Birthday Post

We have been delighted to see several responses to our blogs since the Drinks Business reproduced “Getting it Right” on their website.  If our approach has been misunderstood we can only blame ourselves that our numerous posts have not been clear enough to make what is really a very simple truth more accessible.  We have some serious Birthday celebrations to be getting on with today so this will be the briefest of clarifications.

 

·         Our blogs were prompted by en primeur but the approach is just a method for analysing the whole wine price curve.

 

·         Timing vs Analysis:  we are presenting an analysis of a snapshot of the market that we have at one moment.  But here is the crux:  one’s view on certain market dynamics in the short, medium and long term, is a major factor in appraising the reasonableness of the entire static picture.  This fact is stated in the very first sentence of “Getting it Right” and it is the point of the whole discussion.  Dynamic timing and static analysis are inextricably linked, not alternatives to one another

 

·         The current prices of older vintages is the single most vital input to the calculation of fair value for younger wines.  To suggest that our approach is irrespective of the current market for older vintages would therefore be bizarre.

 

·         If the whole wine market looks consistent with a particular assumption on wine inflation then of course we expect (in the strict mathematical sense of expected value or mean) the net return (after storage costs) of every wine in the market to be just the same as interest rates (say 2% pa) – that is the very definition of fairly priced under risk neutrality. We can assume inflation will be +10% pa.  If the snapshot of the market is in line with that assumption then the expected net return for every wine is 2% not 10%.  We can assume that inflation will be -10%.  If the current market is in line with that assumption then the expected return for every wine is again +2% not -10%.  If we start with a static picture consistent with our inflation assumption, then it does not matter whether that inflation assumption is big or small or positive or negative, the expected net return from all wines is of course just 2%.

 

·         Contrast the above true statement with the entirely false one that we have some inherent belief that the 2014s will be subject to healthy price inflation.  We have painstakingly defined what we mean by wine inflation and so it should be clear that the preceding sentence does not even make any sense.  We simply cannot talk about inflation of this or that wine or this or that vintage because those things are constantly changing.  If we own a one year old wine then in a year’s time we own a two year old wine.  The movement in price over the year is not our inflation/deflation.  We would need to look at the price of a one year old wine at the end of the period to observe the inflation/deflation.  The idea that inflation could apply to any goods you might buy is the exact opposite of the truth – it applies to virtually no goods you can buy!  I cannot buy a wine which is one year old today and will also be one year old next year.   There is virtually nothing I can buy which is the same thing in the future as it is today.  One obvious exception is gold.

 

·         So what do we mean by “in line with that inflation assumption”.  The answer is the shape of the price curve.  An inflation view is not a view on future price action it is a view on the snapshot, the static picture, the shape of the curve.  Zero inflation or deflation assumptions are consistent with steep price curves.  Modest inflation is consistent with flatter curves and really high inflation assumptions are consistent with negative curves.  (Modest and high here are relative terms – relative to interest rates).  When we look at the entire market (including primeurs) we see a very complicated picture of course but what we see is a general pattern of price curves consistent with a mildly positive inflation outlook.  That seems reasonable.  There are of course some outliers and for those wines we can take the appropriate action.

 

We very much doubt this is the end of it but it is great that a debate is taking place.

 

Getting it right

The appraisal of en primeur release prices - indeed any proper understanding of the whole fine wine market – must incorporate some assumptions on the underlying inflationary price trend.  You can assume it to be flat if that is what you really believe but to ignore it altogether is flawed mathematics and naïve economics.  The implications of this argument go well beyond en primeur.  A consideration of trend shows some commonly held beliefs to be false.  The market has contradicted all these beliefs yet people cling onto them because they seem so intuitive.

Understanding the price trend

Let us start by thinking about how wine prices move.  It is going to be easier to talk about a specific wine but of course everything that follows can be applied to any wine or basket of wines.  Consider the following table and associated graph where the wines in question are loosely comparable in quality:

Price of a good quality ten year old Chateau Margaux as of the year in question

1989 (price in 1989 of the 1979)	£ 615	% per annum change over period
1995 (price in 1995 of the 1985)	£ 730	2.9% pa
2005 (price in 2005 of the 1995)	£ 1,500	7.5% pa
2009 (price in 2009 of the 1999)	£ 1,995	7.4% pa
2014 (price in 2014 of the 2004)	£ 2,750	6.6% pa

This is a crucially different graph from one which plots the price movements of any particular vintage.  To try to make the difference really clear, imagine Margaux was divine at age ten but turned to worthless vinegar at age eleven.  The graph above would still be perfectly feasible but the price of any particular vintage of Margaux would always fall to zero.  Or to drive the point home, if we plotted the market price of haddock over the years it would look rather different from a plot of the value of one particular (gradually rotting) haddock!

The clear upward trend is hardly surprising.  We live in an inflationary world and the price of baked beans, Saville Row suits and haddock has all gone up over time so we would hardly expect the value placed on a glass of good ten year old Chateau Margaux to do anything else.  The value of a good ten year old Margaux will move up and down but what is clear is that the perfectly natural, inflationary, upward general trend which we would fully expect it to display over time is undeniably present.

This upward trend does not in any way make an investment case for (or against) fine wine.  As we have seen with the extreme example of the eleven year old vinegar, even if the purchase of any case of wine is a sure-fire disaster the upward trend in the price of drinkable examples can still exist.  Trying to make money out of rising haddock prices by buying a haddock does not work!

A parallel with index linked bonds

Consider a payment in ten years of £1 scaled up by the increase in RPI over the period.  If we expect the rate of inflation to be higher over the ten years than current ten year interest rates we will assign a current value to that payment of more than £1.  This may seem an unlikely situation (it is one of negative real interest rates) but it is in fact the situation we find ourselves (in the UK) right now.  Of course our approach is in no way limited to just the current scenario.

One result of this has been a huge rally in the index linked gilt (“linker”) market.  The coupons on a linker are scaled up by RPI and so are dependent on the prices of various goods and services pertaining at some point in the future.  Prices of linkers imply that the market predicts the prices of those goods will rise at a rate of about 2.6% per annum.  Ignoring the future price appreciation of those goods (or assuming it was going to be 0%) would result in a gross underestimation of the value of these bonds. 

We mention linkers because there is a close parallel with en primeur pricing.  A linker is something whose value depends on the price we expect various goods to command in the future.  An en primeur is something whose value depends on the price we expect one particular good (the mature wine) to command in the future.

En primeur pricing

One often sees a primeur price compared to the price of an older vintage in a manner which suggests the two wines are direct alternatives: they are not.  They belong to two different time eras and will always remain that way.  Perhaps if one views the en primeur as a contract – a piece of paper – then comparisons with mature wines will not seem so tempting.  “Would I rather drink this bottle of 2004 or eat this piece of paper?” is not a meaningful question.

Indeed any young wine is essentially a contract to own a mature wine at some point in the future.  It is the likely value of a mature wine at that point in the future which is the only thing that one should consider when trying to arrive at a fair value for the younger wine.  The value of a mature wine today is only relevant in the sense that it informs our efforts to estimate what a mature wine of similar quality might command in the future.

When I buy 2014 Margaux, I am buying the right to own a good 10 year old Margaux in 2024.  What do I think a good 10 year Margaux will be worth in 2024?  Look back at the graph above. £2,750 would clearly be a ludicrously low estimate and would deny the existence of any general price trend – or rather it would say that the long term, entirely reasonable upward inflationary trend is going to abruptly stop for ten years.  It would be like refusing to acknowledge that the price of goods in the RPI is going to carry on going up and so concluding that the entire market is stupid and overvaluing index linked bonds.

So what should be our estimate for “Margaux inflation”?  Twenty years ago it was running at 2.9% pa and more recently it has been over 6%.  In the future it may possibly fall more into line with core inflation or it may remain higher but the point is it exists, it should exist, it makes common sense for it to exist and it is going to carry on existing!

Please remember that the previous sentence is an entirely different statement from one saying that Chateau Margaux prices are going up and it is a going to be a good investment.  The second one may or may not be true but it is not a statement about Margaux inflation – remember the vinegar!  None of this analysis assumes or denies anything about whether any particular wine or wines will go up or down in price – this is a crucially important distinction.

Let us take a conservative estimate for Margaux inflation of 2.5% pa over the next ten years.  That would make our best estimate for the price of good ten year old Margaux in 2024 equal to £3,520.  (Statistical note: we are not saying that this is going to actually be the price of course; this value is our estimate of the mean of the random distribution of possible 2024 values)

The 2014 Margaux is being offered at £2,350.  If we buy that primeur, we will need to fund it at (or forgo interest of) say 2% per annum and we will need to pay for it to be stored at say £10 per annum.  When it gets to 2024 we will own a ten year old Margaux at an all-in (future) cost of £2,945.  This is well beneath our conservative estimate of what price a ten year old Margaux might then command.  The primeur is a compelling buy.  (Most would say the 2014 is superior to the 2004 which makes it even more compelling).

We can approach it the other way round.  If our central estimate for the 2024 price of a good ten year old Margaux is £3,520 then, using the same interest rate and storage costs, the fair price of the primeur is £2,800.  Yes, utterly shocking but the fair price of the primeur is higher than the current price of a ten year old Margaux.  This is simply a result of the underlying price trend being greater than the current level of interest rates plus storage costs.

With a primeur price of £2,350, the rate of Margaux inflation necessary for it to ultimately have been a good purchase is 0.7% per annum.  It has averaged over 6% for the last 26 years.

Beyond primeurs

None of this analysis is restricted to primeurs – it applies to any two vintages of the same wine of similar quality.  The price of younger wines relative to older wines will of course vary and depends on interest rates, storage costs and trend assumptions.  In high interest rate scenarios young wines will be much cheaper; as rates fall they will come closer in price to mature wines and if rates go so low that they lie under a reasonable estimate of the future price trend of the wine in question then younger wines will actually be a bit more expensive than mature ones.  Buying very young wines is like buying long-dated index-linked bonds.

One often reads in wine investment brochures that wine has a “special dynamic”, that because it improves in quality and complexity and scarcity as it gets older it therefore has a built-in tendency to rise in value.   This is also essentially nonsense.  What these people are suggesting is that the wine market is full of blockheads who have not worked out that young wines ultimately become old wines.  It is blindingly obvious that if mature wines are valued highly, then young wines will be also.  Intelligent consumers (and if not, then speculators) will make it so.  Of course the value of wines in general may rise but that has nothing to do with any special dynamic.

Those same investment advisors talk about older wines currently looking too cheap or young wines being too expensive, that the market is too flat and back vintages must rise to make sense of it all.  Actually, in the current economic scenario, the market makes a lot of sense just as it is.  We are not suggesting that there are no under-priced wines – there are many, and several are 2014 primeurs.

Back to primeurs

What does our analysis imply for en primeur wines in various price brackets?

Let us now use an even more conservative estimate for “Bordeaux inflation” of 2.0% and storage costs of £10 per annum.  For those wines where the 2006 or 2008 is of comparable quality the fair discount to those vintages would be as follows:

Price of primeur	Fair discount to 2006/2008
£250	19 %
£500	10 %
£1000	5 %
£2,500	2 %

N.B. if you are the sort of buyer who takes delivery of your wines upon shipping and stores them cost-free at home to ultimately drink then the fair discount for all price brackets is 0%.

There has been rather too much criticism of wines coming out at “only” 10%-15% under comparable physical vintages.  This criticism is possibly justified at the cheaper end but in the £500+ bracket that sort of pricing is very reasonable.  A good example is Leoville Las Cases which at £920 was deemed of questionable value compared to the 2006 which is available at around £1000.  We think it is a very attractively priced primeur.  Moreover, the first growth 2014s are incredibly attractively priced but thankfully everyone agrees on that.

The future of en primeur

The deep discounts for en primeurs in the past played a major part in attracting hordes of speculators to the wine market.  The speculators can be insiders in the form of intermediaries who hold significant stock back to enjoy the inevitable realignment themselves before selling.  Therefore, any belief that a hefty discount approach could ensure a stable future for en primeur is misguided.  It is abundantly clear that producers will not contemplate a return to the old way of pricing so it is a non-starter anyway.  Yet still some UK merchants cling to the belief that this is how it should be and even try to tell Bordeaux that nothing else can work.

Clearly en primeur is in trouble.  For it to have any hope of surviving, a pricing approach must be found which can keep both producers and consumers happy.  That is why a proper evaluation of what represents a fair price is so vital and why it is so frustrating that much of the analysis quoted in the press is based (mostly unwittingly) on ludicrously harsh assumptions.

Many will argue that you have to offer the consumer something better than merely fair to make them happy.  We agree and en primeur does precisely that for consider the following:

·         There is a huge advantage in owning a wine from its birth regardless of whether you ultimately drink it or sell it.  This in itself swings the balance heavily towards EP purchases even if prices are merely fair.

 

·         You can bottle it in any format like – this won’t be important to everyone but still a small EP positive

·         We have been very cautious with trend assumptions so our fair values are already rather conservative

·       The whole en primeur process is fun.  There is something satisfying in owning a wine still in barrel.  The ability to build tomorrow’s cellar today and look after it yourself is what collectors love about it.  Yes, we are beginning to get a bit subjective but surely we are not the only ones who love en primeur simply for the whole experience and who require no more than a fair deal to be enthusiastic supporters

Of course even armed with a true fair value the consumer may still decide not to buy.  As our approach shows, for many 2014s this means they are passing up the opportunity to own, in the future, mature examples of their favourite wines at a real cost which is less than they are happily paying for mature examples today.  Who knows – perhaps they plan to give up drinking!

En primeur 2014 saw a very good Bordeaux vintage released at prices which in the current market and for that quality level can be safely viewed as being just about as low as the producers are willing to go.  We believe that those prices represented, on the whole, a good deal for consumers. Our approach to en primeurs means that there does exist a narrow band in which the price can be acceptable to all parties.  If you use the harsh appraisal of other commentators there simply is no such band.

The problem with en primeur prices being too high is obvious, but too low and speculators of all varieties come rushing back.  Buyers need to look forward not backwards and stop expecting a free lunch.  En primeur is a brilliant feature of the Bordeaux market but in terms of price it needs most of all to be one thing: unremarkable.

  

Apples and Pears - aligning the time frames

This post outlines a common error in en primeur analysis but it is really just another presentation of our core argument.

If we take a 2014 EP price and then compound it by say 8 years of interest (or cost of carry) and add in the storage cost over the period, then what we arrive at is the future cost in 2023 of owning a wine which is 8 years old.   If we now want to appraise the fairness of the EP price it would be entirely wrong to compare that future price with the price today of an eight year old wine – i.e. the current price of the 2006.

These are the things we know:

·         The 2014 EP price

·         The future cost of owning an 8 year old wine (a simple function of the EP price, interest rates and storage costs)

·         The price today of an 8 year old wine

What we do NOT know is the price that an eight year old wine actually will command in 2023 – that could be absolutely anything.  Just like the amount of rainfall we will have in 2023 it is something we can only talk about in a probabilistic sense: i.e. there is a distribution of potential results with the high and low ones assigned small probabilities and ones in the middle viewed as most likely.

The big question is this: around what value is that distribution "centred"? – or more precisely what is its mean?  It is to the mean of that distribution that we can compare our calculated future cost.  To assume a mean of today's 2006 price would be a peculiar assumption and one that would need to be justified – it is not a neutral position.  If you had to make your best guess on the price of a new Range Rover in 2023 would it really be the same price as a new one is today?  Our own assumption of applying some core inflation rate is also an assumption but surely a much more neutral one.  Remember we are absolutely not saying prices definitely are going to rise with inflation – we are just selecting a sensible mean value around which the distribution of possible future possible values is centred.

This approach results in a much more positive view on the levels of 2014 release prices than the one which was repeatedly expressed in articles during the campaign.  For now the consumer seems to be following the more gloomy advice.  The consumer is wary – the memory of the last few campaigns is not a pleasant one and fond memories of how things used to be in the good old days also linger on.  But we believe a more benign view of the prices will emerge – indeed there are signs that it is happening already.  It is important that it does because this is how EP will, and must, look in the future.  The reasons why are for the next post.

Postscript:  here is a quick example:

Leoville Las Cases 2014 price: £ 920

Leoville Las Cases 2006 (comparable quality) price: £ 1,000

Average (or mean) of the random distribution of possible prices for an eight-year-old Las Cases in 2023:  £1,171 (using only 2% inflation – actually less than current market implied rates)

Future cost of owning an eight-year-old Las Cases: £1,138 (six years storage as first two are in barrel)

Conclusion: very reasonable, even attractive, price

 

Back to the wine market

We will now leave the car and flower analogies and stick to the wine market.

From the last two posts you can see that if one takes the view that the cost of drinking perfectly mature delicious claret is going to change, then one needs to factor this in to an appraisal of primeur prices.

The neutral position is that this cost will move in line with inflation.  Many would argue that given the major correction the wine market has seen over the last four years the chances of significantly outstripping inflation are very high but let us just develop the argument assuming this neutral position.

Note carefully – we are not talking about the price evolution of one particular wine, we are talking about the evolution of the cost of wine which at the relevant point in time is “mature”.  Today, a perfectly mature example of a particular wine might be its 2003 and in ten years’ time the perfectly mature example might be the 2014.  It is how the price of the 2003 today compares to the price of the 2014 in ten years’ time that we are focused on.  Our neutral assumption is that the latter will differ from the former by around the rate of inflation.

Index linked bond markets (in the UK) are projecting RPI over 10 years at +2.7% per annum and 10 year gilt yields are around 2%.  The negative real yield is down to, amongst other things, quantitive easing.  The point here is that the interest cost of paying up front for primeurs is currently very modest and more than compensated for by expected inflation.

The other cost of holding primeurs to maturity is of course storage.  Storage costs of say £10 per annum equate to 0.5% for a £2,000 case of wine but 5% for a £200 case of wine.  So for top end wines the excess of 0.7% of inflation expectations over interest rates compensates entirely for storage costs under our neutral assumption. (Storage is however more of an issue for cheaper wines).

Some will argue that there is uncertainty over the ultimate quality of a primeur and this needs to be reflected in the price.  There is actually very little uncertainty.  Sure, you will see in-bottle scores differ from barrel scores, but big changes are rare.  And you get plenty of upgrades and downgrades later in a wine’s life anyway so if precise scores matter that much to you then there is always uncertainty.

So let’s just try to state a simple conclusion: under a completely neutral assumption on price evolution it is entirely reasonable for a primeur of a top wine to be priced similarly to a mature vintage.

On that somewhat contentious assertion we will end this post but will be back one more time to complete our look at primeurs.

In Defence of Bordeaux

There is a particular sort of flower which is extremely popular and all civilised people find them most attractive.  Flowers can be grown from a seed and the growing process takes around ten years.  The developing plant has little appeal until it blossoms into a flower; it keeps its looks for a number of years then withers away.
 

There is an active market for flowers in their prime.  What people will pay for a flower in full bloom has fluctuated over the years but prices have over the long term risen steadily.  Flowers are a high end consumer item and have therefore unsurprisingly kept pace with inflation.

As a flower enthusiast you always make sure you have several examples in your home, replacing them as they wither.  You have been purchasing flowers for many years and expect to continue to do so in future.  It does not surprise you that the cost of flowers has generally risen over the years since the cost of everything else from a pint of milk to your hand-made shoes has generally risen.  You certainly expect to be paying more for flowers in ten years’ time than you are today.

One day, you are offered some seeds.  These seeds are expected to grow into very nice flowers, perhaps not the very best examples but certainly above average.  They are apparently quite easy to grow: you simply put them in a dark room for ten years and keep them cool.

You consider what you should pay for these seeds.  Flowers of good quality and in full bloom are currently changing hands for around £1,000 each.  If the price of flowers just keeps pace with inflation then in ten years’ time a decent flower in its prime will be changing hands at a minimum of £1,300.

So what would you pay today for something you reckon will be worth £1,300 in ten years’ time?  Ten year interest rates are not so different to the expected level of inflation so when you discount back you just arrive at £1,000.

You reflect that it seems peculiar that you are happy to pay the same price for a seed as you are for a flower in full bloom when the seed can give you no immediate pleasure.  But then something occurs to you:  to insist on paying any less for the seed would be to expect the pleasure and value of a flower in the future to be less in real terms than it is today.  You happily proceed and buy the seeds.

Just then your wine merchant calls offering you an en primeur allocation of one of your favourite clarets.  He tells you it is a very promising vintage and should turn out to be extremely good though perhaps not amongst the very top vintages.  However when he tells the price you are shocked for it is exactly the same as the rather good mature vintage you bought just recently. 

 
You are just about to tell him it is simply ridiculous to ask the same price for a primeur as a mature wine with many years in bottle when you notice the rather lovely flower sitting beside the telephone.  You then look at the seeds you have just bought and after a few moments of reflection you say “Yes, I think I’ll take a few cases of that please”.

En Primeur Motor Cars

Imagine you are a Bentley enthusiast and treat yourself to the newest model every few years.  Every time you go to buy a new one the increase in price gives you a shock; but you accept that the inflation in the price of luxury items seems to have little to do with RPI and more to do with the number of multi-millionaires in the world, so you always go ahead.

 

On one of your trips to the dealer, after you have purchased your latest car, the salesman offers you a deal.  He can offer to deliver you the future prevailing newest model in ten years’ time at the same price as the one you have just bought but you have to pay now.  Given the increases you are used to seeing over the years this looks like a good deal.

 

What if the offer was at a slight premium to the current price?  You might still be tempted since the decision comes down to two factors: firstly, what you expect a new Bentley to cost in ten years’ time and secondly the cost of paying up front – essentially a matter of interest rates.  The point to note here is that you might be perfectly happy to go ahead even if the cost was higher than the price of today’s new car.  In fact, strictly speaking the decision has only a second order connection with the cost of a car today – a new car today cannot be a new car in ten years’ time – there is no arbitrage between the two.

 

So what has all of this got to do with the wine market?  Well the proposition above is essentially an en primeur deal.  Change the Bentley enthusiast to a wine lover.  The new Bentley is now a mature wine which is drinking perfectly.  For example, let us say we like to drink a certain wine which we shall just call Chateau A.  Our wine merchant recommends the 2003 and sells us a parcel for £1000 per case.  This will keep us going for a while but we start to think about how we are going to satisfy our thirst for mature Chateau A further into the future.

 

Our friendly wine merchant has a suggestion:  we can pay him £1000 today and he will deliver to us in ten years’ time a perfectly drinking mature Chateau A.  This will be somewhat different from the 2003 which we are enjoying now - a different “model” if you like – but should be just as delicious.  This wine is of course the 2014 Chateau A.

 

Do we berate the wine merchant and tell him he is trying to rip us off?  How can he possibly charge the same price for a wine which will not be drinkable for 10 years as one which is perfect right now?  If we go back to the Bentley example, we can see that this would be most unfair.  It just does not make sense to compare the two.  They are not fungible.

 

We will be developing this argument in later posts.  We believe there may recently have been too much emphasis on the notion that a primeur “should” be priced significantly under the price of a comparable mature vintage.  Primeurs simply are the mature wines of tomorrow.  Are the commentators and analysts (and the consumers they influence) expecting too much?  Next time you go to buy a new Bentley, tell the dealer you would like to pay him now for the one you will be purchasing in ten years’ time. Then tell him you want to pay him 25% less than what you just paid for the current one.  I wonder what he will say?

The Wine Yield Curve

It is interesting to construct models for the wine market and fit them to market data.  One simple approach is to allow ourselves three parameters with which to determine price - the chateau, the vintage and the critical rating/points.  It is simplest to confine ourselves to the first growths and to come up with a single scaling factor (or multiplier) for each chateau, a single multiplier for each vintage and a non-linear function of the points which provides a quality multiplier for a given score.

 

When we fit this to market the vintage multipliers for 2010 and earlier mainly come out close to 1.  The exceptions are 2000 and 2005 (see later).  For 2011 through 2014 they reduce steadily (down to 0.7 for 2013 and 2014)

 

For 2000 and 2005 the multipliers are well over 1.  In the case of 2005 this is explained by the widely held belief that Robert Parker will significantly upgrade the first growth scores in a reappraisal of the vintage in two months' time.  If this comes to pass, then the prices of the wines will be fully explained by the points alone and a re-fit using the new ratings will result in a vintage multiplier closer to 1.

 

In the case of the 2000 vintage we see elevated demand and relative scarcity pushing prices to a level much higher than one might expect purely on the basis of the points.  This is not simply a matter of age as we do not see this effect in all old and scarce vintages - only ones where the scarcity actually matters.

 

What about the other end of the curve? It is perhaps reasonable that very young wines trade at a much lower price than they will fetch when a little older.  After all, there is still some uncertainty about the quality and how they will evolve.  Moreover the en primeur system means they are very abundant since large quantities are put on the market at one time. 

 

But how much should that "discount" be?  The 2011s are trading on a multiplier of 0.93; the 2012s on 0.84; 2013 and 2014 are on 0.70;  as time passes everything moves up the "curve" - owning young wines is currently (it wasn't a few years ago!) what a financial trader would call a positive carry trade.  The risk is that what you own does not live up to its early promise and at some point gets downgraded. 

 

The 2012s have just been reviewed in bottle and so there is much less uncertainty surrounding those wines.  Assuming no significant re-ratings, over the next couple of years they will outperform by 19% - a chunk of that may of course occur in the next few weeks.  Or buy Mouton 2014 and enjoy a 43% outperformance over the next three years provided it lives up to its barrel rating.  And it would take an enormous downgrade to make purchasing anything else look better in retrospect.

 

Those wine professionals who eschew en primeur as a hard rule did the right thing over the last few years.  But the curve has normalised and they would be wise to reconsider.