Commentary, Investing, Trading
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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 demand fundamentally governs the mechanics and then, there is the Market.

So what is the Market? The Market is a very big, fascinating place – full of many types of wines and people. It will be very difficult and unfair to talk about the Market in general terms in this blogpost. So I have decided to re-define the scope of this Market and the focus will be on the fine-wine market scene based in the UK.

There is no genuine intention to alienate non-fine wines here. But readers involved in trading and investing non-fine wines can still learn from this series of blogposts. Defining the scope more narrowly allows me to choose the data more carefully, onto which I can apply, test the trading tools developed. The reasons as to why I have chosen the fine-wine market scene in London will soon become clear.

First and foremost, the UK fine-wine market is one of the most transparent scenes out there. Some fine-wine merchants, such as Farr’s Vintners, will regularly update their listings online, including their current stock levels. Because of this, you will soon find that the UK offers some of the most competitively-priced fine-wines in the world, if you aren’t already aware of this. Hong Kong will be the other place. (Something which WQ has discussed previously is the difference in prices between Château-release prices and the London prices called the Channel Spread. It is definitely interesting to discuss the price differences between London and Hong Kong but we will reserve this for another post.)

There are wine-exchange platforms, some of which such Wine Owners and CaveX are opened to all. Then, there is the London International Vintners Exchange, also known as Liv-ex which is only available to the wine trade. There is also BBX, a user-friendly platform which offers a selection of wines currently held by existing customers of Berry Bros. Most of these platforms offer a range of fine-wines and so I have become bound to the range available.

Yes, I must not of course forget, which is intended to generate the greatest amount of transparency across the globe. While it does improve transparency to a certain extent, however it fails substantially in making it compulsory for merchants to list the amount of stock accurately. Also, there are dud listings which I am not going to name-shame but you know who you are…If only things were perfect, I wouldn’t have to narrow the scope of the Market…

All in all, there is a healthy playground of platforms for one to trade and invest in fine-wines in the UK. Wine-exchange platforms are very popular now, even the new home for London’s wine connoiseuers, 67 Pall Mall (which now imposes a dress-code) is an early adopter of one of these platforms.

Wine enthusiasts can obviously pass the responsibilities onto their merchant friends. But given the accessibility available these days, it would be a shame not to have some fun for yourself, if you are one such enthusiast provided that you have the time, financial resources and more importantly, to take on the risks involved.

In the following blogpost, I will discuss in greater detail the topic of provenance and the actual data onto which I will apply the trading tools. Not the best of ending lines, I know, but here I shall go for another clichè: stay tuned until next time…

Other readable:

RL @ WineQuant

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