Tuesday, May 6, 1997
Imbibing vs.
Investing
by GrapeWiz
I’m a lucky guy. In addition to health, family and the usual laundry list of things for which I am thankful, I consider myself fortunate because I earn my livelihood marketing French wines, a product which I enjoy talking about, drinking, and otherwise being associated with.
No, I’m not a professional wine taster, if there actually is such a thing. People are paid to write about wine, make it, blend it, evaluate it, and sell it, but to my knowledge, no one is paid just to taste wine. When I find that job, I’ll let you know.
Outside of my work, my personal interest in wine is primarily gustatory. Foolish doctrine, however, counsels that the industry in which one works is a good place to look for investment opportunities. The wine industry does carry with it a certain romance, so why not stake your claim in a winery?
Let’s take a quick look at how some of the publicly traded stocks in the wine industry have fared over the last few years and decide whether it would have been better to drink the wines or to invest in the companies that make them.
With hundreds of wineries in California alone, there must be barrels full of wine companies to invest in, right? Wrong, Grape Breath! There are less than a dozen publicly traded companies in the industry, and of those, the largest and most recognizable names, Louis Vuitton Moet Hennessy (LMVH), Seagrams Co. Ltd. (VO), Grand Metropolitan (GRM), and Brown Forman Corp. (BFB) are actually multi-national conglomerates, with ownership interests in everything from Burger King and Haagen-Dazs (GRM), to Universal Studios and Time Warner (VO).
For a pure play in wine, there are only a handful of options.
Saddled with debt and needing to replant hundreds of acres of vineyards due to destruction by a nasty vine louse called phylloxera, Robert Mondavi Corp. (MOND), went public in June, 1993 at $13 a share and was recently trading around $38. Nearly 300% ROI in about 4 years. Not too shabby. Of course, you might have felt like downing a few bottles of Cabernet Sauvignon, or perhaps something stronger, when the stock bottomed at $7 3/4 in August of 1995.
The Mondavi Winery is immaculately kept, incredibly beautiful, and they make some wonderful wines. I wouldn’t mind having a few shares just so I could say I owned a piece of it.
Outside of the U.S., Chilean winery Concha & Toro (VCO), has seemingly had a good vintage this year. After languishing around $18 between October, 1994 and May, 1996, its shares have climbed steadily to their current peak of just under $32.
Canandaigua Wine Company, Inc. (WINEA), which sells spirits and beer in addition to wine, sold for $12 1/8 back in February of 1987 and spiralled downward for a few years, dropping to a mere $3 in December of 1988, before peaking around $48 in 1995 and settling at its current price near $26. If you’d played it right, you could have made some money with this one but, without benefit of hindsight, if you’d bought and held it for 10 years, you’d have barely doubled your money. Lately, this company’s been having a bit of trouble with its bottom line.
Shares of The Chalone Wine Group, Ltd. (CHLN) have fared similarly, slightly more than doubling in the past ten years from their January 1987 price of $5 to their current plateau around $11 1/2.
R.H. Phillips, Inc. (RHPS) stock rests today at about $4, roughly the same price as it was in October of 1995 when it first came public.
Pity the poor soul who invested in Willamette Valley Vineyards, Inc. , (WVVI) an Oregon concern, and watched his investment wither on the vines from $5 3/4 in October, 1994 to its cellar level current price of $2. One could have fared almost as poorly by investing in Geerlings & Wade, Inc. (GEER) a catalog seller of wines, at $7 3/4 in June, 1994 and watching it ferment to its current price level hovering around $3 1/2.
My conclusion? If you’d invested judiciously in the wine industry and timed it just right, you might have done well. There are, however, many other industries in which you’d have likely done far better.
Maybe you’re considering buying a few bottles of expensive Bordeaux wines, such as Chateau Haut-Brion 1989, and laying them down for say ten, twenty years, while they appreciate in value, then reselling them. Can you make any money that way?
San Diego real-estate developer Tawfiq Khoury, one of the world's foremost wine collectors, who recently sold a large portion of his renowned cellar at an auction that grossed $3.2 million, is quoted in The Wine Spectator , “I never bought wine as an investment... By the time you factor in storage, insurance and opportunity costs, I’m not sure whether buying fine wine was as profitable as taking a major position in blue-chip stocks... I prefer to look at fine wine as an investment that gives you great pleasure. If you are fortunate enough to make a few dollars, you are lucky. If you have been able to share your collection with family and friends, you are luckier still.”
I’m in complete agreement. Wine is made for drinking. The best wine investment of all is to stop by your local wine shop or supermarket and buy a couple of good bottles to enjoy with those you care about. Tell them GrapeWiz sent you!
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