Transcript:
slava (00:01.878)
Hello and welcome to our latest episode. I'm very excited about today's guest. This is one of those examples where I think I know a little bit about the topic, but we're about to talk to an absolute expert. So Tom Gearing from Colt Wines is probably one of the smartest people when it comes to investing into wines. I'm so excited to have you here. Thanks Tom for joining.
tom_gearing (00:23.079)
Thanks very much for having me, looking forward to it.
slava (00:25.506)
Yeah, so let's just start what we always do with all of our guests. How did you even get into alts? How did you get into investing into wine?
tom_gearing (00:33.674)
Yes, it's a great question, probably the one I get asked the most. I was very fortunate to grow up in a family that was really passionate about wine. My father in particular was a wine collector. He was also an investment professional. And when I was growing up, I think the first time I ever went to a vineyard, I was 11 years of age. He dragged me down to a place called Nui St. George, which is in Burgundy. We used to drive from our home in London. We used to drive down there, spend a week together, father and son bonding time.
And I actually went into a winery at 11 years of age, went down the steps into this old, really stone, classic, French vineyards, wine cellars, dusty and old and dark, dimly lit. And as I went down there, the guy, the winemaker, he had the barrels and he was gonna give some taste and he literally gave me a glass of wine. And I looked at my dad and he was like, you can have some, but don't tell your mom. And I was like, great, perfect. And so the first wine I ever had was this Musigny Blanc from Comp de Vauge.
which is like super rare, they don't even make it anymore, and it's probably like one of the most pinnacle wines you could ever have, and I had that at like 11 years of age. I had to spit it out, of course, and it was so precious, the most amazing thing about this, it was so precious, they only made one barrel of it, that I had my taste, I spat it out, and there was a tiny residual amount of wine left in the glass, he poured it back into the barrel, because he didn't want to lose that one or two drops. So that's sort of where.
slava (01:52.897)
gosh. How much would one of those bottles be today?
tom_gearing (01:56.694)
I mean, Musigny Blanc from back then, which has been like 95, I think right now, even if you could find it, you'd be talking in the thousands of dollars. So yeah, it's a pretty exceptional place to start. So I always joke and say to everyone, everything's been downhill since then. Start at the top. But no, sorry, so I know this is a very long-winded answer to your question. I got into Alton in particular, wine investing, when I was at university. My brother and I, again, because of our background, we sort of knew about wine, we were doing it ourselves, we were helping friends do it.
slava (02:03.499)
Wow.
tom_gearing (02:26.282)
And we just basically saw an opportunity to take it to a much wider audience, a much wider community of people globally. And we felt that because of the global financial crisis, which occurred in 2007, 2008, when we wanted to launch the Business 09, it felt like a really opportune time to be bringing out a alternative investment class, an alternative way to invest into fine wine, because we felt that interest rates were low, stock market volatility, people were looking for alternative ways to find yield, people were looking for ways to...
create a store of value and put their money and diversify their portfolios. So they were the main reasons that I fell into it and that's how I got started with alternative investing.
slava (03:05.206)
What year is this that you started investing into wines?
tom_gearing (03:08.986)
So the company was founded in 2007 whilst I was at university and then I took on running the business full time in 2009. So about October 2009 I was full time running the business. So yeah, just sort of 12 to 18 months after the financial crisis. So we're really still seeing the big effects of it. To be honest, right at the beginning it was a hard task really to try and convince people to think about wine as an investable asset class. Because people have so many preconceptions around wine.
you know, it's an item or an asset that brings so much social and emotional value. I think it's quite difficult to get people to start thinking about it differently. So that was a big challenge for us, getting people to change their perceptions around wine and thinking of it as something that can actually deliver, you know, a financial reward as well as being something that, you know, you want to own and want to be close to.
slava (03:56.27)
So just to clarify for listeners, lots of people like to drink wine, but you're referring to actually thinking of a bottle of wine like a Picasso or a Monet, where you actually own it and it can appreciate, and one day you might sell that bottle of wine and make a return, is that right?
tom_gearing (04:13.918)
Absolutely, but I think the one key differential between wine and art is that wine is a consumable product. So an analogy I like to give is, imagine walking into a gallery, and in that gallery you have 50 monets on the wall, 50 Picasso's, and let's say one person systematically went through and took one of those monets off the wall, Picasso's, and smashed it, and they kept doing it until there was one Picasso left in that gallery. How much would the last Picasso left in that gallery be worth versus how much it was worth when there was 50? Now that is exactly what happens with wine.
That barrel of 95 Moussignes Blanc I tasted when I was 11 years of age, hypothetically, theoretically, there's none of that left in the world. There may be one bottle, there may be 100, but at some point in time, there'll be zero bottles of that left. So the unique characteristics of wine being a consumable product and one that has a perfectly inverse supply curve means that historically, for the last 300 years, wines have always appreciated in value. And so that is really why we believe that wine is such a great investment and a great thing for people to have exposure to.
slava (05:12.93)
So interesting. The visual of smashing Picasso's helps to illustrate the idea. So you obviously are an expert in wines, but are you looking at any other alternative investments as part of your portfolio? So do you invest into crypto or real estate or debt or startups or are anything of that nature or collectibles besides wine, sports cards?
tom_gearing (05:35.014)
Yeah, so look, from my personal perspective, I don't know whether this is a British thing or maybe just an inherent conservatism around me when I started, but as soon as I had disposable income to invest, the first thing I did was buy property. So I'm very fortunate right now that I have three properties to my name, which is probably quite a significant amount versus other people my age, so I'm really thankful for that. But for me, my investing story, I almost think of it as like a pyramid, so I almost feel like...
I wanted to build that really solid foundation, that really solid base. And for me, I always have thought about real estate and I've thought about property as being that real solid base at the bottom, where you know that bricks and mortar are always gonna have a value and it's always gonna have, to a certain extent, appreciating value and you can derive an income from it. And then everything after that has been, sorry, I'd probably say quite a combination of me sort of having high conviction in certain areas. So it might well be like, I remember, I opened a business in Hong Kong in 2016.
and I started going travelling to China in 2014 with my wine company. And one of the things that struck me was that every single person in China was using WeChat as a mobile messaging device service. And it was way beyond what we had in Europe or in the US with like WhatsApp or Facebook or different social media platforms. This was literally the sole communication platform that everyone in China was using. I came back in 2014 and I had, I can't think I had like maybe $25,000 capital spare.
and I put it all into Tencent. I put all of it into Tencent, because I was like, then my approach is like quite high conviction. I was like, there's no way that this is not gonna be absolutely massive. I was like, who owns WeChat? Tencent owns WeChat, so I bought $25,000 with WeChat shares. That $25,000 of WeChat Tencent shares quadrupled in value. I then took it out and used that as a deposit to buy my first property. So that was just an example of sometimes the type of things I do, which are very sort of, I wouldn't necessarily say like knee-jerk, but they're almost very like,
high conviction, here's something I really believe in, and I really go after it. And I've done that probably more recently with crypto as well. I actually got a funny story about the first time I ever bought Bitcoin. So the first time I ever bought Bitcoin was in 2013, and the reason I had to buy it is because I got ransomware software encrypted all of our company's files. And so our whole business, all of our server files were encrypted, and we had this ransomware.
tom_gearing (07:59.874)
countdown clock and it was like, if you don't basically give us, I can't remember how much it was, it was like 12 Bitcoin at the time. But actually 12 Bitcoin was only $1200. And so I had to set up a wallet. I didn't understand any of these things at the time. I was like, right, let's just do, if they're asking for that money, let's just pay it because it's not worth the risk losing all of our files. And so we went and got the wallet, we got the 12 Bitcoin, we paid the $1200 and we got all the files decrypted. But that was like the first time I'd ever experienced like.
having a crypto wallet and buying Bitcoin. Obviously that was really nascent times. And obviously I look back at it now wishing that I kept some of that Bitcoin left in that wallet at that price point. But then again, that was sort of my experience around that. So when sort of the boom started happening around Bitcoin and when it started becoming a bit more mainstream, I went quite heavy on Bitcoin and Ethereum. And I really just liked Ethereum because I thought it had such a utility in the real world.
And I probably went heavier on Ethereum than I did Bitcoin because I still struggle to see the true utility of Bitcoin versus something like Ethereum. And so again, my sort of experiences in business and my understanding of how we could potentially use Ethereum or a blockchain like Ethereum in our own use case around real world assets, drove me to have a higher proportion of Ethereum in my portfolio than I would say Bitcoin, just because I believed in it and I could understand how it could be used. So again, I think my alternative investing has very much been driven around.
my personal understanding of something and seeing how it can actually be utilised, and that gives me a real high conviction.
slava (09:26.318)
Awesome. Well, thank you for sharing all of that context. And as it relates to today's market, so when you mentioned originally getting into starting your company, the equity markets were doing poorly. You know, you had the 2008 crash, et cetera, et cetera. Now we're starting to see some challenges as well after a pretty bullish ride for years. What do you think of the current markets, especially with your lens where you have a global view on specifically wine, but really,
having to think about how people are thinking about all their investments. So there's a lot of pros to the economy, but there's also a lot of headwinds. How do you think about today's market?
tom_gearing (10:05.718)
Yeah, I think if you look at the macroeconomic environment at the moment, it does make it very difficult to have a strategy that essentially can navigate some of the peaks and troughs we're inevitably gonna be seeing. And actually, I think even if you look at some of the high performance numbers, especially some of the US stock markets or indexes, actually if you take out some of the really high performing stocks out of that performance, you actually get some much more normalised performance.
So I do wonder to a certain extent how much the markets have been influenced by these 10 or 12 or so really high performing stocks and the influence that's had on the market. I think that generally speaking, people are realising the need to have true diversification and I think having true diversification is a trend that's gonna continue. And I think the whole 60-40 portfolio split is dead.
I think you talk to institutional fund managers, you talk to investment analysis, you read any of the reports that come out of the big banks, Goldman Sachs, whatever it might be, you're seeing that 60-40 portfolio split gone now. Alternatives are gonna increase because alternatives do give people a true way to have decoupled assets within their portfolio, which is gonna be absolutely essential to riding out the peaks and troughs we're gonna see over the next few years. And I do think that...
you know, certainly a sort of, you know, a sort of, I wouldn't say a basic approach, but I think a sort of formulaic approach to investing, again, is not something that's gonna, I think you go back to say 20 years and a very formulaic strategy to investing could deliver really good results, but I don't think you can have that anymore. I think you have to be a bit more active. I have to think, I do think you have to be a bit more proactive, and I do think you have to think outside the box.
to really deliver returns and above average returns because the markets, as you said, are being influenced by so many different factors right now. There isn't any sure bet right now. There is no way that anyone in the world could look at anything and say, this is a sure fire bet. So the best way to get the best returns is to diversify your portfolio, absolutely.
slava (12:16.51)
If you say 6040 is dead, what is the new 6040? What kind of split?
tom_gearing (12:25.31)
I think that, well, you know, obviously I'm always gonna look at this through the guise of say alternative investments, but I think that I, you know, historically we'd always talked around, oh, you should have a five to 10% allocation alternatives. I think that's, that's on the low side now. I think, you know, alternatives should be making up say 20%. And then I think where that we're going to see a reduction is in that sort of income reducing more classic safer bond areas, which, you know,
at this present moment in time don't necessarily deliver returns, especially when a high inflation environment. So I think it's probably gonna move more to something like maybe a 40, 30, 20. 40, 30, 20, 10, where 10 may be cash, I'm not sure. But I don't think, you know, I think the 60, 40 traditional approach is, you know, is very, I think the market's moved on from that.
slava (13:15.822)
Super interesting. Well, let's dive into your expertise. Shall we talk about investing into wine?
tom_gearing (13:23.638)
Absolutely, it was touching a little bit, but we can go further.
slava (13:26.802)
So, you know, I've drank a bottle of some decent stuff, maybe $30 here at a restaurant, $300 there, maybe, you know, the most is some sort of $1,000 experience because I was part of some fun occasion, but what are we talking about when we're talking about investing into wines? Are we talking into $20 bottles, $50 bottles, 500, 5,000, $50,000? Like, what kind of bottles are we talking about?
tom_gearing (13:51.446)
Yeah, good question. I'll answer it in two ways. One is from a very boring economic perspective. So if you're buying and investing in wine, you have to consider some of the transactional costs. So you've got to buy the wine, sell the wine, ship the wine, and store the wine. So those transactional costs, to a certain extent, will build in a level of an expense ratio. And so if you're buying, even if there's a $20 bottle of wine right now that could double in value, the reason why that wouldn't be a good investment is your expense ratio versus returns would be too high, and therefore, actually, your net return would be
pretty much zero or only a couple of percentage points. So from a pure transactional cost perspective, it means that realistically, you can't really effectively invest in wines for less than say, I would say minimum is $50 per bottle, minimum, but really your average bottle price should be more in the region of sort of $100 to $200. And to put that into perspective, we currently manage $320 million worth of wine portfolios and our average bottle price is 200 across that full portfolio range.
In terms of answering your question from a different perspective, typically the wines that dominate the secondary market for fine wine are of course, the most in demand investment grade wines that are trading at anywhere in the region of sort of 200 to $1,000 per bottle. Of course you've got extreme examples that can be pushed up at a 10 to $20,000 per bottle mark as you have with any industry, but I'd say where the bulk of the volume is happening is between that 200 to $1,000 per bottle mark.
slava (15:19.49)
So if I wanted to go buy one of those bottles between $200 and $1,000, are we talking about at the restaurant it costs that much? Are we talking about at the retail store? Are we talking about like at wholesale? Like where can I find these prices? And where can I, the individual, try to find these bottles?
tom_gearing (15:38.142)
Yeah, so we're talking about the wholesale price, so not necessarily what you're gonna be seeing in a restaurant. I mean, typically, you know, markups in restaurants can be four to five X, so you know, something that's a retail wholesale price of say $250 you're gonna see on a restaurant list at a thousand. So we are talking about sort of wholesale retail. You know, typically, if you're in the US, you know, there are, you know, you've got the free tier systems, you have importers, and then you have the sort of local retailer distributors. So, you know, the well-known, you know,
wine merchants in US, people like Zackeys or K&L wine merchants in California, or Acas for example, these companies are able to facilitate the purchase of investment grade wines at the right wholesale retail price that you'd want to be buying at.
slava (16:26.666)
And do they have websites that I just go on and buy, or do I have to have special relationships?
tom_gearing (16:31.742)
Yeah, look, I think wine historically has played on the inaccessibility of wine in the, sometimes the most desirable wines that are gonna generate the best performance are made in the lowest quantities that have the highest amount of demand for them. So obviously you have to balance the allocation. So a lot of wine merchants will say, we're not just gonna give you an allocation of the most in-demand wines without a track record of being a customer of ours, or you know, you've gotta buy through the portfolio, but you're gonna have to have bought other wines. So I'd say typically most wine merchants are gonna expect you to have...
had a relationship with them, have bought other wines with them, and have built up your allocations essentially. So that's typically how the wine merchants and wine brokers normally work.
slava (17:11.406)
And if I'm brand new to wine, there's wine all over the world. There's winemakers in lots of countries. Not all wine tastes the same, not all wine is great. But how do you think about what are the regions or what are the types of wines that are the investable investment grade wines? How do I think about that?
tom_gearing (17:29.578)
Yeah, look, I think what makes an investable wine is a really, really good question. I think the key characteristics to make an investable wine is with one, does it trade on the secondary market? And when I say the secondary market, I'd say, has it got a track record of being able to be resold? Because that's really important, because you can have, you can go to Napa, right, and you can find a really good quality Napa winery that's selling at $200 per bottle, that's got really high scores from critics, 95 points plus. That doesn't necessarily mean it's gonna be a good investment.
just because it's got high scores and it's in the right price point and it's low production doesn't necessarily mean it's gonna be a good investment. To be able to make an investment return from anything, you've gotta be able to resell it. That's the most, to a certain extent, the most, buying something is actually relatively easy. The difficult part is selling it and making sure you can sell it for a profit. And so with wine, I'd say typically where you're seeing the highest volume of secondary market activity is in French wines. French wines from Bordeaux, from Burgundy, from Champagne.
they would tend to dominate the sort of auction market outside of the classic regions I mentioned in France there, in Italy, Tuscany and Piedmonts and Northern Italy, Barolo, Barbaresco. Again, they contribute quite a significant amount. And then of course, in the US, there's a significant collectible wine scene in the US. A lot of well-known US wineries, especially from Napa, command really high prices in the secondary market. So they would be typically the...
countries and the regions that form the bulk of the investment grade secondary market for fine wine. So I would say, you know, the general rule of thumb is minimum price point is gonna be $50 per bottle. It has to have a track record of being able to be resold at auction. And it also has to be well scored by critics and communities. So it has to have high quality essentially. But they're the three sort of fundamentals you would need to establish an investment grade wine.
slava (19:24.962)
So France, Italy, and California in the United States, is that 100% of the market? Or what percentage of the market is those three regions?
tom_gearing (19:36.106)
Yeah, I mean, obviously it's a bit of a long tail because then you have regions like some of the top Rieslings from Germany, from Mosel, obviously, you know, can mine really high price in the market. You've got some really top Spanish wines like Vegas, Sicilia, and Pingus that can achieve really high prices. Of course, you've got famous brands in Australia like Penfolds, Grange. So of course, there's a longer term and you've got South American wines, some of the top producers in Chile, like Almaviva, Orsenia, or Conciatoro, with their Don Melkor brand. You know, of course, you've got a long tail of
additional wines and brands that come from different areas. But if I was to contextualize it in the secondary market value that each of these contribute, at the moment, Bordeaux and Burgundy would probably represent around 70% of the market. So that's a significant amount. And then US would probably be around 10% of the market. Italy, you're probably looking around 10% of the market as well. And then you're probably looking around 10% of the market being made up of champagne.
and then adding in sort of Rome again, which is another French region, and some of these sort of more esoteric regions or maybe outside of the usual areas. So, you know, it is quite dominating, you know, the old world French regions.
slava (20:45.538)
So those French regions, the Bordeauxs and Burgundies, I mean, that's a huge chunk of the market.
tom_gearing (20:50.078)
Yeah, but look, the reason for it is actually quite simple, you know. If you look at somewhere like Bordeaux, there is nowhere in the world that's producing the volume of wine at that level of quality anywhere else in the world. You know, there's 8,000 plus vineyards in Bordeaux. So actually, out of the 8,000 plus vineyards, we're only really talking about 100 of them, which are investment grade. So the amount of investment grade wines in Bordeaux is actually a small percentage, but then.
The average size of these vineyards, you're talking about 50 to 100 hectares, you're talking about production levels of maybe 200,000 bottles a year. So actually, once you start doing the math, you can see that actually from a pure capacity volume perspective, there is just significantly amount, there's a significantly higher amount of Bordeaux wines that meet the investment grade criteria than in any other region in the world. So it really is just around volume and capacity that they have there.
slava (21:42.19)
Sorry, so are we saying 200,000 bottles per one of the quality vineyards and there's about 100 quality vineyards, is that what you said? Wow. Wow, that's awesome.
tom_gearing (21:49.194)
Yeah, yeah, that I would deem as an investment grade. Yeah. And then if you compare that to like, you know, some of the top, you know, Napa Valley vineyards that are making like, you know, a couple of thousand cases, which is like 20,000 bottles. And then you're probably saying there's only 20 or 30 or 40 of those vineyards that meet that criteria. You can see how quite, there's quite a different, significant differential in terms of the supply side. So, yeah, I would, I would deem as an investment grade.
slava (22:11.382)
Incredible. So one of those like Bordeaux and Burgundy, can you give us context as to like, give us like two or three bottles if we were lucky enough to have one of these? What's one of these like premier investible wines that if we're lucky enough to drink one of them, it's just like so epic. Can you tell us specifics?
tom_gearing (22:29.15)
Yeah, I mean, if we look at Bordeaux, I'd say that the king of the investment grade market, the wine that's the most revered, it's been at the top for the longest period of time is Lafitte Rochard. It's a first growth, so Premier Grand Cru Classe. I don't want to go into a history lesson, but in 1855, Napoleon asked the Bordeaux merchants to come up with a classification system. So over 150 years ago, the Bordeaux merchants based the system on how much the wines were trading for at that period of time.
and where the most demand was in the market. And Lafitte Rochard was ranked one off the top group. Originally there was only four in that group, there's now five. There's only ever been one change. But Lafitte Rochard was ranked at number one. But Lafitte Rochard was being purchased by Thomas Jefferson back in the 18th century. I mean, Thomas Jefferson was one of the biggest buyers of Chateau Margaux and Chateau Lafitte Rochard. So you're talking about the history and the longevity of these wines and the connections to culture are absolutely remarkable, right?
slava (23:12.482)
Wow.
tom_gearing (23:26.002)
But Lafite Rochard has always been right at the top in terms of the pinnacle, in terms of wine making, the quality of the wine making, the terroir, just what they're able to achieve from their pinnacle. It's a really bad, it's a French word, terroir, so it's T-E-R-R-O-I-R, and it doesn't necessarily have a direct translation into English language. But terroir is supposed to represent, it's supposed to be specific to...
slava (23:36.386)
What was that word you used, terrar?
slava (23:48.545)
Okay.
tom_gearing (23:53.086)
a place and so it's very specific to how you make wine and it's really supposed to talk to the fact that a particular vineyard in a particular location because of their particular soils and the weather that they might get in that particular location and the soil composition and the water composition gives it something that's completely unique and allows them to produce grapes differently to anyone else and that's really when it talks to Toa.
you know, that is really unique to about, you know, wine and vineyards and vineyard production. But Liffey Rochard for me would be, yeah, that is the pinnacle. That's what a lot of people have always dreamed of tasting, opening a bottle of and, you know, I'll be...
slava (24:34.743)
How much is one of those?
tom_gearing (24:36.97)
Well prices have gone up a lot recently for these bottles and I think really now you're looking at an off prime vintage. You're looking at maybe, so when I say an off prime vintage, like not top quality vintage, you're looking at sort of minimum sort of $700 to $800 a bottle. Say 2014 for example, which would be like a good vintage, well scored 95 point plus. I mean you'd be thinking.
slava (24:52.906)
What year, what year? Give me an example.
tom_gearing (25:04.534)
Yeah, at least $850 plus for that bottle of wine. And then.
slava (25:07.918)
So if I'm like, hey, I want one of those bottles, do I call you, would I go online, do I go to my restaurant and I could just get it for 850 or is that like super hard even to get for 850?
tom_gearing (25:18.262)
Yeah, so I mean, the best resource for finding out about wine prices is winesearcher.com, which is a online price search engine. It's like the Google for wine. So that's normally the first port of call. Type in Lafite Rochard 2014, it'll come up with a list of options. There's some good online retailers in the US like wine.com or the K&L wine merchants I mentioned earlier. These would be good places, resources to try and find out these wines and prices.
What we do is obviously slightly different. You know, we're working with private individuals to build fine wine collections. We go direct to source as much as possible. Obviously we manage a significant amount of inventory as well, so we have access to stock that we already have within our warehouses, in our custodianship. So quite a lot of the time people come to us because they wanna build a collection and they know we have access. So, you know, really good example is, I can't name names, but a quite well-known sports personality came to us and he really loved Screaming Eagle and he said, hey, can you...
build a collection of Screamin' Eagle, I want every vintage. So we were able to... Screamin' Eagle is probably the most revered and highest valued Napa Valley wine.
slava (26:18.094)
Sorry, screaming eagle is what exactly?
slava (26:26.894)
Thank you. Clearly, I don't know my Napa Valley wine enough.
tom_gearing (26:30.746)
Yeah, so Screaming Eagle or Scriegel for sure is very well known. It's owned by the Cronky family now who acquired it recently.
slava (26:42.885)
How much is a bottle of Screaming Eagle?
tom_gearing (26:45.495)
In dollars you're talking about three and a half to four thousand dollars a bottle
slava (26:49.746)
Oh wow, so even more than the Bordeaux.
tom_gearing (26:52.038)
Yeah, but I mean, yeah, so this is when it comes down to like, you know, the volume of wine, you know, screaming Eagle are making, you know, less than 1000 cases of their wine each year. Yeah, very, very little supply huge amount of demand. But you know, comparable for something like screaming Eagle in Bordeaux would be a wine called Petruse, which would probably also I'd say, you know, because you asked me, oh, what's the pinnacle into when it comes to Bordeaux, I'd say the two pinnacle wines to everyone.
slava (27:01.678)
So very little supply.
tom_gearing (27:19.73)
is after from a collectible perspective would be Petruse, which is a right bank wine. It's 100% Merlot, produced in a Appalachian called Pomerol. And Lafite Rocher is a left bank wine in Puyak, predominantly Cabernet Sauvignon. And that's really the uniqueness of Bordeaux is that you have these Bordeaux blends. But these two wines are really sits at the pinnacle. But Petruse, they're making, I don't know, 25 to 30,000 bottles a year.
So much, much smaller production. And, you know, Patrice trades at, I mean, you know, the 61 Patrice at the moment trades at like 20,000 plus per bottle. You know, new vintage of Patrice, you're playing minimum of $3,000 per bottle for a new vintage release.
slava (27:57.142)
Oh wow.
slava (28:04.642)
But is that the one that I should be investing into because that's where the returns are gonna be?
tom_gearing (28:09.558)
Well look, I mean this is what we are always evaluating and analysing. It's not like a necessary one size fits all approach which is that Lafite Rocheau, because it has more supply and it has more liquidity, the price evolution is different to something like a Patrusse which has much smaller capacity, much, has high liquidity but has smaller capacity and supply on the market. So actually if you look at the price evolution of these wines, they actually behave in slightly different ways. And so what we try and do is we actually try and.
group wines by how their price evolution and what are the factors that influence the price over time. So actually it's not necessarily saying you should have a Petruse over Lafite, it's actually probably saying you should have a basket of wines that represent each of these different types of categories of wines. And so actually from, this might sound quite perverse, but actually we might feel that Screamin' Eagle and Petruse share similar qualities from a price evolution perspective than say a Lafite Rosseau.
And actually a Lafitte Rochard may share similar qualities to a Napa Valley wine like Opus One, for example. Opus One is a good example of, owned by Constellation Brands, it was originally a project that was set up by Robert Mondavi and Baron Philippe de Rochard from Mouton Rochard. And obviously it's become massively popular globally, huge brand, distributed all over the world, massively popular in Asia. But they make 20,000 cases. So actually their production levels are quite similar to Lafitte Rochard.
So even though one's made in Napa, one's made in Bordeaux, there's probably slightly more similarities between an Opus One and a Lafite Rothschild from a price behavior perspective than there is Screaming Eagle and Petruse. And so we then might look at those two as being slightly different categorizations within a basket of wine. Rather than just going, okay, one's a Bordeaux, one's a Napa, therefore they're different, actually look at where are they distributed, where's their secondary market, how does their price change over time, what's their availability, what's liquidity.
and what's the price spreads. And then based upon those dynamics, we then segregate and think about things in different groups.
slava (30:10.37)
Got it. And then what's my normal returns? What can I expect from historical returns online? What does that look like?
tom_gearing (30:16.758)
So, I mean, the most reliable data we have goes back to the late 1980s. And currently, if you track the, you know, a general basket of wines that represents the investment grade market, as I described earlier, you're looking at around 10% annualized returns since the late 80s. So that's 10% compounded throughout that period of time. I would say generally when you get into wine, you know, you can have a two-pronged approach. You can have a diversified approach where you have a basket of wines where you want low volatility.
I mean, what's really interesting is actually the volatility of that price data going back to the 1980s is significantly below pretty much any other asset class. And so the risk adjusted returns are extremely favourable when it comes to wine. So that's one of the big attractions. But what I was trying to say is, you can have a diversified approach to wine, which is get a good spread, get a good basket of wines, have these different categories, have these different regions. And I think eight to 10% returns on an analysed basis is
eminently achievable and that's exactly what we've done since 2009. I think if you have a very high risk strategy, so we build portfolios based upon someone's objectives and a client who has a high risk strategy for us would be, let's allocate and concentrate more funds into one or two or three high conviction opportunities and if you look at some of the returns recently, you know, some Bordeaux's and some Burgundy's and some Champagne's and some wines from Italy, you know, we're looking at say 40-50% annualised returns for some of these wines.
So the upside in terms of returns are extremely high. So it's really down to what is each investor's particular approach and what their objectives.
slava (31:54.106)
And for the wine returns, is it annual where you can set a clock to it 10% every year or is it one of these things where you have to hold it for a certain amount of years to realize that per year gain over that period of time?
tom_gearing (32:09.458)
It's a great question. I'd say wine prices aren't linear. They typically, I mean we sort of internally describe it as like a step evolution. And the reason we describe it as a step evolution is there are certain influences for a wine's evolution that will impact the price. So for example, when it's first released and it's first reviewed by critics and there's that initial demand, it's almost like an IPO. You get that initial boom, right?
and there is the potential for high returns. So you could get an allocation of a wine that very quickly goes up 50%. Once that initial period has happened, realistically there isn't a lot that's gonna happen in the market to drive prices apart from consumption. And that consumption can take five, 10, 15 years to really start to impact the price dramatically. So you might have a big growth in the price, it might then plateau for a while, and then the demand supply influence will start impacting and you might then see an acceleration of the price. So...
In answer to your question, it isn't linear, but I do think with a well-diversified portfolio where essentially you're allocating funds across different life cycles of wines, you should be able to generate that sort of eight to 10% returns across a whole portfolio. Yeah, so I mean, that's probably the best way to think about how wines are appreciating value.
slava (33:26.734)
Great, I mean this has been super helpful. You've informed me tremendously. Who do you think is the best female winemaker out there? If I was to invest in a female wine.
tom_gearing (33:37.558)
Well, this is gonna be a super easy question to ask because the greatest winemaker that ever lived is a female and she's still alive today. And I say this without any question or any shadow of a doubt that this is the greatest winemaker that's ever lived. And I'm pretty sure that any other wine or onophile or big wine enthusiast would agree on this point. Laloubise Loire, who runs the eponymous, her eponymous state domain, Loire, she's 90, I might get this wrong, but she's over 90 years of age. I think she's 91 now.
She comes from a heritage and a sort of a wine making dynasty in Burgundy. People may be familiar with a Burgundy wine called Domaine de la Romandie Conti. Her family owned half of that winery and up until 1991 her signature used to be on the label but she fell out with the current owner over the valetne. So when they fell out she left the label. But interestingly her daughter is now back on the label. So as of this vintage her daughter, Peryn, is now being written on the front of the label.
That's a bit of context, but anyway, what I'm trying to say is, her wines are so singular and are so magical, and it gets to the point with her wines that people can't quite work out how she's able to create the wines that she does. It's just, you can have a bad vintage. You can have a 2011 vintage in Burgundy, where all the wines are quite thin, there's not necessarily a high degree of concentration, there isn't a high degree of ripeness in the fruit. You have one of her 2011s.
and it's blockbuster. It just defies belief in terms of what she was able to create with the raw materials she was given. But she has been steadfastly dedicated since the late 1980s of being a pioneer and innovator. She was the first person to implement biodynamic farming. Biodynamic farming is essentially a viticulture by the lunar cycle. So she follows where the moon cycle is and depending on that, she'll plow the seeds on one day or she'll, you know.
I'm not very good in terms of my terminology, but you know, depending on where the lunar cycle is, you'll do different things. And then from an organic perspective, she was the first to do, she was the first to pioneer organic farming. So she's been bio-dynamic and organic since 1988, when everyone is starting to do that in the last five years. And to a certain extent, she was one of the leader in really driving the focus on viticulture. And essentially what that says is, look after the vines, look after the terroir, look after the plants more than anything and the fruit.
tom_gearing (36:04.682)
because that essentially is what's gonna deliver highest quality wines into the future. And she also has an insane approach to her yields. Like sometimes her yields are 10 hectolitres per litre. When I say that, I'm talking about how much wine you can get from a bunch of grapes. So I would say on average, you know, in somewhere like Burgundy, people are like 25 to 30 hectolitres per litre, and she's at 10. So she's at a third of the production, because for Hirsch, she just wants to make the best wine possible. She doesn't care about volume.
slava (36:19.661)
Yep.
tom_gearing (36:33.906)
If she only makes 200 bottles of something, when she could have made 800, she doesn't care. She wants to make 200 of the best bottles possible. So she is, without doubt in my mind, she's the best winemaker living regardless of gender. She's an absolute legend, and her wines will live on eternally, in my opinion. But the prices of her wines have gone up so much. I mean, they're the best performing wines in the market. I mean, I'll give you a really good example.
slava (36:58.093)
How much is one of her wines?
tom_gearing (37:03.43)
I was in Singapore in 2018 before the pandemic, and I was lucky enough to have dinner with a couple of friends and collectors and clients of ours, and we had a lot of Loire wines. And one of the Pinnacle wines we had was her Musigny. She only makes one barrel of it. It's a Grand Cru right up there in terms of, you know, right at the top of the tree in terms of quality. And we had the 2001 vintage. At the time, I managed to acquire the bottle for 5,000 pounds of GBP sterling, which is, yeah, say $7,000.
And between the group of four or five of us, we just split the cost and said, yeah, we're gonna open this bottle and it's gonna be amazing. It was absolutely sensational, like lived up to expectations and beyond. About three months ago, we resold a case of Muzini 01 and the current price per bottle of Muzini 01 is 35,000 GBP, so $40,000 per bottle. So that bottle's gone up from five.
slava (37:57.934)
Holy cow.
tom_gearing (38:00.79)
Yeah, so as I said, $7,000 to 40, $40, $45,000 in the space of four years. And.
slava (38:06.806)
Just so I know my French well enough, how do you exactly spell her last name?
tom_gearing (38:10.998)
uh le-wa so l-e-r-o-y so you would pronounce it Leroy if you're if you're speaking English language but le-wa
slava (38:18.914)
Perfect. I just want to make sure that everybody's on the same page here. What's an up-and-coming region that you know that a lot less people don't know about? Just pick, just pick, yeah, whatever you want to say.
tom_gearing (38:29.867)
Yeah, I think...
Yeah, I would probably go with Jura. I think the Jura is a region in France. It's about 50 kilometres east of where Burgundy is, and it's close to the mountain range between. Jura is J-U-R-A.
slava (38:44.002)
Have you saw that?
slava (38:48.39)
Okay, and why do you consider that up and coming? Is that where the dollars are being spent or the people are really starting to appreciate the flavor?
tom_gearing (38:51.989)
I see it.
tom_gearing (38:55.966)
Yeah, so a couple of reasons. So the main grape varieties they use is Chardonnay, and I think that if you look at the Grand Cru Burgundy prices, which is also Chardonnay, they've gone up so much that I think there is a gap now where people are looking for value or places they can acquire really high quality Chardonnay that isn't necessarily $1,000 per bottle. So I think the market has created an opportunity. I think in Jura you have a combination of very traditional winemakers, and you have very sort of young modern winemakers.
and there's a lot of belief around organic and natural wine practices. And I think natural winemaking has become extremely trendy and popular at the moment. So there are a couple of, there's two or three producers that become extremely high profile, really cult producers. One's called Ovenoy, which is O-V-E-R-N-O-Y. And his bottles are now trading at sort of like 600 euros per bottle, but five years ago, you could buy them for like 80 euros per bottle. So they've already gone up a lot, but.
slava (39:53.303)
Wow.
tom_gearing (39:54.462)
What I think is really important about that is it's almost established the credentials of the region. And I think once you have one or two leading lights out there in the market that people are after and driving the price up, it then creates interest to find out, okay, if we go one or two levels below the tree, whereas there are also producers in this particular region, they're also producing similar sort of wines. And there's a number of producers that are producing some incredible wines there. And I just think it's super exciting because it's been so overlooked. It was really seen as like,
unfashionable wine region. Like of all the places in France that you talk about, no one ever talks about Jura. But actually the vineyards have been there for 50 to 100 years if not longer. The people who've been making wine in a certain style for a long time, they've really pioneered organic and biodynamic practices and natural wine making. And if you actually think about all the things that are trendy and cool right now, that's essentially what people are looking for. And so I think there's a big opportunity in the Jura region for sure.
slava (40:49.406)
You mentioned that Loire wine or Leroy for my poor pronunciation was $7,000 when you drink it. What's the most expensive bottle that you've actually drank?
tom_gearing (41:04.486)
Well, so I was very, very fortunate a couple of years ago to be invited to a vertical tasting of Petruse in London. So vertical is when you taste multiple vintages of the same wine. So the youngest vintage we had was 2005 and the oldest vintage we went back to was 1897. And we did...
slava (41:25.038)
Oh my God.
tom_gearing (41:28.098)
1945, we did 1961 in Magnum, which is the one that I mentioned before, which is trading at over $20,000 per bottle. So without doubt, that was the total value of all the wines we drank in that evening must have been, I don't know, we must have talked about a quarter of a million dollars worth of wine in one evening, which is pretty insane. So in terms of one evening, one set of wines, that's probably the most amount of value. I think in terms of a single bottle.
It's difficult because the 1897 you can't really value because it doesn't really exist in the market. I think the 1897.
slava (41:57.73)
Does 1897 wine actually taste good?
tom_gearing (42:01.502)
I have to be honest with you, the 1897 didn't taste great, but it was more of a historical artifact. This particular bottle was sort of like on the cusp of still a wine, but without any fruit and sort of edging towards being vinegar, but not quite there yet.
slava (42:06.142)
It's already, it's like becoming, it's becoming vinegar, no?
slava (42:19.938)
How long can a wine stay wine comfortably?
tom_gearing (42:24.362)
It depends on the level of storage. I think if the wines are being stored really, really well, I think, I assume well, I think, you know, we can go back 150 years. Yeah.
slava (42:30.466)
Let's assume well.
slava (42:35.958)
Wow, impressive. You were gonna say the most expensive single bottle?
tom_gearing (42:41.834)
It would be the Petra 61. Yeah, the Petra.
slava (42:43.783)
Oh, got it, nice, nice. And that would be how much?
tom_gearing (42:48.502)
I think at the moment it's over 20,000. But I mean, technically the Muzinho one is now the most expensive, but at the time it wasn't that, it wasn't as expensive as it is now.
slava (42:50.862)
Amazing.
slava (42:57.038)
Understood, understood. So you mentioned some great sites like WineSearcher and Wine.com, the K&L. If we wanted to be as smart as you, which we're not gonna do since you've accomplished this in many years, what is it that you're listening to? What are you reading? What are you watching? What can we copy?
tom_gearing (43:10.93)
in terms of wine or just generally.
slava (43:13.206)
Yeah, wine, whatever makes you smart.
tom_gearing (43:16.93)
Um, do you know what? I haven't actually got a very good answer to this question. I think that, um, I don't know, I don't necessarily, I think it's just more experience led, as I've said. I don't necessarily follow a particular publication or a particular, you know, obviously, if someone that I respect is on a podcast or is, you know, in an interview, then I'll read it. And I'm very agnostic to where that media might be available. But I'd say that, you know, in some of the examples I've given before,
I think it mostly comes from just experience. And I think with wine, I'm just so fortunate to have experienced so much with wine, and I know that a lot of people wouldn't be able to have those levels of experiences. But I think that really helps shape my understanding and really helps build my set of beliefs, especially around wine and what I think makes sense and what I think looks good, value, or what I think's the region that's gonna be coming up in value. I mean, unfortunately, even today, at 3.30 today, I'm doing a tasting of Ornelaya.
So I've got the export director coming to the UK. So I'm very fortunate to be in contact with all the right people at all the right times. And I don't know how I would necessarily replicate that if I wasn't me in an external place. And maybe that's a gap or an opportunity in the market because I don't think there is necessarily an easy place to get all of this information, especially around wine. I think with wine you do.
slava (44:35.118)
That's why we're trying to like just suck it all out of you right now.
tom_gearing (44:38.93)
But I think with wine, you know, wine is, I've always believed that wine isn't something you can learn from a book. Like, you know, you can read about it, and of course you can understand the academia around viticulture and how you make wine, and you can read about a place, but you read about a place and you go to a place, and I can guarantee you, your perception, your understanding of it will completely change. And so to a certain extent, I think if you wanna learn about wine, you wanna know more about wine, of course read about it in the books, but going there changes your perception, like.
immeasurably and speaking to the people will change the way you think about they make wine and it will help shape your own opinion about wine and I think that's the most important thing is being able to communicate and articulate your own opinion about wine and that's the most important thing and that can only come from experience. You don't just want to regurgitate what other people are saying.
slava (45:25.646)
Great, I appreciate that completely. Our last question, and we always like to put the guest on the spot, which is, you know, with $1,000 or $10,000 or whatever, what do you think is the right investment to make today that three years from now when I have you back on the show, you're gonna be like, see, I told you it was gonna be a good investment. So what would you invest into today?
tom_gearing (45:46.766)
So I would invest in a grower champagne. And the grower champagne that I'd invest in would be Jerome Privo. He makes a rosé champagne called Faxe Mille. So Jerome Privo, it's spelled P-R-E-V-O-S-T. And the reason I would do that is I don't think anyone in the world makes a rosé champagne like he does. The expression of that particular style of wine is completely unique. And I think...
When you think about cult wines that become icons, it's normally because they are a singular representative of a particular type of wine. And I haven't come across a rose wine that comes anywhere near the quality of what he produces. And actually from a cost value perspective right now, you can buy his bottles maybe for like $150, $200 per bottle. And you do a comparative analysis versus say, Cristal Rose. Cristal Rose is trading at like,
$1000 per bottle, you look at Dom Perignon Rosé's trading at over $1000 per bottle. These are mammoth production houses that are making millions of bottles of wine. This guy's making a few barrels each year, and also all the people that are drinking it are all the right people, people that are proper wine enthusiasts and passionate. Now I appreciate that as a choice is sort of out there a little bit, but I think if you're gonna go for something with high conviction, then you should go for something you truly believe in.
And I just think with grower champagne, the value for money is insane versus you look at the similar sort of level, you know, what we were talking about before, like you take a really high quality grower champagne that has incredible terroir, that makes some phenomenal wine that's high scored, of high demand, and has small production, that price should be the same level as a Patrus, it should be the same level as a DRC, it should be the same level as a Screamin' Eagle, but actually from a price comparison perspective, they're trading at like a 20th of the price.
And so I think that provides a lot of upside.
slava (47:45.294)
Amazing. Thank you so much, Tom. This conversation has been incredible. Everything from Bitcoin ransoms to Napoleon and the history of how we got our Rothschilds and Lafitte and how the Patrusa, all these incredible wines. And then you taught me about the greatest winemakers, a female, which is incredible with her name, the Roi, which is so cool, which I'd probably say Leroy because I don't know how to say French very well. But the conversation has been incredible. Thank you very much. I can't wait to have you back again.
tom_gearing (48:12.046)
Thank you so much for having me, really enjoyed it.
