Random Thoughts after the recent Henry Tang auctions

Where do I start? I suppose I’d start by sharing a bit about myself. My day job is a trader at a hedge fund. My daily routine consists of buying and selling assets that we deem mispriced. As a trader I constantly grapple with whether asset prices are a) mean reverting or trending and b) efficient.

Wine collection is not much different. The current prices of top-end burgundies scare me. Trophy wines are becoming “trophier” (to borrow a phrase I saw discussed on wineberserker.com), while general prices across the board also increasing, albeit much less than top-end. At what point do we go from trending (because of supply/demand dynamics, thus structural) to mean-reverting? It can happen, as we saw with Bordeaux in 2011/2012 after China demand faded.

As for efficiency? We all know wine trading is not efficient when you can buy the same wine at different locations, events, situations for different prices. This is obviously great for the arbitrageurs and speculators in the market, but how many end users actually end up enjoying the bottle? Not to mention the fact that many of these bottles have travelled the world more than once over, severely impacting the quality of what is left in the bottle.

What happens when what’s left in the bottle is not even real? Post auction, the press is picking story on wineberserker.com’s Don Cornwell claim that 3 lots of DRC were counterfeits, and quite damning photo evidence I might add. We, in the wine world, all know the story of Rudy K and his counterfeiting scam, but for the first time the broader general public are picking up awareness. Because it’s Henry Tang, who has been in the press a lot lately for non-political reasons, people are watching with schaudefreude eyes, though more awareness is always good.

This market (like any other with financial gains to be had – credit derivs, commods, candy beans, whatever) need more regulations and transparency. Impletion is difficult, especially with the global reach of buyers. How do you deal with the buyer, based in China, is purchasing from an auction, based in London that is selling wine from Burgundy from another seller that is based in LA? Which set of laws do we use? I don’t have answers to these questions, but we do have to make sure these questions are being asked. Until then, I suppose it is buyers beware… (and do your homework!).

Oh well, off to the next auction at Acker’s this weekend! I am sure we will achieve another record-breaking sales and record-breaking single wine sold (they have some DRC RC 2005, over/under HK$150k per bottle?)

– RW




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