Wine Investment Friday's

This newsletter is designed to bridge the gap between trade and the investor. Each week we aim to help investors better understand the nuances of why some cases appreciate and some standstill. We will unpick the characteristics that construct financial potential to help your money work smarter. 


This week we are analysing a high risk tail end investment play by reviewing:

Cheval Blanc – 1998


Buying blue chip first growths or their right bank equivalents typically impart risk aversion onto your collection, but what if you are buying late in the life cycle?


Beneath the Label

Cheval Blanc is undoubtedly one of the foremost estates of the right bank. It is an estate well established amongst the first growth tier of Bdx wines. However unlike those of the left bank, Cheval is an estate that lacks consistency with scores spread across the range. This ultimately means that their far more scarce best iterations are heavily coveted. 

Critic Score: 100 Points – Parker
At present this is the first 100 pointer on the Wine Advocate list for Cheval, quite a landmark. Upgraded in 2018.

Region Rating: St. Emillion – 96T
While the left bank suffered a trying vintage, the opposite plateau received wonderful climatic conditions conducive to excellence.

Drinking Window: 2018-2048
Along with the likes of Ausone and Latour, Cheval is one of the estates producing monster wines capable of enormous age. 

Production Volume: 6000 cases
Under half the average total production of those over the river, these wines are rare from release in comparison. 

Summary:
In line with our stock picking philosophy, this is of course a wine of stand out quality. However there a couple of points that elevate it even beyond the 100 point tier. The first is its landmark score, as we know Parkers influence was enormous and despite his retirement the Wine Advocate remains valid to many collectors. So for this to be the first 100 for Cheval is significant indeed. The second is the vintage variation. With ’98 lacking in quality across the river, those looking to drink the best from the vintage have fewer options. To find quality the onus is on the small supply right banks. 


“This cannot fail to impress”

Wine Advocate


Money Matters

Brand Power: 93/100, rank 9th in JF Tobias Brand Power Metric
This is one of the top wine brands around the world, with clamouring audiences in all markets. Its association with absolute quality and in fact the large prices it can command has helped push the allure further. Unsurprising from a wine that is the epitome of a veblen good.

Liquidity: 30%
This is perhaps the weakest metric held by 100 point Chevals. The larger ticket price can be a barrier to entry for sum and as such the pool of buyer is somewhat more constrained. In addition they require ageing and some lack the patience to undertake this task. 

Inter-Trade Price Volatility: 8.8%
Slightly more volatility has occurred as the wine ages and the price becomes less transparent. A lack of public listings and trading impacts Liv Ex accuracy. However for a wine of this age and price a score beneath 10% is a reassuring sign. 

Price History: 

Summary:
The financial traits of a wine tend to be impacted differently as they age, especially when dealing with a wine of this tier. The drivers for these metrics move from an estate centric origin to market orientated. In youth the focus is more general, looking at the estates reputation, the historic liquidity levels of that producers wines and the price visibility associated with the abundant cases. However this wine has now shifted to become a very rare, unique wine thanks to its age and price. The pool of buyers interested in this wine is much smaller yet more motivated. The specific listings of this wine around the world is far fewer, yet the reputation is far more revered. As such you have a more illiquid item but one more prone to price jumps, which when dealing with the very top tier is favourable.


Position for Profit

This type of investment is for those who wish to search for gains and embrace some risk. This is simply because this case is targeting tail end price jumps. Rather than purchasing early on in a wines life time and enjoying the steady price progression we associate with blue chip Bdx. This strategy is looking to find high water mark wines, genuinely exceptional stock that are in their window and therefore likely to jump higher as demand reaches fever pitch. It is a phenomena we see frequently but only amongst specific stock, that being 100 pointers, or star vintage iterations from the very top estates.
The risks are the obvious high capital requirement for entry, you are buying into a more illiquid item and down scoring does occasionally occur. However these risks are adequately matched by the earning potential. Using this case as an example, the ’98 at present costs roughly £6,800 per 12. A case of the ’90, a lower scored wine, now commands over £11,000. The potential to near double your money along an 8 year timeline within a low risk physical asset class is a special investment chance.
The final insurance factor is that while this is “high risk” in the world of wine, unless this stock is suddenly rescored to 80, it will almost certainly, at the very least, maintain its value. As a result you are buying into exposure to enormous potential positive volatility while remaining insured by the fundamental quality of the wine. A great bet for those that can afford it. 

The Author

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Jake Leighton