Fine wine investment: cutting the fat

A few weeks ago we talked about how important it is to de-mystify not only the investment world but also, in the case of the fine wine market, the consumption aspect of it.

This raised a lot of supportive comment, but left a lot of people wondering where to go for a more comprehensible appraisal. The problem seems to be that the more investible the wine, the more incomprehensible the review.

While we at Amphora Portfolio Management believe it is fair to say that what anyone other than certain top critics think of a particular wine is irrelevant (from an investment perspective), and indeed investors don’t need to agonise over the fine detail of even their reviews, it is a great shame if those investors feel excluded from an aspect which should certainly add to the interest of the investment process, if not the result.

Last week we received a submission from Vivino which captured the essence of this problem, and showed a pretty good line in the way of solution. Most people I know who are interested in wine have the Vivino app on their phone, and if you don’t operate that way (via phone apps) the business has a very user-friendly website with which it would be worthwhile registering.

If you are registered with Vivino you get a regular flow of offers, many of which are a splendid way of stocking a respectable drinking cellar. The range of offers is as wide as anyone might need, and there is plenty of explanation as to why they might be worthy of consideration.

The note I am referring to now showcases an excellent Lebanese wine called Château Musar, from the 2003 vintage, and is accompanied by reviews by such luminaries as Mark Squires from Robert Parker’s The Wine Advocate, and Jancis Robinson MW. Let’s take a quick look at a couple.

“this is a ripe, sexy Musar. It retains its elegant mid-palate as well as lovely fruit and fine balance . There is a slightly sweet tinge to the finish, perhaps a touch of a high-toned demeanor. The lush texture and surprising richness make this a rather luscious wine by Musar standards. It is showing little but baby fat right now. Fresh and youthful, it is just a friendly puppy today. I’m not so sure it is in the winery’s preferred style, but it should be a very enjoyable vintage for consumers. Showing not a trace of age, it has a lot of potential and a long life ahead.

There is some helpful information here but it is couched in a style which most normal people might find a bit, let’s say, flowery. Happily all is not lost. There follows a review from an unnamed source (and therefore someone not particularly renowned as a critic), which reveals most of what you might actually be looking for:

“Medium garnet colour, powerful nose of ripe black & dried fruit, with cigar box & a whiff of barnyard; big muscly body with med(+) acidity, alcohol & tannin which is fine & velvety; rich ripe damson, blackberry & figs with tobacco & liquorice & a sprinkling of pepper; med(+) finish. Perfect for drinking now but has a long life in it yet”.

Now you might take issue with whether a wine does or does not smell of cigar box or barnyard but without a doubt these are both identifiable, understandable smells which are regularly associated with fine wines. We also all know what the other indicators taste like (must go and pick up a few damsons as a reminder), so all in all this review, to our way of thinking, is a good example of what buyers might expect to find both on the nose and palate when they get round to opening the first bottle. It doesn’t have to be as byzantine as it often appears.

Meanwhile the market as represented by the daily-adjusted Liv-ex 50 continues its ascent, accelerating in recent days. Obviously this index focuses exclusively on first growths which have underperformed the other constituent sectors of the Liv-ex 1000 this year, so there may be a late element of catch-up at work here. This is a very unsatisfactory explanation really but we don’t have long to wait because the monthly disaggregation will appear by the end of the week when the Liv-ex 1000 performance for November is revealed. The fact is that the Left Bank in general and first growths in particular led the rally off the bottom two years ago so sectors do ebb and flow, which is one of the more exciting aspects of this market place, and which investors must be alert to.

This upswing is perhaps not too surprising when you consider what is happening in the market for collectibles around the world at present. The fact is that stock markets continue near all-time highs, merrily climbing the wall of worry, as it were, and therefore the investment fraternity is getting wealthier.

As it does so the uber-wealthy have more to spend on Salvators Mundi and such like, and under these circumstances there would appear to be liquidity aplenty to keep the prices of physical assets rising further from here. Fine wine occupies rather a curious spot in this regard: as a physical asset it tends to be a hedge at times of financial market disequilibrium, yet as a luxury good it is a beneficiary of an increase in wealth amongst the affluent.

Incidentally, we have also been asked what the meteoric rise of the price of Bitcoin might mean for the prices of other physical assets, and of course we would have to say at this point: “nothing at all”. There is much more disclosure required from the Bitcoin space before we can draw any comparisons or conclusions with any of the physical asset markets. That said, Amphora Portfolio Management was early into its acceptance of Bitcoin as a tradable commodity and we with increasing regularity transact purchases of fine wine portfolios for clients whose chosen form of buying currency is Bitcoin.

NB: Amphora expresses no opinion on any aspect of Bitcoin or the Bitcoin market other than to state its acceptance of it as a purchasing currency.

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 with Amphora.