Wednesday, November 22, 2006

Harold and Kumar Don’t Come to California

( title...ever)

Mr. Mahesh Kumar has some interesting comments in this article on investing in liquid wine assets. The extract of the interview is in italics, followed by my comments:
“I have a five-point scale as to what makes it investment grade. People say this is ultimately to drink. But there's no difference in trading commodities like coffee beans — you have to look at the fundamentals. For something to be investment grade, it has to be of impeccable quality. For example, Bordeaux, Burgundies, Champagne, Tuscan wines and wine from the Rhone Valley — these guys are of impeccable quality. I get asked why North American wines are not in that category. Wines from Australia, California, South Africa are impeccable but don't meet the other criteria. An investment-grade wine must satisfy all five criteria.“

Okay, so my interest is obviously piqued….let’s just see where this goes, shall we?

“The second is longevity. There's wine you can keep for five years and wine you can keep for 50 years or 100 years and then drink it. Bordeaux and Burgundies have a shelf life of over 100 years. That's a fundamental difference between them and newer wines.”

Retort #1 - see the recent ‘Rejudgement of Paris’ where California wines “out-aged” French wines over a 30-year period (and won quite handily too!). Retort #2 – this guy is trading over a much shorter window than 100 years, the “ageworthiness” of the wines is relevant only to the extent that they are aging during his holding period.

“The third criteria is the wine's price performance track record. Bordeaux and Burgundy wine prices have traditionally performed consistently. Generally, they've performed consistently in terms of their price appreciation. With California wines, some years do well, other years do badly [emphasis added]. There are more price fluctuations there.“

Consistency of ripening and quality fluctuation should not even be in discussion here. To anyone who knows the first thing about French and Californian wine, this is patently absurd.

“The fourth criteria is there's got to be a liquid secondary market. If there isn't a market to buy these wines, there's no point”

Is he actually saying that there is no secondary (read: consumer) market for high-end, new world wines?!?

"And the fifth criteria encompasses all these things — its correlation to markets. By having no correlation to financial markets, it makes it a better investment for a portfolio”.

What he's trying to say here is that this investment option is dominated by New York and London, both strongholds for Francophiles. There is no market to trade California wines because nobody is pioneering that. Do you think there's no secondary market for a 1997 Martha's Vineyard Bryant or a 1997 Caymus?!?!


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