It’s time to rebalance your wine portfolio

Is your wine cellar cluttered with unwanted bottles? It might be time to clean up.

© VinoVault
| Jeff Smith says people can be very attached to certain wines, which isn’t always a good thing.

With the ups and downs of the stock market, it’s hard to change your stock portfolio. But none of us are getting any younger, so now is the perfect time to rebalance your wine portfolio.

Jeff Smith is the director of wine for Vino Vault, an American wine storage company with operations in four states. He wrote a book called “The Best Cellar” on how to buy, sell and maintain a wine collection. Wine-Searcher explained to him why you might want to rebalance your wine portfolio and how to do it.

Why do you think the time has come to rebalance a wine portfolio?

One thing I expect to see right now is people taking stock of their collections. There was a two and a half year period where there was a lot of buying; buy at increasingly higher prices. There will be plenty to take a look at what they have. And it’s still a robust market for wine.

How does someone start?

It starts with getting a list of inventory and having someone price that list. One way to do this is to look at Wine-Searcher to see retail prices. But these are retail prices. Wine merchants who accept consignments will give prices.

A lot of people sell wine when things change. Maybe they are moving. Death and divorce are the riders, but also the evolution of taste. People can buy one thing first, then decide it’s not for them or they have too much of a thing. Or they want to pursue something else.

People are very attached to what they buy. There is a sentimental factor in wine. Like other collectibles, it has an almost irrational quality. Some people still can’t overcome the wine scores they got. It may not be their taste anymore, but if it gets 97 points, it’s hard for them to get rid of it.

I have seen a few people, and really very few, who have recognized their change in taste over time and have sold wines they no longer enjoy. I see it as a natural progression where the fully evolved man drinks Burgundy and Champagne. Maybe all roads lead to it. Burgundy is unique because it is so little produced; there is a finite quantity. As a luxury item, there seems to be an almost endless amount of money chasing it.

Is the price someone paid for the wine an emotional barrier to selling it?

You can have someone see something that has fetched such a high price that they feel like they have to sell it. My dad was a wine collector and he had receipts for buying premier crus for $15. Some of these things, like Petrus, get to a point where I can’t enjoy drinking it anymore. Conversely, there are things that do not appreciate [go up in price] that they’ve always loved, and they’ll say they can’t afford to sell it.

What types of wine are not liking (i.e. rising in price)?

Most Californian grape varieties, besides Cabernet Sauvignon, beyond very little Syrah, sine qua non specifically, or pinot noir, marcassin specifically. (Most California wines) weren’t built for the long haul. These are not fine, rare 20-year-old wines. Big money chases after big headlines. They are not interested in most wines on the market.

Only the best wines offer the best returns on investment.

© VinoVault
| Only the best wines offer the best returns on investment.

The bulk of the wine that makes up the fine and rare wine market – that’s the 1 percent. We see certain sorts of wines which are excellent; this is not a comment on their quality. This is a comment on their viability in the secondary market.

I see a lot of Italian wines that have not appreciated in a way commensurate with their quality. Most Barolos and Super Tuscans still trade at a reasonable price. They didn’t double like Burgundy.

Is future price appreciation something people should consider when buying wine?

If you’re playing this as arbitrage and want to make some money, you should buy a lot. You should buy whole quantities and stock them as cheaply as possible. But most people buy wine with the intention of drinking it. The option to sell is something they do when there is a change in their life. People will take stock to see what they can get rid of that won’t make a difference to them.

Do you need 2,000 bottles, or will 1,000 bottles be enough for you, given the amount of wine you drink?

At his auction two weeks ago, Zachy laid an egg. Acker’s auction (in Hong Kong) came in at the lower end of the estimate. But the estimates factored in an irrational exuberance. I see the market going down, but it’s not crashing by any means. All auction houses have had to adjust their estimates to reflect this.

Liv-Ex keeps telling me that wine is a better investment than stocks or bonds. Do you think that’s true?

Yes and no. The best wines are a better investment than real estate or almost anything you can name. But most of the wine is like a new car. It loses 30% of its value as soon as you bring it home. I have yet to meet a consignee who thinks they are getting too much money for their wine.

What is the threat of counterfeits today?

The upshot of the whole Rudy experiment, and the Sour Grapes experiment, is that the industry is doing a much better job of controlling itself. I was called as a government witness in the Rudy case, although I did not testify. I had many conversations with the FBI who told me that there were other actors here. Counterfeiting is a serious problem, but the industry is doing a good job of controlling itself and catching a lot of it.

Lots of things happen at a lower level, not wines that go to fine wine auctions. They are going into retail all over the world.

Let’s say I’m going to rebalance my portfolio. I have my inventory. Now what do I do?

Weeding is important. Things that come on an assigned list, people feel compelled to buy them every time. Then you end up having the same thing year after year. Same flavor.

These mailing lists are ambitious. They create a feeling of limited availability. With some, there is a sense of accomplishment even to be on the list. I know people who have signed up for 30 or 40 lists and the wine comes so fast they can’t drink it all. They’ll say, I have hundreds of bottles of Dehlinger or Kistler or whatever. People feel compelled not just to buy the wine, but to buy everything, for fear of getting a smaller allowance next year. I can suggest people to reduce their consumption. But they are on the list for a reason.

I ask people to ask themselves, what do they appreciate? See if there is a correction that can be made. A rebalancing.

I had a very famous client who asked me what I thought of his cellar. I said that some of his white wines were aged and past their expiration date. He asked: ‘What do you mean?’ I said, I wouldn’t serve this to my guests, and your guests are much more famous.

I had an 85 year old client ask me about buying futures contracts and I said, do I have to pull out the actuarial tables? Why don’t you buy the 95s and drink them tonight?

Do you see any must buys for the future?

I don’t know if there is a dormant sector in the secondary market. I don’t know if there is a matrix that says if Italian wines are undervalued now, they will go up over time. It seems that the auction market is limited to 1% of the titles.

If you look at things historically, the market is always going up. We may be in a corrective period, but that will only set the floor much higher.

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