Fine wine in La La land

At Amphora we are sent a lot of portfolios for audit which arrive with the observation: “I wish I hadn’t wasted money on those La Las”, or words to that effect. It’s tempting to think that the problems visited on Bordeaux over the last few years must also have blighted the Côte Rôtie, but it is actually not true. We had nothing like the same spectacular 2011 peak and there has been nothing like the same decline. We have just had precious little performance to get excited about.

A closer investigation into these wines though reveals something else at play, and it is something that all fine wine investors should make themselves really aware of: pricing. Quite simply, buyers have paid the wrong price for many of these wines, and looking back it is easy to determine a couple of the reasons for this.

The first is that, from time to time, the Guigals have caught the attention of the market place. Buyers have been persuaded that these are extremely rare specimens and should be snapped up when they become available. The second is that at such times as this, vendors have managed to slap on a huge mark-up. A crystal clear case of caveat emptor.

We are talking here about the Guigal wines La Mouline, La Turque, and La Landonne. Production is as thin as in some of the Romanée-Contis, at around 400 cases per year for Turque and Mouline and 800 for Landonne. You might hope the immediate scarcity and subsequent euphoria visited upon DRC counts too for these, but such is not the case.

Something is missing, and it isn’t lack of Parker points. 100 pointers across the board in 1999, 2003, 2005, 2009 and 2010.

The Côte du Rhône has long been considered a poor relation to Burgundy, but we wonder how poor a relation can be when it is so consistently producing great wines? Now is perhaps not the time to exhaustively debate the differences between the relative popularity and cost of these Côte Rôties and the DRCs, although we would welcome theories anyone may have about it (beyond simple debunking of Parker, if that’s okay).

Most of the above vintages were excellent, as reflected in their Parker vintage scores, with the curious exception of 2005. Respectively they are 95, 96, 89, 98 and 97. The producer clearly did well to eke out perfect wines in 2005.

It is significant though, and understandable given the low production levels, that the older wines enjoy a sizeable premium. The 1999s must be very rare indeed by now, so little having been produced in the first place. Sure enough they all trade around the £5,000 mark, coming down to £4,000 or so for the 2003s. The 2005s don’t seem to be particularly harshly treated on account of the poor vintage score, trading around £3,700, but the more recent 2009 and 2010s are certainly punished for their youth, trading at just over £3,000. What is encouraging is the consistency in pricing, and the primary evidence of age counting for something.

Fine wine investors will notice immediately that the La La’s ain’t exactly expensive. In few other parts of the world can you buy perfect wines at these prices. Hark at what Parker says of the Landonne 2009:

“The 2009 Côte Rôtie La Landonne is a killer wine. An extravagant bouquet of black truffles, roasted meats, licorice, ground pepper, blackberries, scorched earth and camphor soars from this muscular, dense, over-the-top, serious, masculine La Landonne. Built like Arnold Schwarzenegger was two decades ago, this enormously concentrated bodybuilder of a wine should hit its prime in a decade, and last 40-50 years. This is no trivial boast as the debut vintage of La Landonne, the 1978, is just reaching full maturity at age 34.”

Although never again analogising in quite these terms he is equally effusive about the others.

No-one likes a La Mission Haut-Brion more than ourselves at Amphora, but we can’t help noting that the 2009 which also scores 100-points costs over £4,500, and this is a Super Second, albeit an elevated one, producing 6,000 to 7,000 cases per year.

There are countless other wines from all parts of the world that cost more than the La La’s. Screaming Eagle costs more than that for three bottles in a lot of vintages, and scarcity is cited as a key determinant. Nowhere, however, is scarcity more widely extolled than in Burgundy. Last year the mighty Domaine de la Romanée-Conti was toppled as the most expensive wine in the world by Henri Jayer’s Richebourg. Annual production? 50 cases.

Now when you are only producing 50 cases provided the wine is highly desirable then you are already into fine art pricing territory. There is absolutely no liquidity so the price is quite simply governed by the determination or pocket of one admirer over another. When there is no secondary market a purchase can’t really be called an investment, even though it may make you money, because it is impossible to assess the risk inherent in the transaction.

What is interesting to the investor, though, is the importance of scarcity in the whole process, and this brings us back to the La La’s. The conditions are all in place for them to perform perfectly well as investments, provided you buy and sell at the right price. They are of exceptionally high quality, production levels are low, and relative to the broader market they care inexpensive. They are also out of favour.

Just as you can never tell when a bubble is about to burst, so it is difficult to know when the fashion spotlight is about to descend on something new. In our judgement players of the long game should have been reducing exposure to Burgundy for some time now, and such players could do worse than expose a 5% weighting of their portfolios to select Côte Rôties, starting with the above mentioned on vintages.

For 100-point-scoring bargains in this sector we would tend towards the 2009s and 2010s.

Whatever they do though, investors should take the utmost care over pricing. For a buy and hold strategy to work at all, the entry point must be right.

Philip Staveley is head of research at Amphora Portfolio Management. After a career in the City running emerging markets businesses for such investment banks as Merrill Lynch and Deutsche Bank he now heads up the fine wine investment research proposition at Amphora Portfolio Management