There’s a famous line from the movie “The Jerk” where Steve Martin finishes a bottle of 1966 Chateau Latour Bordeaux the waiter asks if he would like another. Martin says no, he’d like to splurge and get some fresh stuff – “no older than this year.”
While we laugh at how ignorant Steve Martin’s character is, a lot of wine collectors actually end up doing something similar. They go to their favorite retailer, peruse the shelves, and purchase a vintage from what they have available on their shelves. Unfortunately, due to the need to turn inventory, most of those bottles are just a few years old – straight from the winemaker. If a store is investing in age-worthy wines, the hapless wine buyer will be laying those precious bottles down in their cellars so they can drink them in 10 or even 15 years!
Another example of wine collectors behaving badly is the Bordeaux futures lottery. In April of each year, the wines from the prior year are tasted while they still in the barrel by critics who are hoping to determine if the wine will be great or not. This system allows the buyer to purchase the right to buy that wine which will be delivered two years.
The wine estates use this as a way to finance their operations in a way that is cheaper than going to the bank. They have their wine already sold as it slowly ages in the barrel or bottle. Great for them and not bad for the buyer if the year is good. The problem is, not every year is great and the critics’ barrel tasting isn’t a guarantee that the year is amazing. That said, lots of people love this participation in the wine process and hope that they win the lottery by getting an amazing year for less than they would pay when the bottles hit the market.
This lottery allows the buyer the privilege of storing the wine for 10, 15 or even 20 years before it is ready to drink. That’s risking a lot of money for a wine that might be just above average. A steely-eyed businessperson would question this in terms of net present value of the decision.
Luckily, there is a better way.
What many sophisticated buyers are doing is going to auction houses and buying aged, ready-to-drink wine from known good years. This eliminates the risk that the year is poor. It also allows someone else to age the wine for you in their cellar until it is ready to drink and finance that aging.
An example of this would be the 2014 Chateau Cos d’Estournel. This is a second growth from Bordeaux and a personal favorite of mine. It’s currently available on a future contract for $119 a bottle. Early reviews indicate this will be an excellent vintage, with scores in the high 90s. This will deliver in late 2017 and ready to drink in perhaps 2030, when, after 13 years of aging, it will be on the early edge of drinkability. Your kindergarten aged child will be graduating high school when you crack the first bottle!
If you went to an auction house, you could buy a 1996 Chateau Cos d’Estournel for $159 a bottle, plus a little shipping. This was a great year and with over 20 years of age, it is ready to drink now!
Now for the finance geeks, let’s calculate the net present value of that 2014 bottle we can buy for $119 but need to age 20 years before we can drink it. When you do the math, 20 years with a nominal 5% interest rate, puts the cost of drinking that bottle at $315. When you consider that you can buy a ready-to-drink bottle of the 1996 vintage for about half that price, you see what an incredible bargain it is.
So don’t be like The Jerk and buy the fresh stuff. Go to the auction houses and buy known great vintages that you can drink shortly after they arrive in the mail. I’ll talk about some of the better online places for you to grab a bottle of the aged wine in a future column.
Cheers!