Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.
Among my favorite barometers of market sentiment are the Smart & Dumb Money flow indicators. Lately they are showing an interesting dichotomy: smart money is dumping heavily onto the dumb money, who seem to be begging for more. Either this indicates the next, more irrational spike is coming, or the market has topped and da' boyz are making sure the bag of excrement is properly placed in the retailer investor's hands.
I'll be leaving Wednesday for Mendoza. For those interested in following my misadventures I've set up a makeshift blog directed at my UC Davis classmates and fellow Slopers. It's Disqus powered so swing by and say hello. This series on Wine was enjoyable to write, and I appreciate the positive feedback given.
Based on the quality of comments from this wine series so far, it's obvious the wine knowledge of Slopers is extraordinary. In an attempt to broaden my own horizons, I sent an email to Scrillhog, a very astute collector and enthusiastic contributor on the subject of wine. I asked him to comment on this snippet I wrote:
As a starting point for any collectible purchase, I visit Wine-Searcher. Tied into thousands of online stores, you'll get an accurate picture of the retail market. I always check the eBay-style auction sites, Wine Commune and Wine Bid before purchasing anything. I'll occasionally land a smoking deal, especially if there is no reserve price on the listing. These sites are catered to the small collector. Of the two, Wine Commune is my favorite for selling wine since only a 5% fee applies, compared to a 20% haircut from auction houses like Sotheby's. Don't expect to fetch top dollar prices when you sell, but don't expect to pay top dollar prices when you buy either. You’re simply out 5% plus shipping for every round trip wine trade; kind of like the obnoxious spreads in option trading.
His response was so good I'll Leave the remainder of the post to him. Take it away, Scrillhog!
As a consumer/ collector I'm lucky to live in CA, where I can buy wines from a huge list of retailers that I'm able to visit in person and build relationships with the owners. The first thing I’d say about wine investing is to forget about it unless you are also a wine lover. In this day and age there is plenty of risk and uncertainty in the fine wine world. If you're a wine lover you probably know much of what I’m about to say. If you’re not, and still determined to invest in wine, well then read on. Today's economy is the perfect time to try and strike deals with retailers – mainly the smaller ones, as chains like K&L or Bevmo won't be able to work the same type of deals. Many small retail shops are struggling to move wines, especially with the string of amazing vintages we've had, so at shops where I have a personal relationship I'll often offer to buy the remaining stock of xyz wine for just barely above their wholesale cost, getting a great discount and helping them move product. This is easier since I know and have bought wine from these folks, so many times I don’t even have to ask, they’ll just offer. If you were to randomly walk into a shop and try to strike the same deal, you might look like a "cherry picker" to the shop owner. Then again, shops are hurting and that method could very well work.
For personal consumption, I buy a lot from Winebid, and always use Wine-Searcher but the biggest problem I have with them and random shops across the country is the inability to guarantee provenance. I’m a believer that wine should be treated similar to milk. Quality goes down when it’s stored improperly, but the difference is a lot harder to tell than spoiled milk. Provable provenance of temperature controlled storage is important to wine buyers, and many are willing to pay a premium for that peace of mind. For that reason I’d avoid buying older wine for investment at anywhere other than the most reputable online auction sites. As investors/ traders, buying expensive wines from uncertain places is taking on lots of risk. To go further, if you try selling them via private party, you might have luck but if your wines are possibly heat damaged etc you could get a bad rep in the wine buying "community". If you plan to sell at auction they will definitely sample wines from your cellar before placing the rest up for sale. One respectable auction house you can buy from online is Acker Merrall & Condit. You will have to pay the buyers premium but there are many lots that go for a bargain even with that fee and you can buy online without having to be present at the auction.
So where else does an investor go for new wines?
US wines – get on the mailing lists. This gets you guaranteed provenance as you have shipping, storage receipts etc. Biff mentioned in a post he’d been trying to get on the Harlan list for some time. If you're a "flipper" and on that list with a big allocation you can sell it or a portion of it at big markups to private parties who can't find the wines and are willing to pay top dollar. Just think how lucky you'd be if you got on the Screaming Eagle list in the first vintage? Those wines sell for $1k + per bottle. The top lists have been closed for nearly a decade and if they open to new people in this climate they might not hold the same allure they once did, so best thing to do for domestic wines is hunt for the big new up and comers. Personally I don’t find US wines something I’d look to make a profit on.
Here's a short list of top US wineries:
Sine Qua Non
Marcassin
Colgin
Bryant Family
Scarcrow
A list of up and comers:
Maybach
Buccella
Seven Stones
Lillian
Rhys
Moving on to French wines, which I find more suited for investment purposes. The auction market is worldwide, and for the most part foreign buyers are not into US wines. The Asian market is booming, and people there are buying top Bordeaux and rare Burgundy. One of the best ways to buy French wines is En Primeur, which means you are buying wine as a future and taking delivery much like one would do with corn, wheat, or oil. Like other futures, there are inherent risks buying wine this way. Many well-known retailers (Zachy's, Acker, K&L, etc) offer Bordeaux / Burgundy futures well in advance of the grapes even being harvested. Here are some things to consider when buying wine futures:
1. Currency changes. The dollar vs. euro will of course affect wine prices. Would you buy French wines today when the dollar is sinking or do you think it will gain strength a year from now, leaving French wines cheaper and you with money that doesn't have to be tied up for 1-2 years?
2. Ability of retailer to deliver the wines. Reputable houses should deliver the wines once in bottle, but recently there have been some houses unable to deliver wines from a top vintage. Now you have wines with huge scores by critics you will not be able to find elsewhere for the same price you paid, and you just gave your retailer a two year interest free loan only to receive a 100% refund. Read the fine print and do your due diligence.
3. Scores change. What may have been scored highly in barrel will change once the wines are in bottle, sometimes to the downside. Nothing like buying heavily into a supposed top vintage only to find a drastic change of opinion once the wines are in bottle.
Here's an article on buying en primeur. One recent vintage – 2007 Rhone (Chateauneuf Du Pape) was heralded as “the best ever” by Robert Parker, wine critic. He scores wines in barrel, issues a report and then later issues an updated report once the wines are in bottle. At the end of Oct, he released the current issue and scores for many wines were upgraded. To my chagrin, I had not bought as many wines as planned due to various reasons, and now find myself priced out of wines that I wanted to buy anyway. As an example, the 2007 Usseglio Mon Aieul, one of my favorite wines every vintage scored 100 points. I bought a bit, but not as much as planned before the report. Once it came out, the price increased at least 50%. As an investor, if you bought before you could have made a healthy profit. As a consumer, I now find myself priced out of that particular wine, and would rather backfill older vintages than buy 07 at the current premium.
Bordeaux and Burgundy are what I feel to be wines that will appreciate the most. They have proven aging ability, old world cache, and many are rare enough to be highly sought after. You want to buy by the case, in their original wooden case (OWC) and the magnum format (1.5 liter) is probably best. Wines age best in that format (opinion), and they hold additional value. Rare wines from these regions can obviously fetch higher prices. Some domaines in Burgundy bottle as little as 2-4 barrels of a wine. Good luck acquiring those. Here are a few names to research:
Bordeaux:
Lafite, Mouton-Rothschild,
Latour, Margaux, Haut-Brion,
Leoville Las Cases, and
Pontet Canet
Burgundy:
Romanee –Conti,
Leroy, Mugnier,
Bouchard, Ponsot
Dujac, and
Lignier
In closing, there are many things you need to factor in if you want to buy wine for investment. Storage costs, auction fees, time spent finding buyers, etc. If you don’t have a passion for it, I think it would be more of a hassle than it’s worth. Personally, I don’t buy wine for investment purposes – I just love drinking it , collecting it, watching it change and sharing it with loved ones. I’m fascinated by history and love opening something that has been through world wars, recessions, depressions, other significant events and is still vibrant, alive and full of character. Hopefully you found this post interesting… I didn’t plan on writing it, but it was fun!
Picture courtesy of BT310. Thanks!
Note: For
those confused by the appearance of wine collecting / wine investing material
on a trading blog, keep in mind this series is meant to be posted during
off-market times, evenings, and holidays when little is going on. This post will include charts and economic
information, so in that regard it’s relevant to the core mission here. Based on
the first posting it’s clear that I’m not the lone wino on The Slope of
Hope. There are some very smart and
knowledgeable wine consumers / collectors here. I’d like these posts to be approachable to most people, so this
by no means is an exhaustive survey of the wine world.
There are
several indices that track the fine wine market. Two highly respected are the Liv-ex 100 and the Wine Spectator
Auction Index. The Liv-ex is
Euro-centric, and 90% of the index is comprised of French Bordeaux. The Wine Spectator Index is comparable to
the Dow-30, since it’s comprised of roughly thirty of the most famous and
collectable producers from Bordeaux, California, Italy, and Portugal. These are the titans of the field, like
Mouton-Rothschild, Haut-Brion, Joseph Phelps, Mondavi, and Opus One. Click here for the full list. If collecting simply for asset appreciation / speculation, consider this list a great starting point. If you collect with the intent of building a good quality, drinkable cellar, I'd look elsewhere (unless you're a powerful oligarch).
Like most
asset classes, the fine wine industry suffered a downturn in 2008, dropping 22%. However, compared to the broader equity
indices and commodities, this seems kind of cute. Before the correction, the Liv-ex 100 rose 140% since 2005, a
stunning rise. While
under performing equities in 2009, the fine wine market since 2005 remains up
over 100% versus an 8% decline in the S&P 500.
say technical analysis in wine collecting is primitive is an
understatement. The Liv-ex chart is
released monthly, and the Wine Spectator Index is updated 1-2 times per
year. Many websites like Vinfolio,
Liv-ex, and Cellartracker, will value your cellar and produce charts of
individual bottles, tasting notes, etc. Many parameters can be graphed such as total portfolio gains and losses.
There is substantial cost involved when selling your wine through an auction house. A hefty 20% fee is levied to the seller, which means your capital appreciation must be substantial if any profit is desired. The next post will cover ways the small-fry investor can purchase good wine with low retail markup, and sell their wine with only a 5-6% scalping by the broker.
I'm fortunate to be spending the Thanksgiving holiday touring through Mendoza, Argentina, home of fantastic Malbecs, periodic nauseating inflation, and economic collapse. Mendoza is Argentina's most famous wine region and sits at the foot of the Andes, which rise 16,000 feet above the valley floor. This provides desert-like conditions ideal for growing grapes. Since I'll be unable to contribute anything on the trip I’m writing a series of posts on the subject of wine collecting beforehand. I will speak directly to the small-fry wine collector, not the mega-rich sleazy oligarch collector (I'm sure some of them are nice). If hot robber-baron on Sotheby's auction action is your forte, I have nothing to offer you. I buy collectible wine by the bottle or case, not the gross. My “cellar” holds 500 bottles, not 10,000-20,000+.
I possess a few qualifications that might enable me to speak as an amateur wine collector:
What is a collectible wine? Is it possible to lay down a case of 2009 Ernest and Julio Gallo wine (we will sell no wine before it’s made) and realize some serious capital gains 15 years later? No. A collectible wine must possess certain structural qualities to age properly, namely a high score from The Wine Advocate / Robert Parker, and a high score from the Wine Spectator (Wine Speculator). Just kidding (not really). I'll cover what qualifies a wine as collectible in the next posting; I can say that most wines you'll find in the supermarket and small liquor store are meant to be consumed quickly, not stored for years.
Two wine periodicals set the stage for prices based on their ratings. The most influential is The Wine Advocate, authored by Robert Parker. High ratings of 94 or better will automatically inflate a wine's worth, while a sub-90 score will plummet a speculative wine future's value. The Wine Spectator is less influential but still valuable if a high score is given. Two other periodicals, Stephen Tanzer's International and Wine & Spirits aren't as useful for collectors. These seem to be more consumer-driven rating systems.
Some people say negative things about Robert Parker. I've heard him referred to as, "A self-promoting, superfluous windbag", or an "Over-rated, compromised lap dog of the famous French producers", but I can't speak directly to these claims. After all, I'm merely a small-fry collector. Regardless of what "they" think, he's hugely influential on wine prices. A 100-point rating will pound some lucky person's wine futures into the stratosphere, much like a surprise earnings report from Travelzoo. A few wines manage to receive 100 points from both Robert Parker and Wine Spectator, and people thus pay dearly for them.
Next post: What is a Collectible Wine (besides a good score from Robert Parker)?
Monday's trend day sparked some intelligent comments regarding what comes next, with many traders correctly calling the sluggish consolidation doji that formed on Tuesday. Momentum traders seem to despise the slow action that typically occurs after a strong move, but there are some high-probability opportunities that arise in the aftermath. The so called, "Post Trend Day" is one of my favorite environments to flip equities.
This setup starts with a trend day, which can
usually be identified on a daily chart as a day that opens at one extreme and
closes on the other, with a wider than normal range. I like a roughly 2% rise.
Monday was a textbook example.
My method is pretty simple, and I’d enjoy hearing how
other traders arrange their approach. I
trade the big broad boring etfs: DIA and SPY.
I avoid anything more speculative since they don’t always follow the
diversified markets. I simply place a
horizontal line through the center of the opening 15-minute bar of the
post-trend day and swing trade around it.
If the market rises and the NYSE intraday tick goes above 1000, I’ll
short the market with a target 0.25% below the horizontal line. I close the position if the tick rises above
1000 soon after on a separate 5-minute bar, since this can indicate something
stronger than I want. I’ll go equally
long if the reverse setup occurs. Many
people like to trade the VWAP rather than a static horizontal bar, which also
works well.
