A wine advocate who chooses diversity in his inventory, and in tastings, puts any portfolio manager to shame. After all, a great wine, either Bordeaux or Burgundy does last for 50 years. Stocks like Polaroid and Xerox flamed out within a decade or so. A great vintage when it peaks still evolves into a delicate masterpiece of color, nose, and after-taste. Try 50 years.
Mainly unremarked is owning orchards of sound grape varietals showed tremendous appreciation from the early seventies when acreage went for $4,000 an acre. I was offered a solid property with good acreage. But, I only knew how to drink wine, not invest in it. I quibbled over whether the control block in a convertible preferred stock issue should yield at least 6.5%. Those in control offered 5% and I turned it down. Ignorance and poverty go hand-in-hand.
My wine cellar still holds great Bordeaux and Burgundy dating back 50 years. Maybe Buffett’s American Express holding goes that far back. But, I banged out Polaroid and Xerox on time. Probably, talking late sixties. Vintage wine doesn’t crumble and turn to dust. Yes, its color fades some but the nose stays pure perfume, and the aftertaste lingering perfume. My problem is, I can never find drinkers experienced enough to drop down dead after such a tasting.
I learned much from an old friend who built a 20,000 bottle cellar, computerized, and managed by his wine steward. Stanley lived in Atherton, California, which is northern and cool. One weekend, Atherton landed a snowstorm and households lost power. Stanley’s wine cellar temperature dropped below freezing and a countless number of bottles popped their corks. Stanley, of course, was insured, and received full recovery from his carrier. Then Stan recorked his wine bottles and lived happily ever after. The wine held up.
An old friend once gave me a 50-year-old bottle of Lafite, which he had stored upright in his hall closet. The wine had matured, but remained highly drinkable. Consider, a century's worth of market stats shows that even if you come in at the top of a market cycle, if you stick it out for at least a decade, your rate of return can exceed Treasury bills. The entire industry of financial counseling is based on this premise.
When I turned to Michael Broadbent’s tome “Vintage Wine", I learned the 1945 Bordeaux and its 1961 were subjected to frost and heavy rains, thereby reducing the size of crops to small thick-skinned grapes. It produced a deeply colored, and tannic vintage. No pain, no gain.
My lesson is something else. Never wax dogmatic or definitive on wine or stock markets.Resiliency is a dominant, repetitive theme for financial markets.
This is unlike high-yield bonds where you often face skimpy interest cost coverage and do succumb. That's why they pay you 7% or more for your capital. It’s why I never go below BB rated paper and limit bond duration to five years. Not so long ago, the preferred stock of Bank of America sold down to five bucks from it‘s $25 par pricing. Buffett cleaned up refinancing the bank in 2009.
Holding a bottle of wine for 50 years, even in an evenly regulated cellar is like betting on an 100 to one shot in the Kentucky Derby. I was telling this to Kathy , my shiska friend from the Texas Panhandle, who races horses.
Like investing, the only way you learn about wine is by tasting. There is no better classroom than a dining room full of opinionated followers of the grape. A horizontal tasting, where you sample a broad cross-section of first and second growths from the same year, is most instructive.
A couple of hundred of us had gathered at the Four Seasons restaurant decades ago for a tasting of 1986 Bordeaux. The Four Seasons then was run impeccably by Paul Kovi and Tom Margittai. Designed initially as an automobile showroom in the Seagram Building, its airy amplitude was a refreshing change from the holes-in-the-wall on Manhattan's side streets.
The Four Seasons radiated Belle Epoque panache, everyone treated with deference. Proprietors of Château Margaux, a Greek family based in France, the Mentzelopouloses, were guests of honor at the tasting. They had bought Margaux in ‘79 for about $18 million. Later, the French government disallowed any first-growth château to pass into foreign ownership. National Distillers notched the premium bid but lost out. Today, you couldn't touch this property for $300 million.
The early line on the '86s, as stated by Robert Parker, a keenly read wine critic who wrote a bimonthly called The Wine Advocate, was that they are as good as the
'82s. The '82s were expected to turn out on a level with the '61s or '59s, which is saying a lot, but 40 years later they've peaked and are losing fruit.
Even the wine merchants at our table took notes. The white Pavillon Blanc du Château Margaux ushered in the reds, 17 wines in all. It had a distinctive white Bordeaux character and a mouth-filling aftertaste. I jotted a note to buy a couple of cases. This before we had made our way up to first-growth blockbusters.
Rating an immature wine at 100 is the equivalent of paying 100 times earnings for Twitter because you had a dream they were going to make a fortune from advertising revenues on smartphones. Our table discounted Parker's ratings. The Haut-Brion was the winner, with a big mouth and full bouquet. Yes! The biggest worry was its forward development-that it could poop out by 2006. (Not so!)
The most interesting part of this evening, aside from the tasting, was the commentary from a guy who makes the Château Margaux wine, Paul Pontallier, a youngish estate director with a good command of English. Pontallier defined his mission as divining what the grapes want to express along with the soil, the
climates and the ages of the vines. "Above all, a good winemaker needs patience to define a great vintage."
I muttered to the arb on my right, "He talks like a portfolio manager." A good money manager deals successfully with as many variables as a first-growth wine maker. (Referring to my dinner notes, I see I spelled patience "patence." This after
Instead of the age of vines, I deal with economic cycle durability. Fluctuating interest rates, Federal Reserve Board policy emphasis matches rain and the when-to-pick variables. Corporate earnings power is the intensity of the grapes engendered by the sun's rays. The stock market technicians are the Robert Parkers of the world, who rate wine with numbers. Wine merchants equate with high-powered institutional brokerage houses. Very promotional.
Ten years from now we’ll know whether the 2010 Mouton Rothschld is a perfect 100, Margaux a 99. Maybe I’m right about Haut-Brion. Until I see comparable wine merchant exuberance on The Street, I intend to stay less than fully invested.