STEP 2: TEST THEM TO ASSESS THEIR SKILLS
Most wine brokers you come across will pass Step 1, having experience. If they don’t, remove them from consideration immediately. But once you’ve found five to ten wine brokers who have experience, and they all seem credible, what do you do then? How do you choose?
We are going to recommend something that will seem obvious to anyone with financial experience, but which is somewhat controversial in the wine world. We think you should test potential brokers, and make them prove they can pick winners before you do business with them. Estate Wine Brokers is always willing to prove itself before someone decides to invest with us, and we would be very suspicious of anyone who balked at giving proof of their knowledge.
That being said, what most wine brokers will do is tell you that they have been successful, and they’ll possibly refer you to clients who have made a lot of money with them. That’s fine, and checking references is important, but that is not what we are talking about here.
It does no good for someone to tell you that they picked successful wines in the past. Everyone knows an investment in DRC La Tache fifteen years ago has had an amazing return. That doesn’t really show you how they are going to help you going forward.
We recommend that you ask your potential wine brokers to show you how they will help YOU make money. How do you do that? This is what we recommend:
Tell the wine broker that you would like to invest $10,000 a year in wine (or whatever amount you are comfortable with, but $10,000 is the minimum). Then ask the broker to give you a list of the wines he or she would recommend that you buy, and what price he or she would charge you. This is very similar to that stockbroker game that people play in school, where the teacher gives you $100,000 in Monopoly money, and you show what stocks you’d invest in.
The wine broker should come back to you with a list of about twenty-five to fifty wines with pricing (make sure that the broker provides you with all pertinent details including the proprietary name of the wine or vineyard name, the bottle size, the vintage, and the quantity available).
Here is how you check the broker’s recommendations. Go to the Wine Searcher website (www.wine-searcher. com). Upgrade to the pro version, and then look up each wine by typing in the name of wine, making sure you click on the proper vintage for each, and then clicking on the “market data” tab, which will show you the price history of that specific wine.
If somebody gives you a list of wines with flat price histories, that wine broker doesn’t know what they’re talking about. Even worse, if the prices of many of the wines are downhill, or if the broker gave you a list of wines that nobody’s ever heard about, and are all very cheap. All these are very bad signs.
What you are looking for are wines that are not too expensive, probably in the $100 to $500 range, and have a history of rising prices, especially recently.
If you want to get more technical detail on a wine broker’s recommendations, then what you could do is actually track auction data. You can find auction data on the Wine Market Journal website (www.winemarketjournal.com). That is the number-one site for tracking wine auction data.
When you look at auction history, what you’re looking at are the improvements in very specific categories. You are looking to see which of a wine broker’s recommended wines actually performed at their highs or above their highs. That means those wines are hot and will probably keep rising in price. That’s when you’re catching a wave right before the swell. That’s where you want to be.
But if their wines are selling at the low end of the ranges, it indicates that the market is soft for those wines.
We think that the difference between a good and a bad broker is how much they need to persuade you to buy. If a wine broker is pushing something on you, that’s a bad sign. Really great wine doesn’t need to be pushed. You can see the demand in the prices.
Look at what they’re recommending to you speci cally. Are they selling you wine that is already old? Is it already at its peak? Or are they selling you wine that has a certain amount of window left over so that it meets your thresh- old? Are they listening to you?
If you say, “Look, I’m going to buy $10,000 a year worth of wine for ten years. That’s $100,000, and in year ten I want to sell all of it,” then you want to make sure you’re buying wine that has a drink window of at least ten to twenty years. Otherwise, nobody’s going to buy your expired wine. That is just expensive vinegar.
Another way to test a wine broker’s skills is to ask: “Right now, what are your five to ten favorite wines under the radar investments?”
A good wine broker will always have a few producers they are watching, that are likely to break out, and if you are potentially going to be a client, the broker should tell you who those producers are. Is the wine broker hearing any back chatter in the sommelier community on specific producers who could make a wine that would last fifteen to twenty-five years? Is there anybody there that the broker knows of who has still got great value, on whom allocations are starting to tighten up a bit? Does the broker know of wines you can still get, but on which the allocations are tightening up? That’s when you know there’s demand behind the wine.
I’ll give you a great example of a wave I caught early on, and which most good wine brokers know about by now: the wines of the Rhone Valley. Most Burgundy and Bordeaux wines have seen their major growth spurts, but the high-end Rhone Valley wines are nearly as good and still drastically underpriced relative to those other two regions. I have been buying large allocations of high-end Rhone Valley wines like Château Rayas for quite a while, and my clients have seen excellent returns, which are only accelerating.