Fine Wine Investment (Part 2/2 - Bordeaux Super Seconds and the market)

By the end of August 2011, the soaring super second prices have gained an average of 23% since the end of 2010. More, the market favorite third growth Chateau Palmer, fourth growth Chateau Beychevelle (known to the Chinese as “the Dragon boat”) and fifth growth supernova Chateau Pontet Canet have all provided good amount of returns. However, this is not a short term investment supporting evidence but vice versa instead. Chateau Palmer is probably one of the a few 1855 Grand Crus who still gained value in the most recent week; recorded +15.8% of its 2009 vintage.

Noted earlier in my facebook on the 9^th August (right after the slash of the stock market), the alignment of Liv-ex 100 index with three major US stock indices have suggested that the market is unstable and the short term risk of fine wine investment has increased dramatically. The alignment chart also indicated some correlation between the two indices (refer to my facebook). Also stated on 13^th September (in Chinese), I believe another 20-30% fall (based on macro economics/world economy and short term overly valued prices) would provide a better entering point for the investors. Ended 11^th September, Liv-ex 100 has dropped 6.35% during the past month; given a total of 11.53% lost since the year highest in June.

“Everyone needs some SWAG” (published in Investment Week) by Joe Roseman, former economist at Moore Capital Management suggested that investors should add or at least consider adding these physical assets into their portfolio (SWAG = silver, wine, art and gold). The argument was that these physical assets have outperformed all other equities in the past decade, whilst having eight advantageous/distinctive characters such as no incumbent debt associated with the assets, scarcity and longevity. I agree the argument on the basis of portfolio diversification reduces idiosyncratic risk however, diversification can not reduce the systematic risk. The easiest way to explain it is that no one itself has the win win  situation.

I always believe that cash is a very important part of investment portfolio, especially in time like now when the world market is extremely unstable. Angry U.S. unemployee walk on the street, at least 90 multi-million companies and firms from Wen Zhou (China) have gone bankrupted due to informal credit loans and unsolved Greek debt crisis... and the list goes on. My suggestion is to have 50-70% of all investment allocation in cash (I personally raised it to 90% two months ago) depending on personal risk adversity. In conclusion, fine wine investment is for the long term genuine investors instead of short term speculators. Fine wine investor should have strong sense of longevity, otherwise, short selling options in the equity market is probably more suitable for you.


(original data from Liv-ex.com, Yahoo Finance - for personal use only)