Wine Investment Friday's

This newsletter is designed to bridge the gap between trade and the investor. Each week we aim to 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 look at why investing in En Primeur can lead to needless opportunity cost:

Pavie – 2020

Reviewing the negative side of investing in the campaign by analysing a serial offender when it comes to greedy release prices. Showing why investment into some wines at E.P time is so foolish and how important it is to do your due diligence before the campaign

Beneath the Label

In recent years Pavie has arguably been one of the most consistent producers of top quality wine in Bordeaux. The wines receive top scores, are built to last for decades and come from a well-funded stable whose future is very bright.  

Critic Score: 97-99 Points – Wine Advocate
While 97-99 is an excellent score, it is worth noting that it is potentially the lowest score since 2015.

Region Rating: St. Emilion – n/a
We know from our data analysis that 2020 is a “right bank vintage”. However we know there was drought and rain in parts, by no means a blue sky vintage. 

Drinking Window: 2028+
Pavie is known for its muscularity so this is a multi-decade wine that will require some time in the cellar. 

Production Volume: 8,000 cases
For the right bank, this is quite a considerable sum of cases. Young Pavie tends to be abundant. 

From a quality perspective, there is very little not to like about Pavie. It is consistently well regarded, known for its first growth rivalling quality. It has longevity and a relatively small total supply of wines compared to its left bank rivals. So clearly, if we were to use just these metrics, and the price is right this would be a low risk, long term hold candidate. 

“One of the best yet.”

James Lawther MW

Money Matters

Brand Power: 91/100, rank 23rd in JF Tobias Brand Power Metric
Pavie sits just outside the very biggest wine brands in the world, it is absolutely on the cusp of the icon tier. This contributes to a truly globalised demand.

Liquidity: 20%
This figure is in reference to the recent new release wines. Pavie has missed the mark repeatedly in recent years pricing themselves out of the reasonable buyer’s view. 

Inter-Trade Price Volatility: n/a
When wines are released for the first time the prices are dictated by the Chateau. Volatility begins after the campaign as the true value of the wine is discerned by the subsequent trading market. 

Price History: Below is the 2017 price chart, it displays nicely how prices come to equilibrium post-release. 

With such a strong brand power ranking and known higher liquidity levels amongst Pavie’s older vintages in the market. We have to ask why the new releases lack the sort of blue-chip appeal that is garnished upon the older established iterations. The answer has to be price and when we review the price action of the last 3 vintages immediately after the release it confirms this. All show steady declines rectifying the imbalance between quality and price that the Chateau creates with their release price. It is a real shame and quite short-sighted from the estate. 

Position for Profit

Simply put, why would you buy a case of 2020 Pavie for £1,445 which is not yet in the bottle. Which holds the risk of a less than perfect score and is not available to trade as actively. When you can buy a 100 point Pavie from the marvellous 2016 vintage for £10 more. The opportunity cost and inherent risk involved in buying a futures contract is just too imbalanced.

The lesson to be taken from this example for all E.P buying is that there are some simple steps that can be taken to ensure an E.P investment is worthwhile. 
1. Is this the only chance I am going to have to buy this wine at this price from a supply point of view?
2. Does the price tend to move much in the first 2 years?
and crucially,
3. Is the price of the wine at, or below a price point that matches the quality within the bottle. 

If you need to see a working example of this in action, please just review Pavie’s past 3 E.P releases. They have got it wrong and only they know why.

The Author

Jake Leighton