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Teague Takes Stock

Some speculators are ignoring the stock market and betting their money on Bordeaux. Are they investing wisely? Our wine editor, Lettie Teague, investigates.

I've always been a pretty conservative investor. While some people may be frightened by heights or movies with monsters, for me all it takes are the initials IPO. That's why I keep most of my money in a savings account. The interest it earns may be paltry, but it comes guaranteed. And I do like a sure thing (which might explain why I've never been a big Burgundy fan).

Such fiscal caution has meant I've missed out on more than a few investment opportunities over the years--stock in Microsoft or Wal-Mart perhaps, or, for that matter, cases of 1990 Margaux. For as any wine auction devotee knows, certain great Bordeaux vintages (1982 and 1990, to name just two) have yielded their early investors some impressive returns. These gains are one of the reasons that wine merchants today are touting 2000 Bordeaux futures (wines sold years in advance of their bottling and release). They're calling 2000 "the vintage of the century" and hailing it as tomorrow's "great investment" while asking some awfully stiff prices. For example, the opening price of St-Émilion grand cru Cheval Blanc, which critic Robert M. Parker, Jr., declared "the wine of the vintage" and awarded a perfect 100-point score to, started out at $14,000 a case. The five first growths (Lafite, Latour, Margaux, Mouton and Haut-Brion), while cheaper than Cheval, aren't exactly bargain alternatives--they opened at around $3,000 to $4,000 a case. These kinds of prices make it easy to understand why some wine merchants have already voiced skepticism as to whether investors could ever realize a profit.

The last so-called vintage of the century in Bordeaux, 1990, was a different story altogether. Not only were the wines spectacular but, unlike the wines of 2000, the prices were low (thanks to the superb, highly touted '89s that preceded and, briefly, overshadowed them). I didn't remember exactly how low, so I called Jeff Zacharia, president of Zachys in Scarsdale, New York, to get the numbers. In the spring of 1989 (when the futures prices for the 1990s were announced), his wine shop was selling the five first growths at the now astonishingly low opening price of $800 per case.

This got me wondering how well I might have done had I sent my $4,000 to Zachys, instead of my bank where, in 10 years' time, it's turned into about...$4,700. I called Jeff once more to ask what prices those 1990s were currently commanding. The news was depressingly good. Current case prices at Zachys were as follows: Margaux, $7,800; Latour, $6,850; Haut-Brion and Lafite, $4,775 and $4,100, respectively; Mouton, a respectable $3,150. In other words, a $4,000 investment in those five cases back then would have returned about $26,675 (less storage, shipping and auction fees). Math-challenged as I may be, I know the final number, even after such incidentals, was much greater than any savings-account dividend.

I was curious if my wine-savvy (and financially more daring) friends were enjoying these five-figure profits. So I telephoned The Collector, my hotshot lawyer friend with the blue-chip cellar. Had he, I inquired, trying to keep the bitterness from my voice, been an early investor in 1990 Bordeaux? "Not at all," The Collector laughed, with the ease of a man who, instead, has bought everything else. He thought for a minute and added, "I did buy a little 1982 Bordeaux because I thought I was a Bordeaux drinker, but sold it when I found out I was really more of a Burgundy guy." By the way, that's Burgundy as in 1978 La Tâche and Domaine de la Romanée-Conti. In six-liter bottles.

Somehow this failed to make me feel better. So I called my friend Alex Bespaloff, a wine writer who's witnessed quite a few great vintages in his time and who's nearly as well known in certain wine circles for his financial acumen as for his knowledge of the grape. What first growths from famous years had Alex invested in? "None," came the reply. "I was tempted to buy a few 1982s," he acknowledged, "but the price was already too high."

It was easier to invest in stocks, he said, noting that with the stock market he didn't have to worry about things like "theft, fire, insurance or if the right bottles are in the boxes." So where had he invested instead? Alex rattled off a few names: contra funds, acorns, small-caps. I wrote them all down and resolved to call my broker--as soon as I get one.

Perhaps, I thought, an academic might offer a different perspective. I tracked down Princeton University economics professor Orley Ashenfelter at home. Ashenfelter is a coeditor of the American Economic Review and also the editor and publisher of a wine newsletter, Liquid Assets. He's a somewhat controversial figure in the wine world for his belief that weather data alone (not barrel-tasting) can predict a great vintage.

With such superadvance information, I figured Ashenfelter had probably made some great wine investments over the years. (After all, he'd know right when the grapes were harvested in October while others would have to wait till they tasted the wines from barrels in the spring.) He had not. In fact, Ashenfelter said, "Generally speaking, you can't make money on wine." When people came to him for advice, what did he tell them? "Invest in the stock market." Why couldn't they make money on wine? "Well," Ashenfelter said, "it's very difficult to earn a profit on young wines. They generally tend to be overpriced. For example, many of the 2000 Bordeaux are selling for higher prices than the 1990s, which are 10 years older and 10 years closer to drinkability."

There seemed to be a consensus emerging, which, personally, I found a little alarming. If three men as savvy as these couldn't make money in the wine market, who could? On the other hand, I was now curious as to how well I might have done with my $4,000 had I invested in the stock market. I made a fourth call, this time to a friend in Seattle who's a financial whiz and one of the few people in that town who didn't go bust with a dot-com start-up. My friend knows a lot about investing (she once worked for a big Wall Street guru), although she does drink disappointingly cheap wine.

I asked her what investments she would have recommended in that seminal spring of 1989 when the 1990 futures were brought out, giving her the figure $4,000 as the theoretical amount. I explained this represented the price of five first growths back then and casually let drop what they were worth today. She was impressed: "Those are expensive Cabernets." (To my friend all fancy wines are Cabernets.) She'd do some research and call in a week.

Seven days later, my friend phoned with numbers and names. She and an associate had researched the performance of several stocks and mutual funds between May 1989 and May 2001. "Are you ready?" she asked. I suddenly felt queasy, thinking of my oversize savings account. First of all, a $4,000 investment in the S&P 500 (an index of 500 stocks that provides a good overall reflection of the market) would have netted me $20,762 by her calculations. Fidelity Magellan mutual fund? An even nicer amount: $21,966. Pretty good, but still outclassed by the Bordeaux. Perhaps wine merchants really could give stockbrokers a run for their money. I puffed up a bit, proud on behalf of my field--almost forgetting I hadn't actually invested in the wines.

I quickly deflated as she continued. Stock in Coca-Cola? My $4,000 would have turned into a tidy $30,980. Wal-Mart? $46,571. Citigroup? A cool $128,646. And what about Microsoft? What if I had bought into that Seattle-based company before there was a Starbucks on every corner of every city in the country? $328,204. And that wasn't even my friend's most impressive number. That belonged to Dell Computer, whose early investors are probably now château owners as well as first-growth drinkers. Had I put my $4,000 in the same place they did in the spring of 1989, I'd now have about $1.08 million.

After hearing such results, I don't feel so bad about not investing in wine futures, since I feel so much worse about not investing in equities. On the bright(er) side, all of this economic dabbling has definitely raised my expectations. When the bank let me know they'd dropped their savings rate to just under 1 percent, I quickly transferred my funds to a 12-month CD. Now I just have to figure out what to do with that extra 3 percent.

Published October 2001
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