Time to Rebalance Your Wine Portfolio

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

With the stock market lurching up and down, it’s a challenging time to modify your stock portfolio. But none of us are getting younger, so now is as good a time as any to rebalance your wine portfolio.

Jeff Smith is the chief wine officer for Vino Vault, a US wine storage company with locations in four states. He wrote a book called “The Best Cellar” about how to buy, sell and maintain a wine collection. Wine-Searcher spoke to him about why you might want to rebalance your wine portfolio, and how to do so.

Why do you think this is a time to rebalance a wine portfolio?

One thing I expect to see right now is people taking stock of their collections. There has been a period of two and a half years where there has been a great deal of buying; buying at higher and higher prices. There will be a lot of taking a look at what they have. And it is still a robust market for wine.

How does someone start?

It starts with getting a list of inventory, and getting that list priced out by somebody. One way to do it is to look at Wine-Searcher to see the retail prices. But those are retail prices. Wine shops that accept consignments will give prices.

A lot of people sell wine when there’s a change. Maybe they’re moving. Death and divorce are the horsemen, but also changing taste. People might start out buying one thing, and then decide it’s either not for them, or they have too much of one thing. Or they want to pursue something else altogether.

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

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

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

You may have somebody see something that’s gone up to such a high price that they feel that they have to sell it. My father was a wine collector and he had receipts for buying First Growths for $15. Some of these things, like Petrus, they get to a point where I can’t enjoy drinking it. Conversely, there are things that don’t appreciate [go up in price] that they’ve always liked, and they’ll say they can’t afford to sell it.

What kinds of wine don’t appreciate (i.e., go up in price)?

Most California varietals, besides Cabernet Sauvignon, beyond a very few Syrahs, Sine Qua Non specifically, or Pinot Noir, Marcassin specifically. (Most California wines) were not built for the long haul. They’re not 20-year fine and rare wines. The big money is chasing the big titles. They’re not interested in most wine on the market.

© Vino Vault
| It’s only the very top wines that give the big investment returns.

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

I’m seeing a lot of Italian wines that have not appreciated in a way commensurate with their quality. Most Barolos and super Tuscans are still trading at a reasonable price. They haven’t doubled like Burgundy has.

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

If you’re playing this as an arbitrage and you want to make a little money, you should be buying a lot. You should be buying whole-case quantities and store it as cheaply as you can. But most people are buying wine with the intention of drinking it. The option of selling is something they do when there’s a change in their life. People are going to be taking stock to see what they can get rid of that will make no difference to them.

Do you need 2000 bottles, or will 1000 bottles see you through, considering how much wine you’re drinking?

At its auction two weeks ago, Zachy’s laid an egg. Acker’s auction (in Hong Kong) came around the low end of the estimates. But the estimates factored in irrational exuberance. I’m seeing the market coming down but it’s not crashing by any means. All of the auction houses had to adjust their estimates to reflect that.

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

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

How big of a threat today are counterfeits?

The result of the whole Rudy experience, and the “Sour Grapes” experience, is that the industry is doing a much better job of policing itself. I was called as a government witness in the Rudy case, though I didn’t testify. I had a lot of conversations with the FBI who said there are other actors here. Counterfeiting is a serious problem, but the industry is doing a good job of policing itself and catching a lot of it.

A lot of it is happening at a lower level, not wines that are going into fine wine auctions. They’re 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 out is important. Things that come on an allocated list, people feel obligated to buy them every time. Then you end up having the same thing year after year. Same flavor.

These mailing lists are aspirational. They create a sense of limited availability. With some there’s a sense of accomplishment of even getting on the list. I know people who have gotten on 30 or 40 lists and the wine is coming in so fast they can’t drink it all. They’ll say, I have hundreds of bottles of Dehlinger or Kistler or whatever it is. People feel obliged to not just buy the wine, but buy all of it, for fear that they’ll get a smaller allocation next year. I may suggest that people pare down. But they got on the list for a reason.

I ask people to ask themselves, what are they enjoying? See if there is some correction that can be made. A rebalancing.

I had a very famous client who asked what I thought of his cellar. I said that some of his white wines had gotten old and past their sell-by dates. He asked: ‘What do you mean?’ I said, I wouldn’t serve this to my guests, and your guests are a lot more famous.

I had an 85-year-old client who asked me about buying futures and I said, do I need to bring out the actuarial tables? Why aren’t you buying the ’95s and drinking them tonight?

Do you see any must-buys for the future?

I don’t know that there is a sleeper sector in the secondary market. I don’t know if there’s a matrix that says if Italian wines are undervalued now, they’re going to rise over time. It does seem like the auction market is limited to 1 percent of titles.

If you look at things historically, the market always goes up. We may be in a period of some kind of correction, but this is just going to establish the floor at a much higher level.