recent vintages initially developed at an accelerated pace. But what goes up (too quickly), must come down! The gains were in a vulnerable spot; a downturn promptly followed. The 2009-2010 peak led on to a sharp correction. We know this already, and …

Value & Risk in Fine Wine, Post 4: Relative Price Lines

Our second tool consists of straight lines of best fit drawn through normalised prices of traded vintages. We call these lines Relative Price Lines (RPLs). As we shall see, vertical shifts of the RPLs over time indicate changes in the overall state of a wine’s market, while the steepening or flattening of a line over time represents changes in relative value across vintages. Lafite-Rothschild Let’s start with Lafite as a reference point. Our focus is on movement (size of the parallel shifts and the flattening/steepening). Following the 1996 RPL (red line at the bottom left), there is a large upward shift over the first five year period followed by a much smaller shift in overall price levels from 2001 to 2006. There is then an extreme shift from 2006 to 2011, from market trough to market peak (a development we observed from a different perspective through the Channel Spread). We then see a downward shift to 2015 price levels. Next, looking at the slope, we find that it is relatively stable at around 0.08-0.1, but the line steepens in 2015 …