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Published in The Real Review,  16 October 2019

This essay was written by Nigel Greening, owner of Felton Road Wines and presented at a board meeting.  I think it’s absolutely brilliant. It should be compulsory reading for everyone in the wine trade and for all wine enthusiasts.

Bob Campbell

On wine as a currency

How much is a £50 note worth? By that I mean; what is the value of that piece of hologrammed plasticised paper, not what value is printed on it. We might rephrase that; is the substance of a £50 note different in value to a £20 note? Clearly it isn’t, the difference lies in the fact that one has the number 50 printed on it, while the other says 20.

The value in a £50 note is different to the value of, say, a gold coin. With the coin, there is an agreed value as to the substance the coin is made of, a note is simply a promise. Technically it is exactly that; UK notes still carry the line “I promise to pay the bearer on demand the sum of £50.”

But you can’t collect on that promise; there isn’t a counter where the bank of England swaps notes for something real. Indeed today even the notes have largely become virtual, replaced by figures in databases.

Where am I going with this? Have patience; all will be revealed. Currency is one of a large number of items categorised as “mutually agreed fictions”. The monetary system works because we mutually agree to believe that a piece of paper or plastic has a certain value and can be exchanged for goods (again mutually agreed in value terms, but not fictitious). This idea is so ubiquitous that we forget that it is, at heart, a fiction.

But what happens when we start to treat wine as currency: something to invest in, to trade in, to profit or loss in. Two things happen that are very serious.

The first is that a cognitive bias kicks in within what we like to see as our reasoning brain. The behavioural economist and Nobel laureate Richard Thaler examined this in his paper: “buy now, drink later, pay never.” He explains that because we categorise our purchase as “an investment” when we fork out the cash, we switch off our usual “value checker” which normally kicks in when we make a purchase. We don’t think about whether the purchase offers us good value, but measure it against an imagined value it might have in the future. So will happily pay far more for a wine than we would if we went to a shop to buy a bottle for that evening. But there must come a day of reckoning?

Actually, no. When we come to sell the wine, if it has shown us a good profit, we may sell, but are tempted to keep it as we now own a bargain. If it has fallen in value or remained stagnant, we are strongly averse to crystallising our poor choice and we keep the wine, eventually presumably drinking it. When we do drink it, we don’t mentally account for our loss, but regard the wine as being free as we paid for it years ago. So by a bit of mental conjuring worthy of a Chancellor of the Exchequer, we spend a lot of money without ever mentally counting the cost.

The second is that the wine is no longer viewed as a good, which we appraise using the real value to us, but as a currency: a mutually agreed fiction, where the value is whatever the agreed fictitious value on the market may be. 

We now live in a world where anybody who looks, even casually, at the fine wine market knows, the potential buyer is bombarded with offers from the brokers of such currency wines. Daily, they send out their offers dripping with superlatives and points, and they push the asking prices ever higher. As these figures are all the private investor/buyer ever see, they come to believe that they are the true value. Like the case of Aligoté offered to me yesterday for over £6000. Clearly an insane price, but repeat it often enough and it might even come true?

These dealers understand how cognitive bias works; biases like framing effects: asking silly money moves the customer to spend more even though they think the price asked is laughable. 

They understand the bias of WYSIATI “What you see is all there is.”

And the ever-increasing evil of: “repeat a lie enough and it might become true.”

There are producers who are delighted with this new-found prosperity; they now can ask multiple times the amount of just a few years ago. Like the investors in rocketing stock markets, before the inevitable crash comes, they don’t question whether this movement is logical and sustainable. Above all, they don’t ask the simple question: “Would I go out and spend this much in a shop for a bottle of wine to drink tonight?” This is the acid test, and if the answer is no, then the pricing is not real.

Recently, having had the pleasure of enjoying a bottle of wine (due to the generosity of a friend) way above my spending point, I did some research on its “value” on the market today. It was a very rare bottle in terms of production, and I knew how much was produced. It was now some years after the release of the wine, yet, as I explored, it became clear that a significant percentage of the entire production was currently for sale on the internet. Now a highly desirable wine, rare when produced, should be rarer than hen’s teeth several years after release. Those lucky owners should be relishing the few bottles in their cellars, with next to nothing offered for sale. But this was now currency, not a delectable liquid, it wasn’t treasured at all other than for the profit it might yield. I find this sad for the producer and for the people who own this strange currency.

Forgery of fine wine is now, of course, rife. I was recently asked by a customer what I was doing to offer the customer protection against forged bottles of my wine (a problem, thankfully, yet to occur). I responded that there was excellent protection already in place by buying wine from the authorised distributor in a country, or their appointed retailers, then not trading. Forgery is only an issue on traded wine, never on wine bought through the proper channels. They wanted me to install anti-forgery systems on the labels and bottles but I have no need for that if my customers don’t trade, and frankly, if they do, it ceases to be my responsibility. I make a wine: a beverage, not a currency and I shouldn’t need to burden it with the security measures normally reserved for currencies. 

We do work very hard to see that we know where all the wine we make ends up. We allocate tightly, measure markets, look for any suspicious movement. If it happens, we move to stop it. This isn’t because we are protectionist, but because we want to sell our wine at fair prices to customers who will value it, keep it, then drink it. The result is, when somebody enquires as to where they may find some desirable back vintage of a wine, we reply “I don’t think you’ll find it… anywhere.” It exists, but it isn’t for sale by those who treasure their few bottles.

I can no longer afford to drink many of the wines I used to enjoy. That’s OK. There are so many brilliant new wines coming along all the time that offer excitement and quality the wine world could barely dream of a few decades ago. They are priced fairly and I buy them.

The losers are those who chase names, fictions and ride the rollercoaster using their obviously copious funds to fuel their habit. They don’t drink better than I do, they just think they do.

Nigel Greening

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Blair Walter
Nigel Greening
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Winemaker's

Published in The Real Review,  16 October 2019

This essay was written by Nigel Greening, owner of Felton Road Wines and presented at a board meeting.  I think it’s absolutely brilliant. It should be compulsory reading for everyone in the wine trade and for all wine enthusiasts.

Bob Campbell

On wine as a currency

How much is a £50 note worth? By that I mean; what is the value of that piece of hologrammed plasticised paper, not what value is printed on it. We might rephrase that; is the substance of a £50 note different in value to a £20 note? Clearly it isn’t, the difference lies in the fact that one has the number 50 printed on it, while the other says 20.

The value in a £50 note is different to the value of, say, a gold coin. With the coin, there is an agreed value as to the substance the coin is made of, a note is simply a promise. Technically it is exactly that; UK notes still carry the line “I promise to pay the bearer on demand the sum of £50.”

But you can’t collect on that promise; there isn’t a counter where the bank of England swaps notes for something real. Indeed today even the notes have largely become virtual, replaced by figures in databases.

Where am I going with this? Have patience; all will be revealed. Currency is one of a large number of items categorised as “mutually agreed fictions”. The monetary system works because we mutually agree to believe that a piece of paper or plastic has a certain value and can be exchanged for goods (again mutually agreed in value terms, but not fictitious). This idea is so ubiquitous that we forget that it is, at heart, a fiction.

But what happens when we start to treat wine as currency: something to invest in, to trade in, to profit or loss in. Two things happen that are very serious.

The first is that a cognitive bias kicks in within what we like to see as our reasoning brain. The behavioural economist and Nobel laureate Richard Thaler examined this in his paper: “buy now, drink later, pay never.” He explains that because we categorise our purchase as “an investment” when we fork out the cash, we switch off our usual “value checker” which normally kicks in when we make a purchase. We don’t think about whether the purchase offers us good value, but measure it against an imagined value it might have in the future. So will happily pay far more for a wine than we would if we went to a shop to buy a bottle for that evening. But there must come a day of reckoning?

Actually, no. When we come to sell the wine, if it has shown us a good profit, we may sell, but are tempted to keep it as we now own a bargain. If it has fallen in value or remained stagnant, we are strongly averse to crystallising our poor choice and we keep the wine, eventually presumably drinking it. When we do drink it, we don’t mentally account for our loss, but regard the wine as being free as we paid for it years ago. So by a bit of mental conjuring worthy of a Chancellor of the Exchequer, we spend a lot of money without ever mentally counting the cost.

The second is that the wine is no longer viewed as a good, which we appraise using the real value to us, but as a currency: a mutually agreed fiction, where the value is whatever the agreed fictitious value on the market may be. 

We now live in a world where anybody who looks, even casually, at the fine wine market knows, the potential buyer is bombarded with offers from the brokers of such currency wines. Daily, they send out their offers dripping with superlatives and points, and they push the asking prices ever higher. As these figures are all the private investor/buyer ever see, they come to believe that they are the true value. Like the case of Aligoté offered to me yesterday for over £6000. Clearly an insane price, but repeat it often enough and it might even come true?

These dealers understand how cognitive bias works; biases like framing effects: asking silly money moves the customer to spend more even though they think the price asked is laughable. 

They understand the bias of WYSIATI “What you see is all there is.”

And the ever-increasing evil of: “repeat a lie enough and it might become true.”

There are producers who are delighted with this new-found prosperity; they now can ask multiple times the amount of just a few years ago. Like the investors in rocketing stock markets, before the inevitable crash comes, they don’t question whether this movement is logical and sustainable. Above all, they don’t ask the simple question: “Would I go out and spend this much in a shop for a bottle of wine to drink tonight?” This is the acid test, and if the answer is no, then the pricing is not real.

Recently, having had the pleasure of enjoying a bottle of wine (due to the generosity of a friend) way above my spending point, I did some research on its “value” on the market today. It was a very rare bottle in terms of production, and I knew how much was produced. It was now some years after the release of the wine, yet, as I explored, it became clear that a significant percentage of the entire production was currently for sale on the internet. Now a highly desirable wine, rare when produced, should be rarer than hen’s teeth several years after release. Those lucky owners should be relishing the few bottles in their cellars, with next to nothing offered for sale. But this was now currency, not a delectable liquid, it wasn’t treasured at all other than for the profit it might yield. I find this sad for the producer and for the people who own this strange currency.

Forgery of fine wine is now, of course, rife. I was recently asked by a customer what I was doing to offer the customer protection against forged bottles of my wine (a problem, thankfully, yet to occur). I responded that there was excellent protection already in place by buying wine from the authorised distributor in a country, or their appointed retailers, then not trading. Forgery is only an issue on traded wine, never on wine bought through the proper channels. They wanted me to install anti-forgery systems on the labels and bottles but I have no need for that if my customers don’t trade, and frankly, if they do, it ceases to be my responsibility. I make a wine: a beverage, not a currency and I shouldn’t need to burden it with the security measures normally reserved for currencies. 

We do work very hard to see that we know where all the wine we make ends up. We allocate tightly, measure markets, look for any suspicious movement. If it happens, we move to stop it. This isn’t because we are protectionist, but because we want to sell our wine at fair prices to customers who will value it, keep it, then drink it. The result is, when somebody enquires as to where they may find some desirable back vintage of a wine, we reply “I don’t think you’ll find it… anywhere.” It exists, but it isn’t for sale by those who treasure their few bottles.

I can no longer afford to drink many of the wines I used to enjoy. That’s OK. There are so many brilliant new wines coming along all the time that offer excitement and quality the wine world could barely dream of a few decades ago. They are priced fairly and I buy them.

The losers are those who chase names, fictions and ride the rollercoaster using their obviously copious funds to fuel their habit. They don’t drink better than I do, they just think they do.

Nigel Greening