All posts filed under: Tools

Chocolate and Fennel?

This is Models vs. Reality, Part 2. I looked at what our tool has to say about chocolate as a wine descriptor and I was a bit surprised by the result. Top 10 chocolate related descriptors in critic wine notes cocoa coffee pepper tar mocha licorice truffle fennel vanilla espresso I would never have made an association between chocolate and fennel. It turns out that only a few writers make this connection. You can verify this yourself. For example on jancisrobinson.com you find that there are only six tasting notes including fennel and chocolate. Out of these, five are written by Tamlyn Currin and one is by Richard Hemming. None of these notes are in our dataset, so it’s a good test to look at them in a bit more detail. Chocolate and fennel, really? Richard Hemming’s description of an Alvaro Palacios Priorat (65% Carignan) features “leather and fennel aromas” with “chocolate-covered cherry”. Tamlyn Currin describes a “delicious mouthful of sweet red pepper and dried herbs, liquorice and chocolate” followed by a long finish with “a thrill of fennel and aniseed” in a …

Models vs. Reality, Part 1

Wine appreciation requires language. But the way you use language depends on what you consider to be a “good tasting note.” What is good? What’s the norm? …writing is a learned activity, no different in that regard from hitting a golf ball or playing the piano. Yes, some people naturally do it better than others. But apart from a few atypical autodidacts (who exist in all disciplines), there’s no practical way to learn to write, hit a golf ball, or play the piano without guidance on many points, large and small. And everyone, even the autodidact, requires considerable effort and practice in learning the norms. The norms are important even to those who ultimately break them to good effect. Bryan A. Garner, Garner’s Modern American Usage (2009, p. 104) Famous critics and formal tasting systems provide models/norms/reference points. But how good are those norms? What does “green apple, citrus peel, medium+ acidity” mean, exactly? Models are useful, but only if we don’t lose touch with what is actually going on. So let’s calibrate our models to reality. …

Wine investing and trading V: Carruades de Lafite 2010

In the final blogpost of this series, I will look to apply the tools developed over this series on one example: Carruades de Lafite 2010. This is a wine that is regularly traded on platforms due to its regular supply, healthy market sentiment and consistent expected margins. Here, we use trading data available from the Liv-Ex trading platform. The above graph shows the WQ Inventory Value for Carruades de Lafite between June 2015 and February 2016. It is clear that the supply has been fairly regular. There was a build-up in inventory between June 2015 and August 2015 due to low trading activity which we shall see later. The WQ Spread is a good indicator for both market sentiment and bid:offer ratios. A steady (and non-turbulent) trend in the spread as shown above shows that market sentiment for Carruades de Lafite has been very healthy over the last eight months. There is a small bump in December 2016 which is attributed to a possible trading hiccup as the market adjusts itself to slower trading activity in …

Wine investing and trading IV: Market sentiment and activity

In the penultimate blogpost of this series on wine investing and trading, I shall discuss two metrics which we have developed here at WineQuant to characterise market sentiment. The first metric is called the WQ Spread. It takes into account the monthly highs, lows and average trading values for a particular wine. It is designed to summarize the state of market sentiment. Market sentiment is healthy when the WQ Spread is stable over a sustained period of time. The way we see it, market stability means solid trading activity. On the other hand, volatility in the WQ Spread signifies negative sentiment. In this case, we would expect little or only sporadic activity. Let’s look at examples of these two scenarios, using Lynch-Bages 2010 and Haut-Brion 2010 as our pin-ups. An example of the WQ spread over time is shown below. This is Lynch-Bages 2010 between October 2012 and January 2016. Looking at the development of the WQ Spread over time, we see that market sentiment for Lynch-Bages 2010 has been positive and stable except for a blip in June …

Wine investing and trading III: Supply

There are several factors which determine trading activity within the fine-wine market. The main factors include inventory level and market sentiment. The inventory level is a measure of the number of bottles of a particular fine wine available on the market while the market sentiment is a measure of how receptive the wine is at the demand side. At a more fundamental level, supply and demand governs the mechanics of the market. However, real supply and real demand are unobservables and this in itself raises an empirical challenge. To this end, WineQuant have developed a quantity called the WQ Inventory Value as an estimate for supply using trading data available from Liv-Ex. This WQ Inventory value is calculated based on two variables: the number of bottles of a particular wine available in one particular number and its monthly averaged traded price. In this blogpost, I shall present the WQ Inventory Value for two wines, Haut-Brion 2010 and Lynch-Bages 2010 between October 2012 and January 2016. There are two main reasons as to why these wines were chosen. Firstly, Haut-Brian …

Wine investing and trading II: Provenance

The next few blogpost in this series are adapted from reports available on the WineQuant website which you can find here and here. In this post, I will discuss why I have chosen to use trading data available from Liv-Ex. Liv-Ex is the foremost wine-exchange platform on the UK wine scene. Traders with accounts there are able to put their offerings for others to bid. Trading activity is high and the platform gives a nice snapshot into the fine-wine market scene in the UK. There is a lot of trading data available on the platform such as the number of bottles available on the market, monthly highs-and-lows, auction bids and so forth. Non-trade users can use a subsidiary service from Liv-Ex called Cellar-Watch which gives access to some of the trading data available. One of the main strengths of the Liv-Ex platform is its provenance-verification certificate called Standard in Bond (SIB). On the regulations section of Liv-Ex’s website, wines that are given this status must obey the following conditions: the original wooden packaging must be in good condition, …

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 …