Felix Salmon

Wine market arbitrage of the day

Felix Salmon
Nov 3, 2010 20:45 UTC

Price of 2009 en primeur Chateau Lafite in New York, per case: $17,000

Price of shipping a case of Chateau Lafite from New York to Hong Kong: $40

Price of 2009 en primeur Chateau Lafite in Hong Kong, per case: $70,000


shipping a case of Chateau Lafite from New York to Hong Kong:

This wine is not yet available in bottles. All 2009 Lafitte Rothschild 2009 are still in the cellars of the Chateau.

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Internet libel suit of the day

Felix Salmon
Sep 30, 2010 19:19 UTC

What is Charles Smith thinking? He’s the winemaker at K Vintners, where he makes very expensive wines, and occasionally shares them with bloggers such as Blake Gray. One blog entry on Smith and his wines produced some comments saying that he is more of a wine promoter than an actual winemaker. Smith’s assistant, Andrew Latta, responded in the comments with simplicity and anger:

Charles and I work side by side on these wines. All the vineyard visits, the punch downs, the pressing, the racking and blending must have just been for photo ops.

The comment thread died out within a week, as comment threads are wont to do, and the story would normally end there.

Now, however, Charles Smith has decided to sue the anonymous commenters! I’ve turned the lawsuit into a PDF and put it here, in case you’re interested.

It’s hard enough to sue people for libel when they post under their own name; when they post anonymously, it’s pretty much impossible. Still, Smith is trying: he’s sent a subpoena to Google, who publish the blog, asking for the IP addresses of the commenters in question. And it seems, although it’s not clear, that Google is going to comply with the request.

I doubt that a list of IP addresses is going to help Smith win the suit, or even identify the commenters to the satisfaction of a court of law — but maybe he just wants to find out who left the comments, and has a suspicion which might be confirmed if he gets that data.

From reading the comments on both blog entries, Smith might well be the kind of person who uses the expensive and elaborate tool of a libel suit just to try to find out who’s saying rude things about him on the internet. But if he does think he’s found out who the commenter is, that person is liable to find themselves defending a lawsuit, which is never pleasant or cheap even if you win.

If the person being sued is the person who left the comments, then being sued is itself harsh punishment for what’s little more than mean gossip. And if the person being sued did not leave the comments, then the whole thing could turn out to be extremely unfair indeed.

I do hope that Smith had bothered to read up on the Streisand effect before filing this suit. As Jim Caudill, one of Gray’s commenters, says, this suit is a prime example of how not to handle criticism:

I think counsel for CS failed to mention that this approach will only bring renewed attention to the comments he finds libelous, as this is tweeted and posted and reported on again and again.

Smith would have been much better advised to take the Randall Grahm route, and simply set up a blog of his own. He could use it to respond forcefully to critics, and to show clearly his involvement in making his wines. Instead, he decided to show the world that he’s a thin-skinned bully. Which is certainly not going to make me remotely well-disposed towards his wines.


Maybe I have the wrong impression but I thought that some of the comments sounded like they might have come from employees of Smith’s. In which case what he is trying to do is find out who they are and fire them. Just my opinion.

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Will wine ever be democratic?

Felix Salmon
Jul 20, 2010 19:53 UTC

My latest wine column is up, and because I couldn’t do it there, I’d like to send out a big thank-you to Mike Veseth, whose post I drew liberally from both for quotes from Thomas Pinney and for its central idea.

One of the subjects of the column is a look at the pitfalls inherent in writing a wine column at all:

Pinney draws a distinction between what he calls Wagnerians, who aren’t happy unless they can drink a sound wine every day, and Martians, who are unhappy with anything less than the superlative and the rigorously-informed. (Wagnerians are named after Philip Wagner, a journalist and winemaker active in the 30s and 40s; Martians after uncompromising California wine pioneer Martin Ray.)

Most wine drinkers — including sommeliers, and retailers, and journalists — would put themselves at the Wagnerian end of the spectrum. But look at how they behave in public, and you’d be forgiven for considering them die-hard Martians.

They might happily and unceremoniously drink cheap and wonderful wine daily at home, but put them behind the counter of a wine bar, or give them a wine column, and they’ll suddenly start acting as though the only way they ever drink wine is with great concentration and connoisseurship.

The gist of the column is that although we can all laugh at someone who thinks they need to spend $350 in order to get a wine worth drinking, the fact is that a weaker but fundamentally identical message is sent by far too many wine lovers, far too frequently. And the message gets through: you can tell, quite easily, by looking at the number of wine drinkers in this country compared to the number of beer drinkers. Beer is democratic, in a way that wine simply isn’t, in this country. And, sadly, probably never will be.


It is mostly a matter of history and geography. Wine consumers tend to be in countries that produce wine. The same goes for beer and spirit drinkers. See here:

http://www.greenfacts.org/en/alcohol/fig tableboxes/table4.htm

and here:

http://strangemaps.wordpress.com/2010/01  /30/442-distilled-geography-europes-alc ohol-belts/

For the most part, Americans did not emigrate from wine producing regions and, at least until the 20th Century in California, was not itself a major wine-producing country. Product snobbery or anti-snobbery may reinforce the status quo, but they are not the primary reasons for the status quo.

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Lafite datapoint of the day

Felix Salmon
Jul 8, 2010 23:51 UTC

Andy Xie on the market for fine wine in China:

Some analysts estimate that 70 percent of China’s Lafite consumption is counterfeit. I personally experienced this on a few occasions. The people who served me fake Lafite didn’t know it, because at the very least, the prices seemed genuine. And the fakes were probably decent wines, possibly some good second growth poured into a Lafite bottle. They just weren’t the real thing. The forgers have targeted the legendary 1982 vintage in particular. Many rich Chinese have bought large stocks of 1982 Lafite. The odds are that these are all fakes. There are very few bottles of the vintage left. It is highly unlikely that one can get several cases of the real thing.

The interesting thing about this is that so long as no one says anything in public, everybody’s happy. Xie explains that Lafite is the drink of choice for buttering up government bureaucrats — not because it tastes good, but just because it’s expensive. If Yellow Tail cost as much, they’d buy that instead. So when you’re served a bottle of 1982 Lafite in China, the important thing is not that it’s 1982 Lafite, but just that it’s expensive.

All of this focus on the brand is great for Lafite, which gets to charge insane prices not only for its flagship wine, but also for its second growth, Carruades de Lafite, as well. It’s great for the forgers, obviously. And it’s great for the purchasers, who otherwise would never be able to get their hands on anything as expensive and special as a bottle of 1982 Lafite.

But Xie sees a dark cloud on the horizon:

A market is efficient when consumers are informed and make rational choices. An efficient market motivates producers to improve quality and control cost. The virtuous cycle leads to great brands that last. The French wine market is like that. I am afraid that Chinese demand is decreasing the market efficiency and may bring down great brands over time. When winemakers see the price a result of propaganda, not quality, they will focus on marketing and decreasing investment for improving quality. It would be a tragedy if Chinese demand, by bringing easy money, brings down a French legacy that has lasted for five centuries.

The wine market in general, and the market in first-growth Bordeaux in particular, has never been efficient. Certainly the big chateaux have never been particularly interested in cost control or in market efficiency, and it’s pretty obvious, as Xie recounts, that the success of Lafite in China is more a matter of dumb luck than it is anything to do with smart marketing. If the price of Lafite goes up, I don’t think that will bring down its quality. No one’s going to mess with a winning formula. Especially when non-Chinese buyers can bid up the price of Petrus to $40,000 a case before it’s even been bottled.

(Incidentally, every time a “br” appears in Xie’s post, it has been replaced with “P”. I’m sure this was an HTML find-and-replace gone rather wrong. Don’t let it put you off.)


“So when you’re served a bottle of 1982 Lafite in China, the important thing is not that it’s 1982 Lafite, but just that it’s expensive.”

This sentence is perhaps two words too long–and those two words are “in China.” The price and the label are almost certainly the two most important factors in the enjoyment of high-end wines above a certain threshold of quality.

I’m eagerly awaiting another post about how intolerably wicked blind taste tests are…

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The more you know, the better it tastes

Felix Salmon
Jul 6, 2010 05:06 UTC

Patrick LaForge was underwhelmed by his visit to McNulty’s Tea & Coffee:

I inquired about the roaster and was told with a shrug that the shop used an unnamed roaster in Long Island City, Queens. Presumably the beans had been roasted recently.

Many coffee sellers now offer tasting notes as florid and adjective-rich as wine descriptions, but there was none of that at McNulty’s. The country of origin was listed and in some cases beans were described as organic or free trade. No details were offered about the specific growers. I didn’t realize how hooked I have become on knowing this information, even though I am not an expert who can make useful judgments based on it.

This is in some respects just a difference in marketing. A place like McNulty’s relies on the mystery and mystique of foreign lands. A roaster like Intelligentsia and shops Stumptown and Cafe Grumpy appeal to a different type of consumer.

This type of customer is obsessed — perhaps too much so — with authenticity. For these consumers, coffee is no longer an exotic product arriving by ship from third-world places with unusual names. Knowing the details of origin improves the taste.

LaForge has hit on something important here, which is clearly making its way into the world of coffee from the world of wine, where it has been going strong for decades. The more you know about your beverage, the better it tastes. That’s why so many wineries put so much effort into wine tours and that’s why you’re much more likely to enjoy your bottle of pinot noir if it has been preceded by a short explanation from the sommelier of who the winemaker is, where they’re from and what exactly they’re doing. There’s really no way of telling how or whether any particular part of the story affects the taste, but the simple telling of the story makes an enormous difference.

And so when you go to the Intelligentsia website, you’ll find them featuring specific coffees like the one from Edelweiss Finagro Estate, in Tanzania. You’ll learn what to look for when you taste it: “Toasted marshmallow and sandalwood greet you in the nose while saturated notes of pomelo and red wine appear immediately on the palate.” You don’t have to have any clue what a “saturated note of pomelo” is in order to get the message.

But that’s just the beginning of what Intelligentsia serves you with your pound of joe. They’ll also tell you who’s growing the coffee (Neel and Kavita Vohora), exactly where the farm is, what varietals are grown (Bourbon, Kent, SL-28, Tacri), what altitude they’re grown at (1700 – 1800 m) and what months they’re harvested (July – November). They’ll then add some color:

These are the only farms I’ve been to in the world where the biggest source of worry is not fungus or insect damage but invasion during the night by marauding herds of elephants, buffalo and even lions! They pass through from time to time looking for water and elephants will actually locate underground pipes and dig them up with their tusks. When they walk through the farm they trample everything in their path, leaving a big swath of razed land.

People like LaForge don’t want altitude information on their coffee because they prefer 1700m coffee to 1400m coffee. Instead, Intelligentsia is supplying something much more important and valuable: a unique narrative. It’s the same thing that’s going on in the wine world:

Unlike Bordeaux, where many of the best-known chateaus are run by corporations or wealthy absentee owners, Burgundy is full of estates, including many of the leading ones, that are essentially small businesses. Dealing with Bordeaux often requires working with middle management and marketing specialists. It’s much easier to visit a Burgundian estate and find the one person who has dirt on the boots, wine on the hands and a name on the bottle.

“For people of my generation, 30 to 50, I don’t think we’ve had the same magical Bordeaux moments, not in the same way we’ve connected to Burgundy or even the Rhone,” said Laura Maniec, who runs the wine programs for more than 15 restaurants in the B. R. Guest group.

She still buys a lot of Bordeaux for restaurants like Primehouse, a Manhattan steakhouse, and Blue Water Grill, a Manhattan seafood restaurant that hosts plenty of corporate parties where Bordeaux is nearly obligatory. “But there’s a passion and a spark and a personal connection that are missing,” she said.

What you get in Burgundy is a story and that personal connection, which is impossible to find in Bordeaux. And you’re increasingly finding the same thing in the new school of coffee roasters and importers. It’ll be interesting to see where it turns up next: tea? Truffles? Tofu?


I wonder if it turns up in tea, will this whole practice include knowing where the particular silver tea set we are drinking from is made etc. I feel that such things take the fun out of enjoying a drink because you will often find yourself unimpressed and unable to enjoy drinking it just because it is not of a particular origin. But if you actually opened your mind, you would find that sometimes what others think is not good might just be your cup of tea, no pun intended!
http://www.acsilver.co.uk/shop/pc/Four-P iece-Tea-Coffee-Sets-Services-c97.htm

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Assorted wine (links)

Felix Salmon
Jun 16, 2010 05:00 UTC

My second wine column for Reuters is out, and in it I talk a little bit about my wine contests; previous installments can be found here, here, and here, and I should definitely thank Tamara Lover for the original idea. If you want the price-quality graph and scatter graphs for the Beaujolais contest, here they are; they look much more like Merlot than Pinot. For the real nerds among you, the spreadsheet is here.

scatter.png frequency.png

While I’m at it, I should mention a couple of other wine links which have caught my eye of late.

Eric Asimov had a great piece on the way in which Bordeaux is falling out of favor among the younger generation of sommeliers and wine lovers, partly because of the price factor:

Good Bordeaux might start at $35 to $50 retail, and $85 to $100 in a restaurant, and soar from there — far more than, say, reds from the Loire, Beaujolais or Alto Adige, darlings of the sommeliers and neighborhood wine shops.

At those levels, you don’t want to experiment. And if you’re playing it safe in Bordeaux, prices are much, much higher.

And Mike Steinberger has an equally great article in The World of Fine Wine — you’ll have to download it as a PDF — about the distinction between traditionalists and modernists in the wine world. He points out, quite rightly, that it’s not nearly as simple as the partisans (mostly self-styled traditionalists) would have you believe, and that in general both sides of the battle have come out very well of late.

Elsewhere, Jonah Lehrer talks about why wine tastes better when we know that it’s expensive, and Mike Veseth draws another important distinction, between what he calls Wagnerians, who enjoy wine every day, and Martians, who feel that there’s no point in making wine unless one aspires to true greatness. He quotes Thomas Pinney as saying something that I, for one, must definitely bear in mind as I continue on my way as a wine columnist:

The people who write about wine in the popular press largely appear to be Martians, who take for granted that anything under $20 a bottle is a “bargain” wine and who routinely review for their middle-class readership wines costing $30, $40, $50 and up. Even in affluent America such wines can hardly be part of a daily supper. They enforce the idea that wine must be something special — a matter of display, or of costly indulgence. That idea is strongly reinforced by the price of wine in restaurants, where a not particularly distinguished bottle routinely costs two or three times the price of the most expensive entrée on the menu.

I’m going to be spending next week at the beach, and this morning I bought two mixed cases of wine, including quite a lot of rosé, for $248, tax included. There were a couple of relatively expensive reds in there, but nothing over $15 a bottle, and I have every intention of getting a great deal of enjoyment out of all the wine that I bought.

It’s only natural for someone writing or talking about wine to gravitate to the rare and fabulous and expensive. But I’m a great believer in wine as a wonderful — and really quite affordable — everyday drink. It’s not always easy to find great wines for under $10 or $15 a bottle — which works out, on a per-glass basis, at less than the cost of a coffee at Starbucks. But it can be done, as I demonstrated with my $5.99 Morgon from Trader Joe’s, which did so well in the Beaujolais contest. And it’s definitely worth the effort seeking those wines out.


I have actually found some decent bottles of Bordeaux within $8 – $15, Ive also found some pretty good duds too. My wife and I blog about our finds at random stores trying to keep below $15 and we’ve had pretty good success with finding some exceptional wines. Unfortunatley society see’s more value within the price tag thsn in the actual product. Check us out if you have a chance, http://www.recession-wines.com

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Should wine writers be experts?

Felix Salmon
May 18, 2010 16:49 UTC

Spencer Bailey has a piece on old-school wine journalists vs new-school bloggers, in which he essentially says that the former are qualified to do their jobs, while the latter have freshness and an appealing voice. The oddest part of the column, for me, was the emphasis on the qualifications of the old guard:

A number of amateur bloggers, for instance, now call themselves critics. This is, some argue, a worrisome trend for the winemaking industry itself, if not also for professional wine writing…

“Maybe what blogging will do is undermine the whole idea that this is a subject that is rich and deep and requires some substantive thought and substantive knowledge,” says Karen MacNeil, author of The Wine Bible and one in a small stable of writers that wine critic Robert Parker has recruited to contribute to his Web site, erobertparker.com. “If everybody’s an expert,” she says, “nobody’s an expert.”

MacNeil, for the most part, is right. Magazine writers, newspaper columnists, and heavyweight critics like Parker—the industry’s leading critic, who launched The Wine Advocate in 1982 and created the 100-point rating system widely in use today—have become respected for a reason. These writers and critics really know their stuff, and the brands they write for are trusted as a result…

Wine is, after all, a complex drink, and it needs to be analyzed in a complex way, usually by someone with a deep understanding of wine or by someone with credentials, such as a WSET advanced degree.

As a recently-minted wine columnist for Reuters and someone with nothing approaching a WSET advanced degree, this was all very interesting to me, and in general I couldn’t agree less.

For one thing, it’s great for the winemaking industry that the universe of wine criticism is expanding from a few all-powerful critics to something much broader and more heterogeneous. No longer does everybody need to make the same style of Parker-friendly wines: winemakers now are increasingly able to follow their own tastes and instincts, and to find critics out there who understand and get excited about what they’re doing.

As for the importance of substantive knowledge and expertise, I’m increasingly coming to the conclusion that such things are a double-edged sword. Yes, it helps to know what you’re talking about. But all too often expertise manifests itself in impenetrable winespeak (“cardamom and leather on the nose, with lingering top-notes of freshly-mown grass and wet greyhound”) and an ever-shrinking audience of older, richer wine snobs. Wine is wonderfully social and democratic drink — you can find some great stuff for $15 a bottle, or $3 per generous glass, which is a great price-to-pleasure ratio. But all too often people get scared off by the snobs, decide that they “don’t know anything about wine”, and never discover this wonderful world.

Learning about wine, I think, is something best done over time and out of love, by drinking it and by occasionally visiting wine-growing regions of the world, which are invariably beautiful places to go on holiday, even if you’re not a wine geek. And it’s perfectly fine for wine writers to take their readers on that journey with them, rather than waiting until they’ve achieved some level of snobbishness before feeling qualified to write anything. All too often, natural enthusiasms are educated out of wine drinkers, who are constantly and unhelpfully told that the most expensive wines are the best wines. This syndrome is particularly pronounced in California, where heavy and tannic cabs, which pair well with nothing except for maybe a bloody steak and a cigar, are elevated to cult status and aped by winemakers across the state.

I, for one, would fully embrace a world where everybody’s an expert and nobody’s an expert, where people can find critics and bloggers whose tastes overlap with their own rather than feeling intimidated into thinking that if they don’t like what Wine Spectator likes then there’s something wrong with them. As for the idea that magazines get respected because of the degree of knowledge that their writers show, I think it’s much more the other way round. And the 100-point system is an absolute abomination, which in and of itself is reason to hate old-school wine journalism.

The best wine writers, I think, are those who wear their erudition lightly, and who don’t tell their readers what to like. John Brecher and Dot Gaiter used to do that in the WSJ, and it’s a crying shame that they’ve been replaced by critics who habitually zoom to the most expensive part of any wine list. After writing my first official wine column, I noticed something quite human about myself: I wanted to show off, and talk about obscure and expensive wines. But that doesn’t serve a broad audience: it just exacerbates the syndrome of people buying wine for all the wrong reasons.

So let’s celebrate the diversity of the wine-blogging world, and let’s stop being intimidated by experts. If you’ve found a wonderful $6 bottle of rosé, then that’s fantastic: you get loads of pleasure without having to spend lots of money. There’s no shame in that, and if you want to share your discovery with the rest of the world, then please do. No need for expertise.


I think this relates to the question of who decides what is a fine wine. Expertise is great if it can be trusted to be genuine and is not misused as of late. End of the day we like what we like

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Vikram Pandit’s $350 glass of wine

Felix Salmon
Apr 12, 2010 06:03 UTC

Andrew Ross picks up on this anecdote from Roger Lowenstein’s new book:

The problem of executive pay did not admit to an easy fix. Well into the crisis period, when banks such as Citigroup were operating on federal investment and when Citi’s stock was in single digits, Vikram Pandit, the CEO, was observed with a lunch guest at Le Bernardin, one of the top-rated restaurants in New York. Pandit looked discerningly at the wine list, saw nothing by the glass that appealed, and ordered a $350 bottle so that, as he explained, he could savor “a glass of wine worth drinking.” Pandit drank just one glass; his friend had none.

I have to say I have a grudging admiration for Pandit here. For one thing, this story doesn’t really speak to the issue of executive pay: Pandit made his real money not as an executive but as a part-owner of Old Lane, which got bought by Citigroup for a vastly overinflated sum. Yes, Old Lane was bought largely for the purpose of bringing Pandit into the Citi fold, but that kind of thing is very hard to consider “executive pay”.

What’s more, I’m sure the rest of the bottle hardly went to waste: most likely it was either drunk by the staff or sold off by the glass to people who were very happy to see such a high-end wine available by the glass.

And more generally, you don’t need to be worth tens of millions of dollars to pull a stunt like this. You just need to like good wine with good food, and to decide that in this particular restaurant on this particular day, a good glass of wine is worth more to you than $350. I can think of people I know earning six-figure salaries (as opposed to seven or eight figures) who are definitely capable of doing this kind of thing.

Of course, it’s also possible that Pandit put the meal on expenses. And you can see the logic: if a $350 bottle of wine would be an acceptable expense normally, it’s silly to polish the bottle off solely to justify the expense of ordering it. The main benefit of ordering a great bottle of wine is to taste the wine inside it; by the time you reach the sixth glass, you’ve already got that benefit, and at that point you’re mainly just getting drunker.

None of which stops the fact that the optics here are terrible. Pandit doesn’t behave this way in public any more, I’m sure — he’s super-alert to any signs of conspicuous consumption at this point. But I wouldn’t be surprised to learn that, in the privacy of his own home, he occasionally does exactly the same thing, and opens up a spectacular bottle only to drink a single glass. It’s a pretty modest vice, by contemporary standards of plutocratic excess.


Justify it all you want… the bottom line is that it is shameful. I can afford it but I would not do it. There are 40,000 homeless people in New York City. I will try to look at the bright side… at least he didn’t go to the vomitorium after drinking the wine.

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Why wine isn’t an investment

Felix Salmon
Mar 30, 2010 19:40 UTC

Swiss researchers Philippe Masset and Jean-Philippe Weisskopf have a new paper out claiming to demonstrate that if you add wine to a portfolio of financial assets, that decreases your risk, increases your returns, and helps you out (if you care about such things) on the skewness and kurtosis fronts as well. Leslie Gevirtz writes up the results here, and Reuters graphics supremo Silvio DaSilva has even put together some pretty charts from the paper here.

I’m very skeptical about this result, however, for four main reasons.

  1. The number of people genuinely investing in wine — that is, buying with an eye to selling it, rather than drinking it — is still tiny, but Masset and Weisskopf are probably right that it’s growing. “The resulting improvement in transparency and liquidity has rendered this market even more attractive for investors,” they write, but I’m not so sure: I suspect that wine’s relatively low asset-price correlation during the financial crisis was entirely a function of the fact that it wasn’t really an asset class in the first place. If and when it becomes an asset class, then correlations are bound to rise, especially in times of crisis.
  2. Incredibly, Masset and Weisskopf treat wine as a cost-free investment: in the world of their paper, it costs nothing to sell wine, it costs nothing to store and insure wine, and it costs nothing to buy wine, over and above the hammer price at auction. On planet earth, of course, none of these things is remotely true. So far, I have yet to see a story on wine as an investment which takes into account reasonable estimates for these costs. If and when such a study comes along, I’m pretty sure that wine will suddenly look much less attractive as an asset class.
  3. There’s enormous survivorship bias in the dataset. Masset and Weisskopf looked back at the wine market between 1996 and 2009, and then cherry-picked the regions which, in hindsight, turned out to have the greatest volume at auction. Then they took the wines from those regions and cherry-picked again, choosing only wines which traded at least once a year. So the 1982 Barbaresco Riserva Santo Stefano, for instance, made the cut, as it rose sharply in price between 2002 and 2009. But a neighboring Barbaresco which sold for just as much in 2002 would be ignored if it didn’t appear at auction in 2003 or thereafter. An investor in Barbaresco in 2002 would have no way of knowing which one was going to go up and which would end up impossible to sell, but by the lights of Masset and Weisskopf, the one which went up a lot was entirely representative.
  4. This isn’t a buy-and-hold market: you have to know exactly when to sell your wine before it becomes passé. Masset and Weisskopf try to spin this as a good thing, saying that they “discard wines that are viewed as antiques and not as wine as such” and that doing so “eliminates wines that are mostly illiquid and are traded infrequently”. Without dwelling on the metaphor of a “mostly illiquid” wine, the problem here is that Masset and Weisskopf seem to think that it’s possible for investors, en masse, to buy wine when it’s young and sell it at a profit when it’s middle-aged, but before it gets old. Of course, they can’t: who’s meant to be buying all that middle-aged wine? This strategy is all well and good so long as there aren’t enough wine investors to move the market. But if wine-as-an-investment ever takes off, that’s certain to significantly increase the supply, and therefore decrease the price, of good middle-aged wines being sold before they get too old. And when that happens, the returns from a wine-investment strategy could easily turn negative.

To get an idea of how Masset and Weisskopf think, check out this chart:


The thing to note here is the way that all the different wine regions have been rebased to 100 in 1998, as though people first decide how much money they’re going to spend on wine and then work out how much wine that will buy. Masset and Weisskopf don’t provide the actual datapoints in their paper, so I don’t know how much the average Rhone wine was going for in 1998 compared to the average Bordeaux. (And, of course, remember that we’re not actually talking about the average Rhone wine here: we’re talking only about the Rhone wines which, in hindsight, turned out to be the ones that wine lovers wanted to buy at auction. If you bought an obscure Rhone wine in 1998, which Robert Parker then started extolling in 1999, you would have made lots of money; if he didn’t, it probably wouldn’t make the index.)

But let’s say that Rhone wines were a quarter of the price of their Bordeaux counterparts in 1998, and a third of the price in 2009. No self-styled wine investor would ever allocate on an equal-investment strategy, investing say $10,000 in each: investors are always going to be overweight the most expensive Bordeaux. If you ran this same chart on the basis of average price per bottle, rather than rebasing everything to 100, it would look very different indeed — and would be much more representative of how wine investors actually view the wine market.

At its heart, this paper is an exercise in highly-theoretical number crunching, and bears little if any relation to the real world. If you want to go out and buy fine wines, that’s great. But don’t kid yourself that you’re making an “investment”. I should know: I still own a case of 1963 Croft which my grandfather bought for me when I was born. I’m not a huge port fan, and haven’t been drinking it. But I wouldn’t be at all surprised to hear that storage costs alone, since purchase, exceed its market value. Of course, if my grandfather had bought me first-growth Bordeaux instead of port, then that might not be the case. But he didn’t have the benefit of Masset and Weisskopf’s hindsight. They shouldn’t assume that he did.

Update: Masset and Weisskopf respond in the comments.


Do you have an update to this article, circa spring 2014?

Have you watched “Red Obsession”?

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