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.
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 to around 0.12: older vintages are preferred to younger vintages in the current market.
A natural explanation for this development is that recent vintages are priced more aggressively at en-Primeur, which makes older vintages look more attractive.
Let’s next compare the Lafite RPLs to Margaux RPLs.
Compared to Lafite the most notable difference is the relatively smaller jump in price levels from 2006 to 2011. Price levels are generally more stable here. In particular, consider the 1982 vintage which increases from a relative level of 2 in 1996 to a level of 3.5 in 2011, compared to a jump from 2 to 5 over the same period for Lafite.
In contrast to Lafite, the most recent vintages of Margaux are above the RPL. This suggests better relative value in Margaux young vintages than in Lafite young vintages. In other words, the RPLs suggest that en-Primeur pricing for Margaux is less inflated than it is for Lafite.
Here we see that the lines are bunched closer together and, in contrast to Lafite and Margaux, there is no clear downward shift from 2011 to 2015 relative price levels, which are remarkably constant over this period. This observation is consistent with our analysis of the Channel Spread where we found that Clerc Milon was not buffeted about as much as Lafite and Margaux were over the last ten years.
We see the Clerc Milon RPL steepening slightly in 2015, but younger vintages are still attractively priced.
Looking at this chart in conjunction with critic ratings, I’d say the 1988 and 2013 vintages look appealing.
Judging by the picture of La Conseillante, this wine is only just emerging as a blue-chip investment wine.
The pattern of lines is least conclusive here and it is interesting to note how the 2006 and 2001 levels cross at the 1988 vintage.
Investing in La Conseillante is more of a pure play in the development of vintage relative value. This wine is less affected by the overall market cycle (you might say it’s a “low beta” wine).
The position of the most recent two vintages of La Conseillante suggests they were reasonably priced at en-Primeur. There is an opportunity for low-risk, solid gain here.
Summary: Relative Price Lines
What’s the big picture? Most recently, relative price lines have steepened, suggesting that there is less relative value in new as compared to older vintages. The most likely driving factor for RPL steepening (decline in relative value of newer vintages) is the increase in en-Primeur prices and an associated reduction of interest in younger vintages for early stage investment.
There is a lot more to be said. I hope this overview has given a flavour of how we use RPLs to analyse the development of i.) overall price levels and ii.) vintage relative value.
MK @ WineQuant
Credits: Data from Liv-ex.
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