The art of investing in wine, for beginners – by Dini Rao

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Zack: Welcome to Tradestreaming Radio. I’m your host, Zack Miller, and this is the place where investors learn directly from experts. Today, we’ll be talking about investing in wine. Our expert guest today is Dini Rao. She’s currently the VP of products for Lot 18. She was formerly Christie’s Wine Specialist and Amazon Senior Wine Buyer and Sommelier. She brings a lot of excitement and a lot of experience to the wine investing process. If it’s something you don’t know a whole lot about, which is the perspective that I took, this is a great way to get an overview, a quick overview of the entire process in terms of investing in wine, in terms of purchasing the wine, in terms of selling the wine, and research.

I also want to thank Dini, she was very patient and thank you guys as well, the audio was a little bit spotty on this one, our call got disconnected a couple of times. I did my best to splice it together. I hope you enjoy it. Please come back to the website as well. Dini was kind enough to offer us an exclusive code to give us access to Lot 18. It’s a closed community at this point, but come back and I’ll make sure that you guys can get entrance. Thanks again for joining us on tradestreaming.com. We’re always appreciative of your listening time. We’ve got transcripts of most of our shows up on our website at tradestreaming.com.

If you’re listening to us on iTunes, you’ll also find our archives there as well. Feel free to give us a rating or ranking along the way. We’re very appreciative again of your time. We hope this is informative to you; it certainly was for me I learned a lot about investing in wine, hope to catch you soon. So can you introduce yourself and tell us a little bit about your background.

Dini: Sure. I’m Dini Rao. I’ve worked in the wine industry for the past 12 years. I’m currently at a company called Lot 18, which I’ll tell you about in just a second, but a little bit more about how I gained my expertise in wine is that I’d been working in all sorts of different aspects of the trade. I worked in retail for four years where I did a trip to Bordeaux to taste 2000 vintage to see whether or not we were going to invest in futures of Bordeaux.

Then I worked as a sommelier. I got to see the exact wine pairings and the applicability of the wine years afterwards. Then I also worked at Christie’s Auction House as a wine specialist there. In that regard, I was seeing wines many, many years after their purchase and production and also seeing their value over time. After all that, I actually did my MBA at Harvard Business School as well. I have a little bit of a business side, although certainly never worked on the street or anything.

Zack: Was there a wine concentration at HBS?

Dini: No.

Zack: Should be.

Dini: Only on the drinking side.

Zack: More on the buy side than the sell side. It’s so interesting, you’ve had really interesting experience. I guess there were three specific experiences and we’ll talk about Lot 18 in a second. Can you talk about the futures experience, what you were doing there? Who was buying futures? Who was trading that? Tell us a little bit about the players.

Dini: Yeah. Exactly. The futures tasting in Bordeaux is really interesting. First of all, it’s not really the Chateau who are producing the wine, who are selling it. There are all these intermediaries along the way. It’s really the “negotiants” who are the ones who are doing the actual transactions. The people who go there are, first of all, the critics. You have the Robert Parker, who is the most influential man, particularly when it comes to Bordeaux, is the biggest critic. His scores and ratings drive a huge amount of value of those wines. Then you also have the retailers who are investing on behalf of their clientele who are going there as well as the private buyers as well who’ll go or maybe they just have a buyer for them who is doing their consulting for them.

The trick is the really early tranches of Bordeaux — futures are sold in tranches — and the early tranches are obviously the best pricing but also the most risky, and so if you don’t want to wait and see what Robert Parker has said, because he’ll give you his initial tastings — and by the way, those tastings are all done before the wine is bottled. They’re actually . . .

Zack: Dini, I lost you, are you there? Hi, Dini.

Dini: Hi, Zack. I’m so sorry. I have no idea what happened. I’m on a land line, too.

Zack: Yeah. You were just talking and then you were gone. I don’t know what happened. I’ll splice it together. It’s not a big deal. You were just saying that the tastings happen before they’re bottled, before the wine is bottled.

Dini: Yeah. Exactly. The tastings in Bordeaux are happening when all the wine is still in barrels so it’s before the final wine is assembled because the wine maker will, afterwards, take all those different barrels and blend them together. They may decide not to use certain barrels and declassify those. Certainly, when they’re putting together these bottles for the tasting, they’re selecting the very best of the best. The other piece is that it’s very early on in the maturity of the wine so it takes a very skilled taster to go to Bordeaux and do those tastings. It is one of the reasons why people do rely so heavily on the critic’s ratings.

Zack: If you were to go in before the critic’s ratings, that’s much more speculative, is a better way to put it?

Dini: Yeah. That’s right. Exactly. There are certain Blue Chip Chateau, who year-after-year do really well. You’re getting the yield report even throughout the year before the grapes are picked as to how the vintage appears to look at that time.

Zack: Who puts out those reports? Do the Chateaus themselves put them out or is there some type of industry service?

Dini: No. They’ll be the critics again and folks who are in Bordeaux because it’s not Chateau specific so much at that point. It’s really talking about what the climate is there and the specific weather that year.

Zack: Interesting. If I were to go, before the critics get in, are the people who make the investment decisions to buy those futures the same; do they bring in tasters, professional tasters, they have a calvary of consultants to do this?

Dini: Absolutely. Yeah. The better folks will have multiple people who go, but then there are some people who just really taste and trust their own palates. I was fortunate enough to work for a retailer, there were four of us who went over and tasted. Then you really get to sink up on your palates, and again you’re tasting 50 wines a day, of young Bordeaux that’s very tannic. It’s a big deal. It’s a really difficult thing to do.

Zack: Gary Vee is not doing that, I assume.

Dini: Oh no, he goes over.

Zack: I was joking. One other specific question, how big are the tranches?

Dini: That’s a great question. It’s chateau dependent, and I don’t have a great answer for you on that, but the first tranche . . . sorry?

Zack: Like a range even, it doesn’t have to be specific. Is this a type of thing that an individual investor can come in with or are these, larger sums of money trading hands?

Dini: No. It’s definitely larger sums of money. More importantly, it’s the first, the early tranches go to people who’ve been buying for year-after-year and so an individual investor, the best thing to do is — and I tell people this all the time — be loyal to a store and to a retail buyer. If you spread out your purchases over many different places, it doesn’t really help you get access to their very best purchases. You want to make sure that you’ve endeared yourself to that retail buyer who’s going to get access to the first tranches and then can pass it along to you.

Zack: Obviously, these are futures so there is some leverage involved. I put some money down and that secures me, my purchase later on?

Dini: Exactly. Right. It won’t be, the wine won’t physically show up until the following year, kind of in March.

Zack: So, I get some type of discount off of the retail price or something when it does come on to the market?

Dini: Right. Absolutely. It’ll be the very best pricing you can get, typically. Then again, the interesting thing is depending on how great a success the vintage is, those wines when they actually come to market, the market might of gone soft for it a bit. Again, it’s why you want to make sure that it is a really strong vintage that you’re investing in or if it’s not a strong vintage that, at least the economic climate at the time is allowing you to purchase it at a realistic value. It’s not overly hyped because everybody’s buying Bordeaux, such as we’ve seen from the Hong Kong market recently on a few Chateau in particular.

Zack: Interesting. What’s the holding period like? Are people buying these futures? Do they trade in the secondary, I mean there’s not a real formal market for it but can somebody turn around and flip that? Do they hold it, take position of the wine and then sell it maybe a year or two later? Can you talk about those dynamics?

Dini: Yeah. Usually, the best investment frame is going to be something like ten years after the vintage. In that amount of time, at the very least, you should be able to double the investment. If you’ve chosen wisely, you could triple, quadruple what you’ve done. In the recent vintages, some funny things have been happening. For instance, 2005 was an incredible vintage. The prices were incredibly high. Even when the wine got released, it continued to rise so some people were flipping it right away because by the time you got the wine it had already appreciated so much.

Zack: Interesting. Can we fast forward to your experience at Christie’s and what you did there?

Dini: Yes. This was the time when I got to taste the best wines of my life. I got bored by tasting too much 1982 first growth because they came around so often.

Zack: Tough life.

Dini: Right. We were going into folk’s cellars and advising them on which things they should be selling, which things they should keep for longer. Then also valuing the bottles. There are these auction indices that tell you approximately what the value of the wine is, but there are a couple of other components that go into the value of a wine. A huge one of those being provenance, where the wine comes from and how it’s been stored. You really want to make sure all your wine is being stored in professional storage. Even if you take into your house, if you’re buying for investment grade, if you take this into your house, even if you stored it at absolute perfect temperature, there’s still that question mark that’s there. As opposed to if you’re keeping the wine in professional storage that someone can attest to the fact that it’s never seen temperatures outside of the ideal range, then that makes a huge difference in the value.

The best example I’ll give you is when I sold the collection of Doris Duke, the tobacco heiress of North Carolina. She collected wine back in the 20’s and 30’s but at that time had the wisdom to bring things over, really like in ice boxes, and all the wine came over to her various estates around the country. And then it didn’t move from 1920’s up until 2004 when we sold the collection. It just absolutely didn’t move and it was always in these meat lockers in perfect, perfect condition. Those wines traded at 5x what you normally would have seen in the market because they were just in impeccable condition.

We tasted 1921 Dom Pérignon the first vintage of Dom Pérignon ever made. For anybody who doesn’t think that champagne, can appreciate in value and last that long, it absolutely can if stored properly.

Zack: What did that go for? Can you tell us?

Dini: Yeah. The Dom Pérignon actually didn’t sell for tremendous, well only sold for a couple thousand but the 1934, DRC, Romanee Conti that sold for like $11,000 a bottle. That was really the highlight of the sale.

Zack: You’re going in and you’re helping people evaluate their collections. Do you also do work there like on the demand creation, meaning going out and actually talking up some of these things too. Obviously, an auction house has to meet supply and demand. What would you do on the buying side to help people?

Dini: Exactly. The one critical piece is that we put on these tastings. I highly recommend to anyone who’s interested in getting Bordeaux, in particular, in their investment go and attend these tastings for the older wines. One of the greatest things about investing in wine is that even if the market port bottoms out if you really enjoy it, then this is something consumable to you that can still be of great value no matter what.

Zack: It’s almost a hard asset. It’s the ultimate liquid asset.

Dini: It’s required at some point. Go out and taste and figure out what you like so that worst case scenario that you’ll know what you enjoy and also what time frames you enjoy the wines. There are a lot of folks who love young Bordeaux. There are some that really enjoy it in the 10 to 15 year range. There are others who are really only when it comes to that incredibly mature stage, they’re drinking the ’61 Bordeaux right now. You’ll want to know which of those you appreciate because that will adjust your investment horizons.

The other piece is that the specialist, the wine specialist people don’t utilize this enough; they actually perform the role of advising to you at no cost. I would sit with some of the best buyers and we would talk about their collection, we would talk about their portfolio, what they should be investing in, and then I can also act as somebody who will be on the look out for them. Every once in a while, we’ll come across a collection that might not come up for auction. It might be a private sale. And so, if I know you are in the market for some LaTache and you’ve been searching and searching for that 1962 LaTache, I might not actually even bring that wine to auction and you might be able to get it at a great price.

Zack: And you would make money as a specialist on a brokerage fee?

Dini: Exactly. Right. We’d take a commission.

Zack: Say, I’m coming into market now, you’re talking a lot about Bordeaux, and again I’m a novice I don’t really know anything about the wine industry, and I am colored by where I live, I’m actually calling you from Israel right now. I think Israel has seen sort of a nascent wine industry, sort of really emboldened its standards, I think, and at least on an international scale, at least that’s what we’re told here. Is there such a thing as value investment, going to different geographies when I’m looking at this or are people just fixated on tradition?

Dini: One of the things that people, because they are looking over such a long time span, obviously the longevity of a wine is one of the factors of value. For some of these new regions, it’s a little bit undetermined as to how long the wines will last, how long they’ll continue to improve . . .

Zack: They’re more like emerging markets.

Dini: Exactly that’s 100% it and for that reason it should absolutely be part of your investment in wine. You want to take, depending on your risk profile you want to take at least 10% of your investment to go to places that could also see that huge growth that Bordeaux will never see because it is such a Blue Chip and known investment.

For that reason, I wouldn’t discount even California, while even though all those who live in the U.S. think of California as such a big piece of the wine industry, it’s still really a small portion of the investment side and certainly the auction side of wines. When you compare Chateau Mouton who produces 25,000 cases of Mouton each year versus like a small winery like Screaming Eagle or Harlan that produces maybe a 1,000 cases every year, then that’s really exciting. I think Lot 18 actually is a really great venue to discover some of these hidden gems that have yet to appreciate in value.

Zack: Before we move on to Lot 18 and I want to get there, can you just give us a quick overview of the landscape. You started to do that just now so obviously France and Bordeaux is the main focus. You mentioned California. Can you talk to us about some of the other locations that are important?

Dini: Definitely, Burgundy too, before we leave France in the very top names there. Then the other places are Piedmont and Tuscany in Italy. Those are the only two places you’ll really see. Again, it’s about the top names, it’s about Super-Tuscans and anything with the label Gaja in Barolo and Barbaresco for Piedmont. Then you’ll see some of the top, top names in Australia, certainly like Astralis, Clarendon Hills, those names out there. Every one in awhile, you’re starting to see these Argentina, even some of the really cultish things out of New Zealand, but that is such a small part of the auction market, and Spain.

Probably it’s a list of five producers in Spain and five producers in a lot of these other countries that you can even count amongst those. I have never seen a wine from Israel in the auction market yet. That doesn’t mean they haven’t been there. I know they’re investing a ton in the technology there so that to me shows the most promise that they’re probably making more and more wines that will be meant to last.

Zack: Has global climate change played a role in cash flows across the wine industry?

Dini: Yeah. It’s interesting. Because of the warming effects, that’s part of the reason why you’re seeing more and more outstanding or best vintage of the century types of language coming out of places because again, going back to Bordeaux, a place where it used to be quite cool and they would only have two great vintages every decade, now you’re seeing three, four, five of those. Then also, people are questioning whether or not the wines will age as long because it is warmer, and therefore the wines will have a little less acidity, which is one of the critical components to allowing it to age over time.

That also means that new areas are going to become more interesting. You’re starting to see English wines come into the market, and it used to be only a place known for sparkling wine because it was so cool. Now those places are actually coming onto the map.

Zack: One of the things I talk about with my audience is what I call idea discovery, coming up with new ideas, basically going through research, there’s different processes to bubble up good ideas. In the wine industry you have something similar. Can you speak about Lot 18 and how that plays a role?

Dini: Absolutely. Yes. This is the latest passion. We launched last fall. It’s a private sale site for wine. The really cool thing about what we’re doing, we’re not selling the wine at all. We created this direct-to-consumer marketplace where all of these wineries who produce incredible wines but they’re not marketers, so they don’t actually know how to reach out to you. When you go into a store and see many, many labels on a shelf, it’s hard to figure out which wine to choose.

What we do is the function of curating. We go out and taste 10, 20, sometimes 30 different cabernet sauvignons to come up with the one that is just right for the site. Then we work with that winery. They place their wine on the site for a really attractive price, we call it introductory pricing because when you’ve never had a wine before there’s that intimidation factor of will I like it. This lower price point allows you to try it for the first time at a really acceptable price point, and then we hope you’ll fall in love with it and then want to invest more in it and buy more.

Zack: Would that occur through the site or does that happen somewhere else?

Dini: Yes.

Zack: Okay.

Dini: Yes. You actually purchase on the site. You have to become a member, which I can give you a link that you can post on your site, then anyone who comes one can join. Then you get a daily email just featuring a different wine every day. We really do focus on these undiscovered gems that you really wouldn’t be able to find on your own, if you’re going out. Through our team of tasters that live in wine country and who even travel all over the world in order to discover these great gems.

Zack: You’re almost like a market maker, I’d put it. Helping some of the smaller wineries reach critical masses of people. Then helping people make decisions on the other hand in terms of what they should be buying. You’re really matching them. That’s interesting. I’m trying to understand the process a little better. The introductory price is on a single bottle, it’s on a case?

Dini: It’s on a single bottle. Yeah, it depends. From time-to-time we will do duos and trios and things like that to package it up, so you can taste a couple wines at once.

Zack: I buy it. I like it. Now, I come back to Lot 18 to make a more significant investment.

Dini: Yeah. You could do that. We have an area called Select, which is our Hall of Fame wines, the most popular wines where you can come back and then know that those offers are there for a longer period of time. Of course, on this introductory pricing the offers are only good for three days. You have to take advantage of that and buy now.

You can come back to Select and the other thing we do is we actually put you in touch with the winery directly. We link to their website. One of the things that we’re trying to do is to take out that middle man and put you more closely in contact with the winery because that’s where we really see a lot of the passion for what they’re doing come through. We try and convey that in our editorial as well.

Zack: Like Groupon, are you investing heavily in the editorial process? I know there was a New York Times article that I read recently about, they really view themselves as an editorial driven company. Is that going to be the same — the minimal research I read that people do buy wine based upon the label, neophytes really. Are you helping people with content as well?

Dini: Absolutely. We are doing some education through our blog, but the actual product pages for the wines are written by our wine curators. We all have a combined 150 years worth of industry experience. There are folks that used to be a sommelier at Le Bernardin or a wine maker themselves. They’re incredibly knowledgeable folks, and so in that way I’d say we invest in editorial but we . . .

Hi, Zack.

Zack: Hi, Dini. How are you? This is so embarrassing. I think this time was my turn it was, I’m calling you from an IP phone and it just went out. I’m sorry about that. Well, just finish up I had asked you a question about editorial.

Dini: Yeah. Exactly. I was saying that we do certainly invest in editorial but what we mainly invest in is expertise. Our team of wine curators, since it’s combined 150 years in the wine industry, when you’re getting their write up you are hopefully learning about wines, but you’re also getting first hand information of when they went to the winery or in many cases it’s after selling the wine after the past five years because they were a sommelier at Le Bernardin.

Zack: Awesome. If I’m new to the industry and I want to get started, I’m going to go to Lot 18. I’m going to learn from you guys, from your 150 combined years. Are the other places you can point us to where you find are good resources for more advanced people or for beginners?

Dini: Yeah. Absolutely. When it comes to investing there is actually an indices that is Live-X. That is a really great source for just understanding pricing of wines. Especially, historically, I highly recommend that. Then the other thing I always tell people when you actually want to learn about wine the biggest thing is learning about geography. In order to learn geography, there’s a World Atlas of Wine done by Hugh Johnson and Jancis Robinson.

That is a tremendous resource because once you figure out where everything lies, then you can actually tell a lot about a wine even when you go to a restaurant when you’re trying to pick off the menu. You can picture the general climate there. It’ll tell you how big the body of the wine is, how much acidity it’s going to have and therefore also tell you a lot about how it will age.

Zack: It’s so interesting. Your excitement is palpable. I don’t think anyone gets that excited over buying a bond or a stock. Here’s something you can travel, you get to know the winery, and you have an investment behind it. I think it’s so interesting.

Dini: Exactly. I couldn’t have picked a better field. When you start tasting at 9:00 a.m. you better love it.

Zack: Thank you so much for your time. I appreciate it.

Dini: It’s my pleasure. Nice to meet you, Zack.