Wine Talk

Snooth User: panoskakaviatos

Bordeaux 2010 EP

Posted by panoskakaviatos, Jun 10, 2011.

Super expensive, yet again. Some think that the en primeur campaign is now being played out in more dynamic economies like China and Brazil, but the way things are going, it looks increasingly like a speculative bubble, with chateaux releasing less wine at higher prices - feeding a speculative frenzy. It would be better to not bother in most cases, because prices can only go so high. Yes, we have heard this before, only to see Lafite go ever higher into the stratosphere, but Lafite seems to be more the exception than the rule. I have talked to too many merchants who tell me that they think that most of the very expensive bottles are bought to flip later at an expected profit. How high can gold go? High high can Bordeaux go? At some point, the party will end and some will have a crushing headache. Be careful...

More thoughts, HERE.

Replies

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Reply by JonDerry, Jun 10, 2011.

There was plenty of clamouring around this time last year for 09' because it was thought to be the vintage of a generation, and that was after three uninspiring vintages.  To come right back and try to get higher prices was probably a mistake, no doubt fueled by greed in some part. Back to back vintages, and 3 hyped vintages in 6 years means there's a lot of inventory, and you'd think people are starting to get smarter, searching for value more and more.

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Reply by dmcker, Jun 12, 2011.

Obviously wait-and-see seems more intelligent. The Lafite bubble is mostly driven by the Chinese, which may go on a while longer but intelligent commenators (IMHO, anyway) think won't go on forever. As to whether the Chinese bubble pops this coming year or three years from now, it may well have a longer term effect on this vintage of Bordeaux...

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Reply by Stephen Harvey, Jun 21, 2011.

D - I think you are right, I suspect that once the bubble bursts these two super vintages will come crashing down from the stratoshere and the medium term on wine collctors and consumers

I am happy to wait and see and I suspect that unfortunately real casualties will be the loyal Bordeaux buyer, the smaller less famous Bordeaux chateaux and some committed independent wine shops and restaurants who stock thhese wines.

I suspect the supposed massive net wealth of the First Growth Owners will see them only suffer a minor downgrade in their summer holidays or they may have to hold onto the Lambo for an extra year

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Reply by dmcker, Jun 21, 2011.

Yeah, but just thing of the garage bills for the extra tuning needed during that year. Let'em really suffer and buy an Audi.

Not too much sympathy from me for the Bordelaise marketers. They've built up a pretty bubble, and an adjustment (probably not too great for the largest, unfortunately) would be nice to see....

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Reply by zufrieden, Jun 23, 2011.

Well, I have even less sympathy for those that treat wine principally as a commodity (which I suppose it is - if homes, food and other items of necessity fall into such a category).  Not a few followers of this site have already shown great interest in wine futures - obviously with the intention of speculating on double-digit returns on (say) a gross of First Growth.  This may show speculative acumen worthy of at least respect if not emulation, but seems at odds with the idea of wine appreciation; wine is a sensual product meant to be consumed in conviviality - for its own sake - like scholarship.  If treated as a store of value, the usual caveats for gold and silver must apply to wine as well.

I suggest patience and selectivity.  I too have no sympathy with greedy Bordelais negotiants and even less with speculators that have no real love affair with wine itself.

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Reply by Stephen Harvey, Jun 26, 2011.

Zuf

No arguments from me, wine is for a product to be consumed, toh as a drink and a source of interesting discussion and debate, something to share and something to enjoy.

I would rather invest in stocks and shares, because they can't be enjoyed like wine.

 

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Reply by dmcker, Jun 26, 2011.

Yeah, might be a problem if you were eating your Apple shares. Kinda hard to sell them later.

Though there is an 'enjoyment' to a 3-multiple on the sale. Portions of that are certainly convertible to good wine....

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Reply by mbugbee, Jun 29, 2011.

I've decided to go the route of Orley Ashenfelter with the futures game (I'm an actuary by trade - can you blame me?), although a slightly different direction than he did...  I've got a model (two, actually) that uses a composite of all reviewers' scores to predict the price of the wine.  The outgrowth of these models is that wines with actual prices far below the predicted prices represent the best buys.  Very easy to use (I couldn't find the QPR sorting function on Snooth that I found mentioned on another chat discussion thread).  It helps me zero in on the value buys and stay away from the over-priced wines.  Also, with the futures campaign nearly over, the predicted prices won't move around much more.  I've been updating it daily as new prices are released (checking Liv-Ex every morning at 5am LA time)!

If anyone is interested in taking a look, please email me directly at powersaxo@hotmail.com - I'm up for getting feedback on how to improve them.  I've also got a model for the Spectator/Enthusiast Top 100 that produces a nice wallet sized card that you can use as a reference point when shopping in a store.

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Reply by dmcker, Jun 29, 2011.

Sounds like an interesting project, mbugbee, even if I often think ratings are a bowl of balderdash. Would like to hear more...

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Reply by gregt, Jun 29, 2011.

mbugbee - it's a nice project but you don't get to predict price by ratings of critics when it comes to Bordeaux.  The only critic who matters is Parker.  The rest is noise.  Some may be better critics these days, who knows, but a lot of the people are clueless or have palates that are over influenced by who they know and by the label on the wine. There's a guy right now who has been drinking Bordeaux for a few years, got a few introductions, started a blog, now considers himself an "insider", and has been sending emails to retailers asking them to use his scores. OTOH, there are people who've been writing for many years - Jancis Robinson comes to mind.  

Neither of them matter when it comes to prices.

Buy what you like.  If you have the patience and think it worthwhile, try a wine, decide what you think, and then see what the various critics scored it.  Pick one who scored it close to you and then find some more wine that critic liked.  Maybe you'll have found yourself someone who can point you to wines you like.  Don't forget, a composite won't lead you to something "good" if you don't agree with the composite palate.

Don't buy for investment because the investment wines are the First Growths and a few others and everyone is already on those. When even novice wine drinkers are talking about "investment" in wine, well, remember what Joe Kennedy said about stocks.  He got out of the market when his shoe shine boy started giving him tips. Consequently he came out of the great crash a very rich man.

That said, you may be able to make a bit of money selling your system to all those shoe shine boys and the rest!  That's the approach I'd take!

BTW - you can do some research on the prices in the secondary market if that's not in your model.  Look at release and current prices for the 1989s, 1990s, 1998s, 2000s and others that Parker scored high vs those scored highly by others. 

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Reply by Richard Foxall, Jul 3, 2011.

Love this idea of a composite score.  Reminds me of a time when my father and I were reading stock analyst reports in an investment newsletter and the newsletter reported a "consensus" score of a stock that had three analysts predicting a gain and one or two predicting a decline in price.  Then the newsletter showed a "consensus" gain which was plainly an AVERAGE of the analysts' predictions including the ones predicting a decline.  How on earth is that a "consensus?"

I can't be bothered to search for wines based on point scales.  And I can't be bothered to even figure out if GregT is literally right that the only meaningful predictor of appreciation (of the monetary sort) is RP's scores.  If RP likes a S. Rhone, I have a pretty good idea that it's going to be rounder and fruitier than a more barnyard-y version, because I drink enough of the wines he's rated to know what he likes--because I can afford a lot of S. Rhones, if not the elite cuvees.  I have been drinking California Cabs for enough years to know how what he likes compares to what I like, in about the $20-100 range.  Bord?  Not a clue, especially first growths and super seconds because I have virtually no experience of them.  Because I buy wine to drink, and I don't spend that kind of money. (Buying wine I can afford to drink every night actually means I get to experience a lot more wine.)  So whether he likes a wine from Pontet-Canet or Leoville las Cases means almost nothing to me.  Will it make a good investment?  I don't know.  Frankly, I'm just kind of put off by the idea, and I have enough trouble with the idea of investing in stocks and doing all that research under conditions of uncertainty--I'm mostly in index funds, thanks.  Add to that the transaction costs of selling bottles, the need to store them--heck, you don't even get stock certificates anymore, so who needs to be worried that your investment will go up in flames, literally, or down with the ship, also literally? 

Oh, and did I mention how much wine formerly in "outstanding cellars" I am buying at a pretty decent price these days?  Other than Sine Qua Non, almost all of it is selling for a lot less than it was a few years ago. Guess what? I'm passing on the SQN, Colgin, Araujo, and Screaming Eagle.  I'm wallowing in excellent Brunellos, Cabs from good vintages, overachieving CdP. Sorry for the first-tranche buyers... no, not really.

So, in the words of the analysts, am I recommending buying, selling or holding? Nope, I'm recommending drinking. 

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Reply by dmcker, Jul 3, 2011.

Yeah, and now Parker is going back and re-rating wines that have a few years of cellar age. You can be sure none of his ratings, if lower now than when he rated them earlier, will affect the price of the 1st Growths, etc. he elevated in the past. And now, when we've found some older vintages that were underrated and thus underpriced, he's coming around again to jack the prices up further for even them.

If the Bordelaise and a few others had tried to design a better marketing aid(e), they couldn't have conceived of anything half as good...  ;-)

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Reply by mbugbee, Jul 3, 2011.

Ach, I thought I had just responded but it looks like I closed the window before I confirmed my post (that's what a few glasses of 16% alcohol wine will do for you!)- And sorry GregT for the delayed response, the infant at home takes up quite a bit of time...  Anyway, enough of the excuses.  You're idea about RP being the only reviewer that matters was intriguing so I tried it in both my models (one that includes growth status and one that excludes status but allows successive points to be worth more $$).  Sorry Foxall, this took me about 10 minutes to test but the first model saw almost no deterioration in performance in switching from the composite score to the RP score.  However, I'm liking this model less and less as it now has a point being worth less than 10% which means the growth status is picking up most of the differential and so the model is mostly a tautology at this point.  On the other hand, the model that excluded growth status saw a note-worthy drop-off in performance when I switched from the composite score to RP (in statistical terms, it went from an R^2 of about .74 to .66).  While the first model does perform better than the second model (R^2 of about .88), as for the reasons I mentioned above, I'm liking the second more and more.

My status at home doesn't allow my to try lots of different wines, so it gives me piece of mind to know that when I do venture out to try a new wine that I'm getting something the 'experts' consider a good value.  That being said, the '05 Leoville Barton was my Bordeaux epiphany wine and I've continued to seek it out vintage after vintage in spite of the fact that its status as a Bordeaux value has been diminishing in recent years.  The second model pushed me to go for Pavie Macquin in the '10 futures as it came in second for value to Pontet-Canet (yes, I bought this too but most likely never again in a good vintage unless I happen into loads of money or the dollar sees miraculous appreciation against the euro).

Also, you read my mind about my next step with this project - if I take it any further, I will be trying to sell it to the shoeshine boys!  I just need to cough up the money to get the price and score data (including updated scores) for more mature vintages to see how it performs.  If anyone knows of a better/cheaper source than Liv-Ex though which to acquire this data, please let me know!

Thanks for reading

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Reply by mbugbee, Jul 3, 2011.

oh, also my second model says to not even bother with first growths.  did you see Ausone and Cheval's release prices this past Friday - WFT!!?!???!

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Reply by mbugbee, Jul 3, 2011.

GregT - Sorry to take so long to get back to you - an infant at home takes up quite a bit of time!..

Anyway, I tested your idea about the RP scores (sorry Foxall, this took me about 10 minutes to test) and between my two models (one that included growth status and a second that excluded growth status but allowed for points to drive price more, the higher the points), there was almost no deterioration in model performance for the model that included growth status in going from the composite to just the RP scores.  However, in this model, a point is now worth less than 10%, which means the growth status is driving most of the price differentials (mostly a tautology at this point).  On the other hand, the second model saw a noticeable deterioration when I switched from the composite score to the RP scores (in statistical parlace, the R^2 dropped from about .74 to about .66, with 1 being a perfect fit and 0 just being an average of all wines' prices).  Given my comment above about the first model being self-fulfilling at this point, I'm liking the second model more and more (plus, it says not to bother with the first growths - and Cheval Blanc's release on Friday - WTF??!?!).  Anyway, I don't get many chances to taste Bordeaux as my situation at home limits my wine consumption, so I want to be sure that when I venture out on an unknown bottle, it gives me piece of mind to know if I'm getting something that, as far as the 'experts' are concerned, is a good value.  That being said, the '05 Leoville Barton was my epiphany Bordeaux wine and I'm still going after Leoville Barton vintage after vintage even though it's value status has been degrading.

Also, you've read my mind - if I take this project further, I will be trying to sell it to the shoeshine boys! As you accurately pointed out, my next step is to try these models out on more mature vintages to get a sense of how it will play out on a longer horizon.  I just have to cough up the money to get the price data from Liv-Ex (if there are any other cheaper sources out there - please let me know!) in order to test them out.

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Reply by Richard Foxall, Jul 3, 2011.

mbugbee, of course it took you only ten minutes.  You already put in how much time to make the model you tweaked?  You're an actuary, so maybe that's a busman's holiday for you.  My point was that the easier thing to do--if you want to do it at all--is to compare the wines you are already familiar with to the way critics rate them to learn whether that critic shares your taste in at least that area.  Of course, this assumes that your purpose is drinking enjoyable wine.

I'm not a fan of wine as an investment--even less than the idea of guitars as an investment, which at least don't have the same limited range of safe storage conditions.  Sure, if wine or anything was a sure bet, I would buy it and pretend it wasn't wine, but a bearer bond.  (Remember, theft is a danger, too--see http://www.hsssearch.co.uk/stories/articles/-/newsletter_stories/2011/jun_11/1m_of_wine_stolen_from_london_warehouse/ or just search "wine storage theft.") A bearer bond that has to be kept dark, cool and a little humid. But if there was a sure thing, wouldn't the market price it efficiently and make it no more appealing than an index fund?  And if it was a sure thing, how complicated would the analysis be?  I wouldn't really need a system full of regression analyses by a trained actuary, would I? 

I hope if we've learned anything over the last few years, it's that computer models of markets guarantee nothing about the future.  The danger was in thinking the fact we could model things eliminated the risk. A theory does not prevent things from happening in practice.  Double that for a theory that relies on so many future unknowns.  What if the Chinese banking system really is in trouble? http://business.financialpost.com/2011/06/30/what-are-chinas-long-term-economic-challenges/

We all have to invest our savings somehow, but I'm not in favor of wine.

My market recommendation remains the same: Drink now. In a few rare cases, long-term hold, but then drink up.

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Reply by mbugbee, Jul 4, 2011.

Foxall,

I think you missed the point of where my model is evolving.  The one on which I'm zeroing in says that first growths shouldn't even be given the time of day - the only real investment grade wine.  Make no mistake, the wine I'm buying now, is going to end up in the stomachs of very close friends and family, as well as myself.  I wish I had the time to learn which reviewers' tastes are in line with my own, but my situation won't ever allow me to do enough comparisons to figure this out and even if I do get close, Parker and Suckling will be retiring by the time I figure them out.  In the meantime, a model for somebody like myself is actually more effective than any single reviewer when it comes to helping me decide what new bottle to try.

To me, part of what makes wine so interesting is that it, like life, is never a sure thing - some bottles will see good wine spoiled, others will see bad wine cellared and showing well, a bad wine spoiled (save this for salad dressing) and (hopefully more often than not) we will see a good wine showing well.  I'm fortunate enough to have a decent cellar space in my home and being somewhat of a sentimental type, don't mind going to the trouble of cellaring the wine.  In venturing through the experience, if I can do some analysis to bring some order to the myriad of reviews, prices and choices that are out there for consumers, then I will prefer to go with the order.  Along the way, I'll sell share it to friends and family and hopefully it will help them the next time they walk into the store to pick out a wine (if they don't know red from white, how do they know they won't buy an overpriced bottle of bad wine) and if it helps me pick out the next Spectator #1 wine before it's announcement, then it will have saved me a few dollars.

The whole point of these models is to help bring order and rigor to complicated decision making processes.  Negociants in Bordeaux probably have teams of statisticians guiding them on how to price their wine in the market (or, at least if they had half a clue, they would have such teams).  Ashenfelter created a stir in the wine industry over 25 years ago when he produced a model that predicted the quality of a vintage better than Parker, months before Parker would even get a shot at the wines.  What's more, the wine market is terribly inefficient (although the internet is gradually changing this), making it all that more susceptible to efficiency gains by building and applying these sorts of models.

Gotta say though, it touches a nerve implying that financial models were the cause of the recent recession.  It was caused by arrogant and greedy individuals who got wreckless in applying these sorts of models and lost sight of what the models could and could not do.  They started applying models to groups of customers whose risk level they had never previously modeled (didn't understand how risky subprime mortgages really are), relaxed underwriting standards when the models are highly dependent on receiving underwriting data of the same level of accuracy and consistency as that from which they were built (garbage in, garbage out), making faulty assumptions about how the real estate market behaves (that prices always go up), and a huge risk management failure at AIG (writing what was basically an insurance product that was not regulated as such, to every major bank in the country and most major banks in Europe - traditional insurance companies are required to have high levels liquid capital to cover these sorts risks which AIG wasn't in this case and what's more, they wouldn't be allowed to insure every piece of the market - what AIG did was akin to one home insurance company insuring every home on the Texas coast and then thinking they had diversified their Texas hurricane risk, only to have a big hurricane hit Texas).  There are tons of examples of how these sorts of models are creating efficiencies in the world (see Ian Ayres' book, Super Crunchers for starters - Orley Ashenfelter is the prologue).  In using such models, we have to keep sight of their limitations and the fact that any model is wrong (but good models are in many cases less wrong more often than human decisions).  We haven't observed enough Chinese banking crises to be able to develop an automated prediction when the next will hit but eHarmony has a large enough database that it can give you highly quality recommendations on potential mates thanks to its neural network models.

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Reply by mbugbee, Jul 4, 2011.

Correction:

"Along the way, I'll sell it to the shoeshine boys and share it with friends and family and hopefully it will help them the next time they walk into the store to pick out a wine"


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