Can wines from bad vintages be good investments?
2021 won't be remembered as a great vintage; but it will be remembered!
Welcome to in the mood for wine — a weekly newsletter on wine for the next gen of wine lovers and investors. This is the first long-form piece, which I hope you find interesting and a little thought-provoking.
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In case you’ve missed it, I’ve compiled a work-in-progress database of all vintages reports in all the major investment regions and a list with all my favourite wine experts. Check them out, and if I’ve missed anyone feel free to mention them in the comments.
A great vintage is affected by nature, investments and wine-making techniques.
The most recent en primeur season showed a 2021 vintage with uneven and poor conditions as well as low yields.
2021 Bordeaux will be a hard-sell on the investment markets. Find out why (scroll down to 🤔)
Also, please find below two of my favourite wines this week!
What makes a great vintage? A great vintage occurs when nature and nurture align.
It is supposed to be a rare occasion in regions such as continental Europe where the year-on-year weather patterns are highly unpredictable, and both rainfall and temperature vary greatly from year to year.
That is why in regions such as Bordeaux, vintage is of great importance. And why Bordeaux en primeur week (held on 25-28 April 2022) sets the tone for the assessment of a vintage in the old world.
What is en primeur?
En Primeur is the wine equivalent of futures.
Wine experts try samples from the barrels (before the wine is bottled!) and they will deduce the (future) quality and longevity based on structure (tannins), acidity (too much or not enough), fruit (what type of fruit, not too ripe or underripe) and how these integrate together to form a wine with ageing potential.
Historically focused around Bordeaux, the en primeur system has also been adopted by producers in Burgundy and the Rhone Valley.
A video where Jane Anson explains how she goes about tasting en primeur wines.
This is not the case in regions across most of the new world, or southern hemisphere as the weather there is more predictable in terms of heat, sunlight and rainfall, making vintage less important. Of course, these regions face another set entirely of different challenges, namely water stress, excessive heat or other factors that lead to jammy flavours as well as undesirable characteristics in great wines —but it has less to do with year-on-year variation and more about general vineyard and winemaking management.
In continental Europe, regions deal with the unpredictability of the weather patterns in different ways.
A notable example is Champagne, where a vintage will (in theory at least) only be released in great years. During “average vintages”, most estates release a NV (“non-vintage“), a blend of 3 or more vintages that consistently reflects the maison’s style.
2021 has been one of the most talked about vintages in recent history because not only were the conditions in the vineyard poor, but the yields were also very low, making the selection of good grapes even harder.
Going back to what makes a great vintage nature plays the most important role, and the late Denis Dubourdieu, professor of oenology at the University of Bordeaux, established five criteria to assess a vintage.
These are now widely accepted by winemakers and critics alike and followed almost religiously in Bordeaux:
Swift, early flowering
Even fruit set
To ensure consistency in veraison and even grape ripening, the key is temperature (not lack of rain).
Hydric stress at the right time — the right time being well in advance of veraison (three to four weeks for red grapes and one to two weeks for white grapes) so the vines will concentrate their energy on giving sugar to the berries instead of on growing shoots and leaves. Essentially this means a dry July is the most desirable.
Drought and moderate heat during ripening to encourage the production
of sugar and other phenolic and aromatics compounds, and to thicken skins. White wines are less affected by this, as freshness is encouraged in age-worthy wines.
Dry and sunny weather during harvest as too much rain can cause rot, dilution and loss of fruity aromas both in red and white grapes. This is when different weather conditions will have a different impact on different terroirs.
Most experts say that it was clear by the summer of 2021 that the vintage conditions simply weren't there to deliver a good vintage.
Decanter also adds a sixth criteria — budget.
The numerous operations required in the vineyard to make a great wine are extremely expensive. Of course that is true indeed, as in difficult vintages the best châteaux (read: the ones with the biggest budgets) can maintain the quality of their first wines by carrying out a severe sorting process.
Winemaking know-how is essential when it comes to making a great vintage, but one would hope that the large châteaux would rely on that expertise anyway. It is of course during difficult periods that the wine-maker’s skill becomes even more apparent and crucial. A bit like when on a plane — it’s in particularly bad conditions that the expertise of the pilot is most needed.
Although I’m not entirely sure that the nurture part is as relevant as the nature part in determining a good or bad vintage, it certainly comes in handy when buying vintages during not so good years. One would expect that the difference in quality would widen in bad years and, of course, the best winemakers will have the skills necessary to curb significant issues.
A vintage can be good or bad but certain soils are better suited to cope with certain conditions than others. Gravel, which is more prevalent in the Haut-Médoc and Médoc, is more suited to cope with rainfall than clay. Clay, on the other hand, is helpful in extreme heat because it retains water.
As Jane Anson points out:
“In the extreme heat of 2003, having some clay in your soils was extremely helpful, particularly if the estate was also close to the river and able to benefit from any cooling breezes that came along. It’s why St-Estèphe wines tended to be the best in the Médoc from that year, and why Latour, Pichon Comtesse and Léoville Las Cases were also standout successes, with their location right next to the Garonne and their clay subsoils retaining freshness even among the gravel.”
In 2021, or in general during challenging years, the châteaux with plots of land in different sites with different soils and different aspects, are the ones which suffer least as they can benefit from sorting and have more options when it comes to blending. Having a multitude of grapes from a multitude of soils helps the estate to increase balance and, ultimately, quality.
However, it’s important to note that terroir is something that winemakers should always strive to show.
I have this conversation a lot. What makes wine different from spirits (say gin) is the connection with the terroir. Gin - good or bad - it’s all about recipe and technique.
What’s different with wine is that the input itself (grapes) will show flavours from the place where and the time when it was growing. That’s magical! And, adding to that, the liquid in the bottle is affected by the tiny amount of oxygen coming through the bottle to make it - hopefully - better and different in thousands of ways.
The very best wines, I think, are those intimately intertwined with the place and year they are grown.
There is a very fine line, at times, of what constitutes great winemaking and what, instead, standardises flavours of the wine to hide flaws from the vintage or in the vineyard. Jane Anson in her book Inside Bordeaux highlights a few techniques used to hide terroir expression, such as 200 percent new oak, overly-harsh filtration techniques and late ripening, to mention a few.
During this 2021 En Primeur season, it was quite clear that conditions for a great vintage just weren’t there!
A lot of wine critics avoided addressing head-on the elephant in the room, and so they talked about the whites, or the leaps in the winemaking techniques and how some wineries have managed to achieve excellence despite adversities. A few didn’t hold back, Jane Anson (En Primeur, All Notes) and Lisa Perrotti-Brown (2021 Primeurs, The 10th Plague) dared to be bolder — perhaps thanks to their respectively newly-launched independent publications.
Wine critics have a challenging job in vintages such as 2021 — I am sure they must feel bad for awarding low scores, when they know full well that it’s not for lack of hard-work and investment.
The weather and environmental conditions are beyond even the best winemakers’ control, and great (or even just good) conditions are rare and we must not think that they are the norm. In a not-so-good year, the fixed costs, the labour and the investment needed are higher: more work in the vineyard (anti-frost measures, de-leafing, green harvesting, more protracted and careful sorting at harvest) and less yields (a decrease of 20% on the 10-year average).
Further, we cannot shy away from certain dynamics affecting the 2021 year, such as a record-high inflation of 8.1% (at the time of writing this article), the highest figure since the European Union was established. The two main causes were supply-chain disruptions in late 2021 and more recently, the Ukrainian conflict — both of which pushed the price of paper, cork, glass and all the fundamental raw material for wine production through the roof.
🤔 Can wines from bad vintages be good investments?
My interest for this year’s en primeur lies mainly in the investment side of the vintage topic. Of course, a lesser vintage calls for a reduced appetite among consumers, investors and collectors.
Given the inflationary dynamics in Europe, higher prices are to be expected even when vintage conditions fall short.
Are 94-point wines each from a good vintage and a bad vintage equivalent in terms of quality?
Jane Anson replies:
It's a great question and the answer would be yes, as far as possible my scores are absolute — hence why there are many more low scores in 2021 compared to 2019 or 2020, for example.
Having said that, if you are looking for a wine to age for decades, it is always sensible to buy from the best vintages, as they will have more structure.
In theory, you should be able to get more value wines at the higher scores in a good vintage, so that is also a consideration to take into account.
In challenging vintages like 2021, I would (as a rule, although always a few exceptions) steer clear of second wines.
The whole point of en primeur is to look at how a wine will age — does it have the structure, acidity, the right kind of fruit to age well?
From this reply, my investment brain started thinking in terms of present value and pricing. If a wine does not have ageing potential (or, let’s say, it has less ageing potential), it means pricing this asset with a 10-year horizon rather than with a 30-year horizon. The present value of said asset is greatly reduced because there is no compounding value for the final 20 years.
(I don’t know if this clarifies or confuses, but if I have £1 and reinvest it every year at 5%, after 10 years I have an extra 62p due to interest, after the next 10 years I add £1.03 and for the final 10 years I add £1.67 due to the effects of compounding interest, i.e. the more you leave it invested, the faster the money accrues, because interest gained also accrues.)
That’s why, in the secondary market, we should expect the 2021 vintage to trade lower than previous vintages.
However, it was reported in Decanter that analyst group Wine Lister believes the Cheval Blanc 2021, with a recommended onward selling price of £395 per bottle (in bond), to be ‘an obvious buy’, noting that the release price was around 28% lower than current prices for the top vintages of 2019, 2018, 2016 and 2015. Is that a great bargain?
I don’t think so.
First and foremost, you would expect en primeur prices to be lower than current prices, when adjusted for inflation, simply because you are buying an “unfinished” product (a bit like buying a property off-plan). It’s like comparing apples (en primeur prices) and pears (current prices). Better would be to compare en primeur release prices — 2021 at £395 per bottle and 2020 at £388 per bottle. The price is slightly increased (+1.8%), but if we were adjusting it for inflation, it would represent a slight decrease in price.
Secondly, Cheval Blanc 2021 would be a bargain if it traded at 28% discount (of the 2020 en primeur price), and if the buyer thought that it could age well. And in fact, comparing the wine critic Jane Anson score of 2021 (96) to the score she awarded in 2020 (99), it shows a great difference in the quality.
And the fundamental question is, does it have the structure to age 20 or 30 years? Will there be appetite in the secondary market in 20 or 30 years’ time for a bottle of Cheval Blanc 2021? Will someone buy a vintage that doesn’t have the structure to age?
Making a comparison with stock-picking, finding value means discovering a stock that trades below its intrinsic value. There are a lot of “cheap” stocks, but most of them are cheap with good reason.
Taking Jane Anson’s comment as a guide on ageing potential and a good background in investment markets, the Cheval Blanc 2021 trades at discount for a reason. The wine will have a lower timeframe in terms of drinking-window and will be less sought-after by investors in the secondary market.
In addition, as inflationary forces are currently affecting the markets, it will be relatively less compelling to hold collectables and other physical assets because borrowing will become more expensive and other safer assets will offer higher returns.
In the fine wine market, the effects of inflation and wealth diversion support the view that rising inflation buoys the market up to a point (read: the first 2-4 years), with the expectation of a sharp drop in the following years.
The 96-scoring Cheval Blanc 2021 is equivalent in value of a 96-scoring wine in a good vintage. Perhaps, it doesn’t affect its quality because, let’s say, you can drink the 2021 in eight years’ time and it will be a fantastic wine, showing the best of what 2021 had to offer. As I was mentioning earlier, the very best wines are those intimately intertwined with the place and year they are grown.
However, the vintage does affect the investability, because the longevity of the wine is almost certainly not there and the appetite for investors to buy that wine on the secondary market will be greatly reduced.
🍾 Vol.1: Wines of the week
On Tuesday 14th June 2022, I went to the Bancroft Portfolio Tasting. Two of my favourite wines among those I tried:
RB|28 Blanc de Noirs, Exton Park. Buy here. I had a chat with Karl (brand ambassador), who told me the story of the founder Malcolm Isaac MBE (now 95 years-old!) who apparently introduced baby leaf salads to the UK market and completely modernised the UK salad industry! What impressed me about their Blanc de Noirs (and all of their other wines) was that they all had a very distinctive red apple scent.
They told me all about the Cava DO controversy — and how some Corpinnat producers (who produced a third of the premium Cava) decided to abandon the ‘Cava DO’ from their label and adopt Corpinnat instead in a move to protest against the extension of Cava production areas.
(I can confirm that the quality is outstanding.)
Members of Corpinnat must adhere to a strict set of production rules, including 100% organic grapes, manual harvest, at least 18 months’ ageing (but with some wines aged for more than 30 and more than 60 months), the inclusion of the wine grower in the value chain and carrying out all vinification in their own winery.
Disclaimer: This article does not represent investment advice or any kind of professional counsel, nor does it represent an offer to buy or sell securities or investment services.
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