Wine Investment Friday

This newsletter is designed to bridge the gap between trade and the investor. Each week we will help investors better understand the nuances of why some cases appreciate and some standstill. We will unpick the characteristics that construct financial potential to help your money work smarter. 

This week we are analysing a case of:

Petit Mouton, 2009

Explaining what creates a great investment wine and how it interacts with the market. Ultimately showing you the role this case could play in your portfolio. 

** This week we will look at why this case may in fact not make for the best investment.**

Beneath the Label: 

Second wines are fundamentally lower quality productions. Their recent price success is born from the desire of one geography to experience and display prestige through the cases connection the first growths. The sustainability comes into question when you actually assess what’s beneath the label.  

Critic Score: 92 Points – Neil Martin
This does not represent a quality wine. In isolation, this score would preclude selection into most investment portfolios.

Region Rating: Paulliac, 99E
Exceptional score and vintage reputation.

Drinking Window: 2019-2036
09’s have been consumed in earnest long before this opening date with significant volumes removed from the market.  

Production Volume: 12,000 cases
Abundant volumes meaning achieving a perception of rarity is some way off.

A solid investment needs to be built on strong underlying fundamentals otherwise you will incur an elevated level of risk. For wine, this is simply the quality of the juice in the bottle.

Without these objective numerical vectors, you are required to base your assessments on less quantifiable variables and market sentiments. It is clear that the second wine of Mouton is a wine where this is very necessary.

Holding this wine leaves an investor overexposed to the trends of a single country where a change in demand could see prices retrace significantly. 

“This will be a great wine to drink while you wait for the Grand Vin to mature”

Money Matters:

Brand Power: 72/100, rank 59th in JF Tobias Brand Power Metric
The appeal of the brand holds little weight in the West, where we are slightly more concerned with the underlying quality of the wine. Whereas in the East, this wine is seen as a discounted option to sample a top first growth brand. The brand strength has, in recent years, been enormous.

Liquidity: 80%
Eastern demand in the past has been insatiable and meant sales were completed regularly, at the sellers asking price, thereby shortening and ensuring exits could be made. 

Inter-Trade Price Volatility: 3.96%
Price transparency is high in this liquid wine. Subsequently, trading is steady and prices move predictably. 

Price History:

A cursory look at the financial performance of this wine shows an incredible past. Predictable price movements combined with a steep growth rate that has produced reliable compound growth, what is not to like? It is only when you combine the more intangible variables to the graph that the future of the case begins to represent a riskier proposition. 

The East is becoming a more educated market and with this comes a more rounded drinker. The singular power of the brand is waining. The vector remains an undeniable driver, however this now needs to be combined with quality wine.

The concern amongst market participants is that the current prices have been spiked so high, by such singular demand that should the trend from this geography change a sharp collapse is imminent. The pricing plateau over the last year nicely demonstrates the stalling of a market experiencing indecision. 

Position for Profit: 

Second wines have enjoyed their time in the sun, time to cash in. 

This case review encapsulates a wider market sentiment relating to all first growth second wines. The winds are changing and prices will, in the near future, come under serious downward pressure. The support is waning and the current prices are too high to be sustainable. 

We tend to focus on the entry price and propensity for gains in investment picks, always looking for the next opportunity. But like any other financial investment knowing when to exit is just as important. Knowing when to let profits run and when to realise value is a skill. A skill that is made more difficult when the market you are operating in is so opaque and abstract. We want to extend our advice and suggest if you are holding second wines, it may be time to consider a structured exit or rebalancing. Without it, you will begin to incur ever-increasing downside risk and suffering from growing opportunity costs.

The fundamentals have never been strong and the only market that has propped up performance is making a steady retreat. The second wine market is turning, time to act. 

“The intelligent investor is a realist who sells to optimists and buys from pessimists.”
B. Graham. 

The Author

Jake Leighton