After much deliberating, I bought a case of Lafite. If I could have afforded it, I might have bought two – one potentially for my own consumption, and the other to cover the cost for my own consumption (at least, that is the hope).
What pushed me to go for it?
The case for Lafite:
1. Pretty compelling case for appreciation, over the longer term. As an example, I will compare it to the 1998 vintage, using data provided by Wine Spectator (alas, I am too cheap to purchase the subscription to Liv-ex to gain access to the detailed price charts). Wine Spectator rated the 2008 vintage in the range of 91-94 points; the 1998 vintage was rated 93 points. The 1998 Lafite was released at $135, and in 1Q09, the average WS auction price per bottle went for $410, down from $671 in 3Q08; wine isn’t immune to the broader stock market after all. Still, that’s a 204% gain over a 10-year period, or a respectable 7.4% annualized return. And at $671 a bottle, that would have spelled a 397% gain, or a 14.8% annualized return. As point of comparison, the Dow was down 13.5% over the same period (1Q98-1Q09) and the S&P down 28.0% over the same period. WOW.
The following table charts the Liv-Ex Fine Wine Index vs. the Dow Jones and S&P from July 2001 through March 2009 (I could only get data from Liv-Ex from that date). As the chart shows, if you had invested $100 to track the Liv-Ex in July 2001, you would have $223 at March 2009, vs. $72 if you had tracked the Dow, and $66 if you had tracked the S&P:
2. Prices have come down 36% compared to the 2007 vintage, which was only awarded 89-92 points by WS. Of course, that means that investors who bought into the 2007 vintage are screwed – at the moment anyway; they might still stand a chance for price appreciation when the market does turn back up.
3. I like to see this as an investment with limited downside risk. If in the end I don’t make anything, I could still pop open the bottles, one every year, and enjoy them over 12 years. 🙂
4. It’s a sexier investment compared with a CD. And also sexier than the stock market, without the volatility – ie. I won’t see my investment go down to zero, unlike some alternative energy and financial stocks…
Potential downside risks:
1. The 2008 vintage, is not, by any stretch of the imagination, one of the best vintages of the decade. The 2005 vintage takes that prize, followed by the 2000 (Robert Parker’s Vintage Chart for years 1970-2007; he has yet to release scores for the 2008 Bordeaux vintage). Thus, if the 2009 vintage turns out better than the 2008, we could see a repeat of what has happened to the 2007.