Reflection on our valuations
Whilst there were few big moves in the wine market valuations this month versus August, I felt compelled to write to you with a quick update on my views of the current situation.
I won’t make this a long drawn out message, as you know I spend a lot of time monitoring the stock market and the global economy. These days, they really have an impact on the wine market.
The major indices have seen some aggressive volatility in the last few months – China’s slowdown, the US Fed can’t make up their minds about increasing interest rates after 9 years and emerging markets are all feeling the knock on effect of a strong US dollar. While crude oil at 38 dollars a month ago and now at 46 dollars a barrel (20% increase!).
What makes all this exciting news is the increase in activity we have seen in the fine wine market. Don’t let the latest price valuations fool you, here’s why. The last four years, we have been wondering when the wine market is going to pick back up to 2007/2008’s activity. It makes sense that investors are cautious. At any tipping point, there is usually some rebound in one direction. As investors have waited long enough for better returns in the wine market, there were many who threw in the towel, but there are still many who have held on knowing this is a long term game.
Here is my opinion, and I might be wrong but maybe it’s worth putting some money into the wine market just to see whether I’m right on this call.
As we see a positive increase in activity, it has to do with the fact that money is coming out of the stock market and investors are looking for a more stable asset – After all, the currency markets are just as volatile right now, so keeping cash also becomes just about anybody’s guess on which currency to hold.
As this money comes into the wine market, buyers are still cautious knowing the market has not done anything exciting in the last 5 years. And of course, it’s still a buyer’s market, as there are people who want to sell wine and hold onto cash. Especially investors losing money on stock portfolios and need liquidity, wine has remained very stable in the last 2 years. Hence the bargain hunters are having a field day and we see price adjustments and perhaps some wines drop in value before they increase.
Now consider this – If my call is wrong, then you invest money into a wine market that has remained stable for a good number of years. You can buy back vintages now from 5-6 years ago that are considerably cheaper than what they were when they were first released by the Chateaux. Even 8 year old wines are still down, (depending on the wine and vintage) some as much as 40%. If you see opportunity like me then I think you will agree it’s not a bad time to make some wine investments, do you?
Wine is a safe place to keep your capital right now. If you want stability then it’s wise to park funds in the wine market while the dust in the stock market settles. We could see some great returns.