The excitement over the 2015 Bordeaux vintage is palpable. Early indications suggest that it is the best vintage since the superlative duo of 2009 and 2010. However, the quality of the 2015 vintage likely is not as high or as uniform as these prior years. The communes of Margaux, Pessac-Leognan and Pomerol appear to be the stars with the northern Medoc being of more variable quality due to late arriving rains.
The absence of a quality vintage for almost a half-decade has led to high expectations for the 2015 futures campaign. However, the stratospheric release price and subsequent poor investment performance associated with the 2009, 2010 and 2011 vintages have caused many to view the Bordeaux futures system with skepticism. Therefore, before we get too seduced by the hype surrounding this new vintage, we should consider whether the current price of these wines make them a compelling value proposition at this juncture.
When analyzing any futures offering for a specific wine, I ask the following three questions:
- Is this a wine worth purchasing based on my prior experience with previous vintages and/or its initial description and critical rating? Basically, is this a wine I really want to own?
- Is this a wine that is made in such limited quantities that I would need to purchase it via futures to obtain an allocation? Think Le Pin, Ausone, Lafleur, Hosanna, etc.
- What is the relative value of this wine compared to the most recent similar quality in-bottle vintage? Put another way, is the current futures price of the wine at least 20% below the lowest current retail price of the most recent similar quality in-bottle vintage? As an aside, I use 20% as a threshold because I feel that it is the minimum discount needed to justify the time-value of money and counterparty default risks associated with buying a wine two years before it is delivered. For example, if I can earn at least 5% per year by investing in stocks and bonds and I want at least a 10% discount to cover the risk that the merchant may not actually deliver the wine when promised, my minimum discount is 20%. I also feel that this discount is sufficient to justify purchasing a wine that has not yet received a final in-bottle rating.
If I can answer question #1 and either question #2 or #3 in the affirmative, I will consider purchasing the wine via futures. However, as you may have guessed, the most important questions is #3. Why? Because it is the only question that deals with monetary value and risk. Moreover, it is the only criteria that can be used as a litmus test to determine the relative value of a specific futures offering for an entire vintage, not just a specific wine.
Now that you understand how I generally analyze a futures offering, let’s look at the 2015 futures campaign to see if it passes muster. Read the rest of this entry »