The Gambler

What do you do for a living? I used to dread this question. Not that I’m ashamed of what I do – I love it, and I know that many of my friends and customers are envious of a job which they believe is simply getting lashed up all day. No, I used to dread this question as it would so often provoke another question: “So, what’s a good wine, then?” or: “We drink that Blossom Falls one; lovely.” Etc, etc. I briefly flirted with the idea of telling peoplethat I worked for the Water Board.

A friend of mine has a truly brilliant occupation. Up there with hitman, astronaut and Formula 1 driver. A professional gambler.

Now gambling is speculation: putting your money on something happening, be it number seven winning in the two-thirty at Sandown or the price of gold rising or falling in a set period of time. And what so many choose to call “investment” is the same thing. After I’d lost twenty quid on the first race a few Wednesdays back, my pro-punter pal asked me: “did you invest?”

Now there are all sorts of ways of backing horses. My system primarily involves animals with cool names and it works to a degree in that it is consistent. My friend’s is much more technical, and considerably more successful. It involves some maths and a great deal of hard work. And a great deal of nous, balls of steel and a scratch of luck – all the information and hard work in the world can mean nothing if your horse wakes up with toothache… My friend bets “off-piste”, in that he doesn’t listen to all the rumours that everyone else is listening to, and he has the balls to back his own judgement.

Here’s the vinous bit:

The wine market, the “wine investment” market is not quite on its knees but the market is flat, or rather flatlining. The Liv-ex 100, probably the best barometer of these things (though how many barometers really work?) has lost 27.3% in the past year, 4.7% in the past month; if you piled into Lafite a year ago you’ve had what Martin Amis would describe as a “buzzcut”. Optimists, and we’re all optimists, can spin this around: now might possibly be a cracking time to invest. Buy at bottom, sell at top. Seeing both bottom and top is not easy but to me it is fairly clear that, even if our feet might not be touching the ground, the bottom is fairly close.

This might sound good – indeed I reckon it is – but there is one issue that nags me. Once we touch bottom everyone piles back in, but back in to what, exactly? I reckon it will be the same wines as last time and the time before, with the possible exception of Lafite. Which is to say that investors will look at the “staple” wines, wines like 1996 Latour, wines that are simply “commodity Bordeaux”.

My wine fund friends might say that this is the point. But what I thought the point was is that wine is an alternative investment, a diversification. But if it’s just another commodity then where is the diversity as all the prices just go up and down as fear and greed drives investors to get in and out?

What I have been suggesting for the past couple of years has had nothing to do with the indices and more about the intrinsic. Anyone can lay the donkeys and back the favourites. What the pro gambler does is twofold: firstly, find where the odds are wrong. This is fairly simple. Ch. Haut-Brion is for many people who know the score the finest first growth of the lot. It’s also the cheapest in many vintages, despite this and in spite of the fact that there isn’t much of it: circa 10,000 cases a year against double that for Lafite. So, in the context of the market, the odds for Haut-Brion are too long.

The second part is a bit more tricky perhaps. It’s about finding value beyond the odds. It’s about seeing a horse that is overlooked, that the money doesn’t follow. And there is no shortage of these though finding the winner is still a little cloudy.

In Pauillac the favourites are: Latour, Lafite, Mouton & Lynch-Bages. Pontet-Canet was the outsider though everyone and his dog has the tip now and the odds have shortened. Grand-Puy-Lacoste is half the price (so double the odds?) of Lynch-Bages and looks good though has few backers nonetheless as it’s never really proven itself. There are oceans of 2009 GPL available on the UK market at £600 per case or less – half the price of Lynch-Bages. No takers? No, because no one has the balls, and money follows money like a fool follows a fool.

There are a few rank outsiders. 2005 Ch. Pedesclaux did rather well a few years back following a Decanter panel tasting where the panellists gave it five stars, rating it with 18.5 points along with Mouton-Rothschild and Pichon-Baron. This was, though, a case of a dog having its day. One of the panellists remarked to me a few days later: “if there was one day, one hour, one minute, one second, when that bottle was going to be the best it ever would be, then that’s when we tasted it.” I’ve used some licence there but the gist is right. Further tastings of the wine proved this to be correct: blinding run on one day but Pedesclaux is not a thoroughbred.

Somewhere in between Grand-Puy-Lacoste and Pedesclaux is Ch. Batailley. A 5th growth, fantastically reliable and improving to boot (though for “improving” you could say “Parker likes it more than he used to”). The brilliant 2010 is £300 a case, the riper and equally impressive 2009 £350 a case, so about a quarter of the price of Lynch. This is my type of horse.

And this is without even getting out of Pauillac, let alone leaving Bordeaux.

The real truth is that when prices go up, everything tends to go up. Who are the people who have made money from “wine investment”? The people that bought at the right time. Some horses may have done better than others (why didn’t I buy 2005 Carruades at £360 a case?) but if you bought commodity Bordeaux in 2004 or 2005 (or from these vintages if you bought early) then you will have done very well, especially if you sold in the Spring of 2008. Rather than picking horses, it’s perhaps just a question of when one went to the races.