The Bordeaux-Finance-Indicator

With the background of today's euphoric wine and stock price movements we have been approached by interested investors who wanted to know if the results of the Bordeaux primeur sales (futures) in spring time could be used as a forecast indicator for stock price movements. As dedicated wine lovers we started an investigation on Bordeaux futures prices for the period from 1970-2005. The findings have been quite interesting. We have found several similarities concerning the price movements of stocks and top-quality Bordeaux wine futures. In the past there have been  signals, which could have provided hints how to invest in the financial markets.

How the Wine Indicator has been created?

Before the primeur sales and during the offering period the wine traders (courtiers, negociants) try to find out the frame of mind of the often wealthy wine collectors. Based on that information he/she decides how much at which price to buy. If the view is optimistic, he/she will pay a higher price for the luxury good Bordeaux and vice versa. The traditional wine consumers and collectors from luxury wines often own large stock portfolios and represent in this way indirectly a group of people, who influence wine prices and the stock market.

Following parameters have been considered in the investigation:

Changes of wine prices between 1970-2005. Selection of wines: Pichon-Lalande, Château Margaux, Léoville-Las Cases, Cheval-Blanc, La Mission Haut-Brion.

• Change of wine quality year by year 
• AOC-production volume and existing AOC-stock 
• Currency and interest rate changes 

The results have been compared to an internationally diversified stock portfolio, which reflects the nationalities of the Bordeaux buyer and consumer groups.

• Like the wine market - the stock markets are influenced by market psychology. In this context the question emerges, if the optimism in the wine market reflects the optimism of the stock markets. 
• Is the wine-optimism/the wine-pessimism during the spring subscription period a leading indicator for the stock markets performance for the entire year? 

The Bordeaux-Finance-Indicator tries to measure the stock market sentiment. Qualities for stock price forecasting have been investigated based on historic data. The indicator is performing fairly good forcasting results in optimistic periods, whereas turning points in euphoric price periods have not been found often. As an outstanding exception - the wine prices corrected in the spring, and the stock market crash followed in the autumn of 1987.

In the past selected wine investments have been yielding phenomenal price performances. This was due to an euphoric buyers and sellers scene. Basically the wine market is very illiquid and volatile. That means that you have chances to outperform the indices when you have a good hand in timing the market. Buy when prices are down and sell when they are up - if you can sell at a fair price.

The most pleasing way to take profit from a good bottle - just drink it with a good friend.