I don’t know what explains Vinculum’s share price. But these funds do sell off inventory to realize gains, so I don’t think the returns simply reflect a portfolio of older vintages.
To return to Mark’s original post, if speculators/wine funds are running up prices, you’d expect their portfolios to be rising in value. No signs of that over the last 10 years in the case of these two.
https://www.vinculumwinefund.com/fund-performance/
" Worldwide fine wine prices, as demonstrated via the major fine wine indices, experienced something of a delayed reaction to the fall of other equity markets, declining from mid-2011 onwards through 2013"
What decline in the equity markets? Other than relatively modest corrections, the S&P 500 has risen pretty steadily since early 2009.
They are blaming decline in 2008 and 2009 leading to decline in wine prices in 2011. Pretty bold claim, especially if false.
+1 to the latter parts of the post.
It is interesting to hear a producer’s perspective, particularly from a producer whose wines’ prices have been driven into stratospheric levels by speculators. I don’t know whether yours is a domaine where you still sell direct to longtime customers or not, but it must be interesting to see the prices that your wines sell for through normal distribution in the U.S. market, let alone via grey market or speculative pricing, and how that compares to ex-domaine pricing. Your 2015 Bonnes Mares is available for $1,500 in the U.S., and your 2015 Clos de la Roche can be had for $900-1,000. I would guess that, should someone be lucky enough to know a retailer willing to sell those wines, obtained through regular U.S. importer distribution, at a regular markup and not at “what the market will bear”, the Bonnes Mares might “only” be $600 and the Clos de la Roche $500. Still, these wines at those prices are no longer for the devoted customers who have been buying your wines for many years…they are for speculators and those relatively few actual fans who can still afford them. And those stratospheric prices result in a level of expectation for the wine experience that may only be rarely met. As you stated, it is harder to enjoy these wines in a more casual, simple way, and it is more difficult for people who have loved your wines for years to continue to enjoy them. I am not sure what the situation is like in the European market, but in the U.S. they are essentially inaccessible for most of us. Not sure what the solution is, and perhaps there is none, but times are definitely changing and not for the better, at least for the true Burgundy devotee.
I have studied the numbers over the years, and over the long term wine is a terrible investment from a return standpoint. The only real way to make a worthwhile return on wine is to flip it in the short term and take advantage of inefficiencies in the marketplace. And when a wine is well allocated across major markets, there is not the volume to make it worthwhile.
That said, wine makes a great vanity investment- and so there are a lot of people who are dabbling in it, or using other people’s money to dabble in it. And this is why it is difficult to know when, or even if, the bottom will fall out of the current bubble when it comes to burgundy and certain low production wines in other regions like Le Pin where quantities are so tiny.
For most of the investors, the relative dollar amounts are not all that large, and they are not relying on wine returns to put bread and butter on the table (or gasoline in the Lear Jet.) And so many of the fundamentals of sound long-term investing in assets do not apply. If you look closely at where the money is flowing, it is not systematically flowing to what wine drinkers would generally regard as the best wines (it catches most of them, but not all), nor is it on a pro-rata basis flowing into wines just below the perceived “A-List”. And finally, the Rudy effect continues to live on in the fact that many investors are still living in the reality that never was of a decade ago which says that the greatest burgundies are immortal. They are not- and many of the hottest wines today continue to be examples which are well past maturity.
And so you have a very irrational investment approach combined with the biggest red flag of all- that point where the dollar value of the asset reaches a point where utilizing the asset for its intended purpose is no longer worthwhile in the eyes of the intended end consumer.
Ostrich farming in Texas is a great example of this. When I was growing up here ostrich farms were all the rage. And in most cases it was a vanity investment undertaken by the very wealthy. The ostrich is a very useful creature- virtually all of its hide, including the legs, is suitable for the manufacture of high end leather goods, and the meat is quite delicious as well as being a healthy alternative to beef. And yet there is no ostrich farming in Texas anymore because speculation drove the cost of eggs and breeding pairs to a point where the only way to make a good return was to sell your ostriches to someone else. Add in the fact that the long term costs of upkeep were more than many had considered, and one of the most useful and valuable animals on the planet from a consumption perspective became a very bad investment indeed.
DRC illustrates the current tipping point quite well. Consider the following,
Starting with the 2009s/2010s, a great many merchants were selling virtually all of their allocation to one or two people. And there are/were a great many people buying at that level from several sources. So right off the bat, the true customer base has shrunk dramatically.
I personally know of several situations where such individuals stopped buying when the 2015s came along. Allocations got very small, and most retailers started taking markups to reflect secondary pricing as they expected it would be for a vintage of such fame. And what is the result- despite the legendary status of the vintage even some of the big money speculators got priced out of their comfort zone. And right now, at this moment, for the first time since the 2007 vintage- if someone in Texas came to me and wanted to buy multiple bottles of every 2015 DRC wine produced from Texas retailers, with 3 phone calls I could fill their hearts desire. This is an astonishing reality.
The pricing for older DRCs is not nearly as vintage- dependent as it should be if drinkability or desirability from a drinking standpoint is the primary valuation factor. Assortments of 1992, 1993, 1994 and 1995 sell for very similar amounts. And that should not be the case if investors are rationally considering the end use and ultimate purpose of the asset being traded. There is much to be said for the lovely 1992s (drink soon), and the 1994s have a very valid purpose at the table (hold another decade in most cases IMHO.) But worth the same as 1993 or 1995 which are magnificent DRC vintages? No way.
So yes- we are living in a strange world right now, but given the fact it is vanity investment and not a Wall Street approach that is driving the speculation- and speculation in a relatively tiny asset base compared to more traditional investments like D-Flawless diamonds, it is very hard to know exactly when and in what manner the bubble crashes. Given the vast concentrations of wealth in small hands, it is quite possible that a large sell-off could result in minimal value reductions with the wines going to people who can, and would happily, drink La Tache every day. Or perhaps even more broadly in smaller doses to a wide range of consumers like many of us. If La Tache were suddenly $1,500 a bottle again (a percentage decrease akin to some past Bordeaux first growth pricing corrections)- I would be very tempted to lay down a case or two for the future.
There are two bright spots in this however.
Also, keep watch for when things fall out of favor. I do not know why- but Vega Sicilia is not on the A-list anymore- at least not at the moment. The market is being flooded with the stuff, notably the Reserva Especial. You can grab that up for a song at auction right now- less than half of retail. And if you do your homework on the vintage composition of each release, you can get your hands on the best of the best- as I recently did- for less than what those particular bottlings went for wholesale at release.
I could go on, but I will leave it there.
Will we get to a point where the general failure-to-drink will result in a lowering of prices? Put another way, to what extent are current crazy prices supported by the fact that buyers/investors have actually tasted examples of their investments? If, in 40 years, nobody ever drinks DRC because it’s too expensive, will folks stop buying? Doesn’t wine require drinkers in order to keep prices at Investment Level? … Cris touched on this idea here:
And Tom ran right into it here: (can you tell I posted before reading others’ thoughts 
)
… hmmmmmm, that’s the point of this thread, right? — that a failure to drink will ultimately lead to a popping of the bubble. Or no? 
Consensus on this thread suggests it is a bubble for higher end wines, with the empirical proofs discussing DRC. But only anecdotes on Dujac. How far down the pyramid does bubble extend?
Evidence of that? You can barely find any market data on juge at auction. Scattered ones and twos here and there.
Not enough being sold to manipulate the market. The wine is expensive cause it’s scarce not because of speculation
Now that is just plain nasty! ![[wow.gif]](/uploads/db3686/original/2X/7/7d450e9830889c8943b674446a21b7254cad657e.gif "wow"){kind=small}
Back to the discovery of new terroirs, I shoulda qualified that as a comment relative to our lifetime. So while Greg may me be correct in that respect, and perhaps even in 20 or more years if there is more climate shift, but this is not something that will create available, quality wine in my lifetime. Still gotta grow it. And for those of us that like old vine wines generally, these yet-undiscovered terroirs are generations away.
Outside the US, 2011 was a fairly bad year with roughly 20% drops in many major indicies including the DAX, CAC, Kospi, Nikkei, Hang Seng, and Shanghai composite. Most took two years to recover 2010 levels.
Could some of decrease be due to cost? Obviously, storage costs are an expense that can add up. But, I also assume that someone is being paid a good bit to manage the
whole thing - what and when to buy, what and when to sell. My guess is that this cost is pretty high.
The eye test is all that is needed to see when attempts are made. This is a wine board. Courtroom rules do not apply.
Speculation can cause bubbles, but bubbles burst. They can’t drive prices up beyond what people will pay. The rise in prices for the top tier of wines is fairly simple. There are many more buyers with money to burn for roughly the same number of bottles. Draw a number in the sand–say $100 a bottle, and assume everyone, no matter how much money he or she had, thought that to pay higher was tantamount to buying the Brooklyn bridge, an wine prices would drop pretty fast. But people don’t think that, so the prices don’t drop. Speculators can’t have more than a marginal effect on that.
Attempts at what? Are we still talking about Juge?
I think it can be a little of both.
We saw people on this Board, in CC, immediately start listing Juge for $300+. If they bought just to flip, isn’t that speculation?
Didn’t one person, or one buying block, essentially buy like the vast majority of Juge’s 2013 vintage directly from the source, pre-release?
The only eye you should concern yourself with is the RIBeye test. Anything else is spurious.
Scheiße! ![[head-bang.gif]](/uploads/db3686/original/2X/b/b1cd199e4b2b2988b5107c3c9598fd28dc92a776.gif "[head-bang.gif]"){kind=small}
Wine prices rise and fall on supply, demand and the economy. You cannot place the blame solely on speculators. The amount of investment quality wine produced is limited. With few exceptions, the amount of wine produced at that high-level worth speculating on does not increase. But demand from wealthy collectors and new buyers with money continue escalating.
On the other hand, you cannot ignore the jump in value over the past decade of traditional stocks, bonds, real estate etc., and the effect that has had on consumers willingness to pay higher prices for wine.
The bad side of that is rising prices for wines you like. But for most people, the increase in value for your home, stocks, bonds, and other investments, as well as for the wine already in your cellar, more than offsets what the same wine now costs you to buy.
A crash in the wine market will be bad for everyone, because while wines will cost less to buy, everything, everywhere will also be worth less money. Rising tides raise all boats. So, be careful what you wish for.