Shared Experiences: Investing in Bordeaux

Matthew Hall, First Republic Portfolio Manager, Spectrum

I may be an experienced financial professional, but like many of you, I find passion and great pleasure in learning about, procuring, and of course, drinking fine wines. Lately the outsize returns from buying wine for investment have been the topic of much print and even more conversation. I think the best thing about really good wine is enjoying it with friends who appreciate it. However, as wine investing is the intersection of two of my favorite topics, I thought I’d do some research on the topic for the benefit of Spectrum’s readers. For the purposes of this article, I’ll focus upon French Bordeaux.

Bordeaux red wine, known as claret in England, is made from grapes grown along the Gironde River. These grapes are mainly Cabernet Sauvignon (generally used by wineries on the left bank of the Gironde), Merlot (generally from the right bank) and Cabernet Franc (used by wineries on both sides of the river.) In addition, small amounts of Malbec and Petit Verdot are also used.

Much has been made of the explosive appreciation in price of fine Bordeaux wines over the last two years. In order to get to the bottom of this phenomenon I went directly to someone at the eye of the storm, Santa Barbara’s Richard Torin, who owns the well-known wine merchant Clarets. He was able to answer my questions and provide the benefit of his knowledge and experience.

Richard said that these days he feels more like a commodities broker than a wine dealer. With the explosion of new wealth that has been created in the last decade, particularly in countries such as China, Russia, and India, he feels this sort of growth will continue for some time.

In a normal supply/demand relationship, supply would increase to meet demand and prices would ultimately come down, however, many of the best Bordeaux Châteaux have an annual production of a few thousand cases or less. It is simply not possible to increase supply. Demand, on the other hand, continues to strengthen so the prices are likely to appreciate.

For example, the price of Clarets’ 2004 high-quality Bordeaux wines was up 70% by the end of 2006. I asked Richard if he thought there were any hidden values to be found in Bordeaux and his answer was, “not really,” but there are some older vintages from the 1970’s that are quite nice and not yet expensive. However, it is those from the mid 1990’s that are particularly good for drinking at the moment. The 1995, 1996 and 1997 vintages are some of the best and they include Château Margaux and Château Palmer along with Château Cheval Blanc. The 1996 Château Margaux and 1998 Cheval Blanc are particularly good.

As far as investing in wine goes, the old adage that, “if you don’t know wine, know your wine dealer,” does indeed hold true. Another strategy for investing in Bordeaux wine is: Buy the Blue Chips! This would include the five first-growth Chateaux: Château Lafite Rothschild, Château Mouton Rothschild, Château Margaux, Château Latour, and Château Haut-Brion. And the following greats: Château Cheval Blanc, Château Petrus, Château Le Pin, Château Le Fleur, Château La Mission Haut-Brion.

Additionally, you want the best vintages which would include 1982, 1985, 1986, 1988, 1989, 1990, 1995, 1996, 1998, 2000, 2003 and 2005. If you were to build a portfolio of superb Bordeaux wines in complete cases and store them properly, you might see a good return over the decades. On the other hand, you also might find that your wine does not appreciate as it has over the last decade. In that case, you do have a consolation prize: terrific wine to enjoy with your friends and family. Some places to find top Bordeaux include: Clarets in Santa Barbara (www.clarets.com); Twenty-Twenty Wines in Los Angeles (www.2020wines.com); Park Ave. Liquor in New York (www.parkaveliquor.com); and Premier Cru in San Francisco (www.premiercru.net).

The views of the authors of these articles do not necessarily represent the views of First Republic Bank.