Crystal Ball

[Tom Archer]

I have maintained for a long time that most of those who have been speculating on the property market in recent years (in most of the world's developed economies) will eventually end up getting badly burned.

By comparison to the speculation in the wine market however, property looks a wise and sober choice of investment!

The fundamental problem (as I see it) is that for every person who would contemplate drinking a bottle that costs £100+, there are several who would contemplate buying one as an investment.

The higher the price per bottle, the more investors there are per drinker.

As wine does not last forever, this seems to be the making of a time bomb - a bubble.

Conversely, at the lower end of the spectrum, the drinkers outnumber the investors, and the market appears sane and sustainable.

The economics of investing in wine are pretty hopeless - anyone who has done their homework will realise that the spread (the difference between what you pay and what you can sell for) is huge - rarely less than 25% and more typically 30-40%.

In addition the investor is handling a product that is perishable and costs money to store.

Few wine investors seem to understand the argument 'if it's such a good deal, why are they so keen for you to buy?'

The recent Bordeaux '05 en primeur prices suggest that the wine bubble has yet to pop.

There are without doubt some people who are willing to pay serious money for the wine they drink, but I doubt they are sufficiently thirsty to consume the volume of seriously priced wine that is produced.

It is of course, hard to be sure.

How does this affect Port?

In some lights, particularly at the topmost end of the market, Vintage Port looks reasonably priced by comparison to Bordeaux, particularly when you consider the vast difference in output.

Taken on it's own though, VP en primeur prices do not make sufficient allowance for capital growth while the wine matures. The secondary market is failing to support the price of new product.

I have a strong suspicion that at some point, Bordeaux prices will crash dramatically, and that the Port market will get a severe cold (while the French go down with pneumonia..)

Although I buy for my own consumption, and store in my own cellar, I have decided that until the market corrects itself, I will not buy any en primeur wine - fortified or otherwise.

Time will tell if this was a wise call or not!

Tom

[Derek T.]

Tom,

I'm no expert on investments but what amazes me about wine and port prices is that the price goes so high for wines that are quite obviously dead or dying.

You rarely see an 80 year old bottle of port for less than £250 regardless of the status of the producer or the quality of the wine. I have often thought that if you want to get a significant long term return from bottles of port you would be well advised to buy the cheapest bottles you can find and bury them somewhere for 50 years or so. At that age it doesn't seem to matter how good or bad the wine started out, the price just seems to go through the roof.

I totally agree on the new release prices of good quality port not giving scope for investment return. Which is why I will probably buy some 2004 vesuvio - I bet you do too

derek

[Andy Velebil]

Having been follwing threads on other forums, what surprises me is how many people have already said they are not going to be buying 2005 Bordeaux. These are people that can afford to spend the money on numerous cases of high end Bordeaux and yet, due to the high price jumps, have said no to buying en primeur. If this does not send a message, I don't know what will.

I think the bubble is getting ready to burst. Just look at 2000 and 2003 VP's. The 2000's ended up being discounted so retailers could clear them out of their inventory. Now, most retailers are in the same boat and have cases of 2003's still in stock and they are having a hard time selling it. Which is understandable when I can by a 15-25 year old VP for the same price as a 2003 VP. (P.S. I'm patiently waiting for the sales on 2003's to buy more.)

In the case of VP, I can understand slighty higher prices (although I think they are a bit too high right now). As most Houses have invested a lot of money recently on replantings, new equipment, the cost of labor to foot tread the grapes, etc.

[Tom Archer]

Derek,

Roriz and Vesuvio were the only two 2004 VP's that I was considering - but I have now decided to increase my stock of older wine instead.

Yes I will buy the 2004 Vesuvio - but not for a few years yet.

I partly agree with you about age, although few old ports are undrinkable - they may be 'dried out' or (to use my own term) 'furry' - when the liquor becomes matt and hazy - but they are still drinkable.

Bordeaux is another matter though. The 61's are getting very ancient, and many are probably only fit for cooking now - yet look at the prices still!

I'm slightly intrigued by the advisory drinking dates that some critics dish out - they always seem to be optimistically distant for Bordeaux and far too soon for Port.

If we'd followed Suckling's advice in his 1990 book, all the mainstream '85 VP's would have been drunk to extinction now!

Tom