Idea of buying Bordeaux en primeur now is ‘null and void’, says Farr Vintners

Wine investors who bought one case of each of Bordeaux’s first growth chateaux for the five years from 2009 would have lost £35,000 if they sold last Friday, said the Wall Street Journal’s Will Lyons.

Speaking at a debate on the future of Bordeaux en primeur, hosted by Tim Atkin MW at London Wine Fair yesterday, Lyons said these “staggering amounts of money” illustrated the problems Bordeaux is currently having.

He added that if investors had just sold off only their 2009 wines they would have lost £11,500, according to Liv-ex values.

“One of the major problems of Bordeaux is the wildebeest effect,” said Berry Bros & Rudd’s Max Lalondrelle, “they [chateaux prices] all go up and down at the same time.”

Tom Hudson of Farr Vintners said: “People have walked away from en primeur, why would they [buy] when they can get it cheaper later? En primeur is not killed, we can go back, but we need to have some reality.”

He added that an anlaysis of 32 chateaux from the 2009 vintage showed that prices have fallen back by an average of 8%, which would equate to an 18% loss if you sold, taking into account the sales commission. He said that a couple of chateaux, including Pichon Baron, Cos d’Estournel and Pontet Canet, had bucked the trend, but not many.

Hudson said the “idea of buying en primeur is null and void in the present time”.

“The market has wanted pricing to go back to 2008 levels and it had been hoped that this would happen. We’re at a point of impasse at the moment. I hope the next vintage will be at a level that will bring consumers back into the market.”

Christian Seely, managing director of AXA Millesimes, said Bordeaux 2013 was “extremely varied from property to property”, and warned that generalisations on the vintage should be avoided.  He said the difference in chateaux’ strategies or terroir meant some had “very decent campaigns” while others faced much greater difficulties. But he added, the negative comments from the media, before tastings had even begun, had not helped.

 

 

Readers' comments (7)

  • Stephen Forward

    The bubble has burst. Only a fool would speculate in wine. There is no value in the product for it to be considered an investment. Anyone using that term is deluded and doesn't understand investment basics. Wine is a wasting commodity not an investment asset. Wake up people!

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  • Stephen,
    Whilst I cannot condone the pricing strategy of Bordeaux over the last 5 years or more, what you write here is so laughably misplaced I felt compelled to comment...based on the London release prices for each of the Firsts since 2009 a collector would had 'invested' GBP 138k and if sold today lost GBP 45k, according to Mr Lyons. If an investor had invested the same sum on a FTSE100 portfolio in Aug 2000 and sold it in Mar 2003 they would have lost GBP 71k. Taking two points and forcing a conclusion is arbitrary and short-sighted, at best.
    En Primeur as in investment is not necessarily a smart bet, but using Bordeaux as the only barometer is not all-encompassing enough to draw a good conclusion on investing in wine per se; top grower Burgundy prices, for example, have risen dramatically of late, whilst if I sold my personal collection (not that I bought for investment) today I would make 20% ROI after commission - not many investment assets can provide that kind of return in 3-5 years.

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  • Stephen Forward

    Dear Scott,
    Thank you for your intriguing answer. Naturally I would expect a robust defense from someone whose bread is buttered with the commission earned from the fools whom speculate in wine.

    To compare the performance of a wine portfolio between 2009 and 2014 with the FTSE100 from Aug 2000 and to Mar 2003, as you did, is absurd and it is frankly hard to take you seriously from this point on. A more “reasonable” comparison would be to compare the performance over the same time period, and between 2009 and 2014 the FTSE100 has gained over 51% during that time. That figure does not take into account dividend yield, a return wine does not offer at all. I say “reasonable” comparison because you are comparing two different investment asset classes. The FTSE100, as you know, has a much better margin of safety than that of wine. I could go on, but I don’t believe for one minute that you are a foolish as you make yourself out to be.

    Regarding your point “using Bordeaux as the only barometer is not all-encompassing enough to draw a good conclusion on investing in wine per se”. If you read my recent Harpers article on Wine Investment, Speculation, or Ponzi Scheme, you will see that there is much more to my argument than just the so called “investment grade Bordeaux”. Indeed, wine investment is folly, period -- It is just speculation, no more.

    The main thrust of my comment was to point out, as you should rightly know, the difference between investing and speculation -- thay are not the same thing.

    To quote from Investopedia “The main difference between speculating and investing is the amount of risk undertaken in the trade. Typically, high-risk trades that are almost akin to gambling fall under the umbrella of speculation, whereas lower-risk investments based on fundamentals and analysis fall into the category of investing. Investors seek to generate a satisfactory return on their capital by taking on an average or below-average amount of risk. On the other hand, speculators are seeking to make abnormally high returns from bets that can go one way or the other. It should be noted that speculation is not exactly like gambling because speculators do try to make an educated decision on the direction of the trade, but the risk inherent in the trade tends to be significantly above average.”

    I am sure, with your background Scott, you will have read Benjamin Grahams book “The Intelligent Investor”. If you haven’t read the book I would gently suggest you do. You will also be familiar with Tulipmania, and the dot.com bubble, and it is easy to find similarities between the modern day rise in wine prices and other bubbles of the past.

    Of course many people have made and lost money speculating in wine, just as people make and lose money gambling on race horses. As long as the speculator knows and understands the risk, who I am to stop him or her parting with their money.

    Where I do take issue is when wine speculation is sold or “dressed up” as investment. It is not the same thing, and if you don’t understand that basic fact you are not as clever as you think you are.
    The clear winners in this game are the brokers, and wine merchants that earn commission. As you know wine speculation is unregulated. As a result I have seen widely inaccurate claims by the wine investment community that just would not be permitted in the financial services industry. As a result many poor uninformed folk are taken for a ride believing they are “investing”, when in fact they are just “speculating”.
    I would love to debate this with you further, but in the meantime I refer you to my recent Harpers article on Wine Investment, Speculation, or Ponzi Scheme.

    http://www.harpers.co.uk/opinion/wine-investment-good-idea-speculation-or-ponzi-scheme/356491.article

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  • Stephen,

    I would be tempted to furnish you with a host of detailed facts and figures that debunk much of your arguments here, and in your earlier article (briefly; the impact of China on the fine wine market; the many highly intelligent and professionally successful customers we have who happily invest, or 'speculate', in wines and would take umbrage to being called 'fools'; that less than 5% of my company's revenues come from wine investment; the simple economic principle of demand vs supply, particularly with reference to wines from small producers and/or in short vintages sought after by an increasing number of astute collectors; that some form of regulation has already been implemented in the wine industry to combat wine investment scams, to name but a few), however do not wish to enter into a debate with someone who slings around personal insults on a public forum. To have an opinion on a subject is one thing; to bring personal matters into the debate is unprofessional and shows a lack of objectivity.

    Yours,
    Scott

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  • Stephen Forward

    I love your reply Scott. :-)

    'Good men and good women have fire in the belly. We are fierce. Don't mess with us if you're looking for someone who will always be 'nice' to you. Nice gets you a C+ in life. We don't always smile, talk in a soft voice, or engage in indiscriminate hugs.'
    -- Sam Keen

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  • Stephen, Scott,

    Both of yu have very valid arguments. I do not see a reason to antagonise about ideas that you are trying to share.

    Anyways on the topic of merchants making a lot of profit.
    I run a fine wine merchant firm based in Bordeaux. We are bleeding dry these days. In a deflationary environment like today you will always find someone ready to undercut prices by 15% to keep one's neck out of the water.

    Balance sheets of most Bordeaux merchants are ugly these days. Business models reliant on stock more than flow are very strained.

    Flow guys (brokers etc) suffer as much as they face a lot of disruptive participants these days.

    Just to share my 2 cents.

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  • Stephen Forward

    Dear Loves Good Wine,

    You are absolutely right of course, no dispute there; we could be less antagonistic. But would it make for better reading? Would the article be topping the most read leaders list this week?
    We all love a bit of controversy and my aim is to purposely rattle a few cages -- nothing wrong with that in my mind as long as it is kept within reasonable limits of courtesy. It makes popular reading and that can’t be bad for advertising revenues. After all, who actually listens to Radio 3 anyway? :-)

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