The investment case for Whiskey and Wine | Maxwell Nee from OENO

Bryce: [00:00:15] Welcome back to another episode of Equity Mates, a podcast that follows our journey of investing. And we're going to get stuck into it today. My name is Bryce, and as always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:00:25] I'm very good. Very excited for this episode. We have just come off an interview with Maxwell Nee. He is the managing partner of the OENO Wine and Whisky Investment Fund and OENO Wine Whisky Investment Australia. Now, people who came to FinFest last year may be familiar with owner spelt O-E-N-O, They are a global wine and whisky investment giant. Two asset classes that I didn't know much about. We spoke to the co-founder and CEO of a winner last year on the podcast, Michael Doer. And it really opened our eyes to this world that unfortunately, we we haven't tasted the assets yet. 

Bryce: [00:01:13] Yeah, I've tasted. Yes. Wine and whiskey 

Alec: [00:01:16] No, like the top one. These guys are investing like. Yeah. Yes. 

Bryce: [00:01:22] Yeah. I mean, Max talks about $10,000 bottles, so it's safe to say I may never know. 

Alec: [00:01:28] You definitely will. 

Bryce: [00:01:28] A $10,000 bottle? 

Alec: [00:01:30] Well, no. Like a $1,000 bottle. Maybe a thousand. That's at your wedding for that opportunity. 

Bryce: [00:01:37] So I think. 

Alec: [00:01:38] We got a nice bottle of whisky at your wedding. 

Bryce: [00:01:43] Yes. That is not in the top 1%. Anyway, the good news is, is that we get a bit of an understanding on what it means to be in the top 1% of the wine market. And we really unpack the current state of the wine market as well as what's going on in the whisky market and some of the big brands that are, you know, global leaders and some of the big markets as well. And then we close out with the discussion around actually how you can access these investments as a I guess, a small time investor if you want to diversify your portfolio into alternative assets. Now, this episode is sponsored by OENO, and we thank them for their support. They did support for Invest 2023. So a massive thanks. 22 sorry, was it 2022? Our times are flying crazy. Anyway, our partners allow us to keep providing you guys with free content to help on your investing journey. So thank you to OENO.

Alec: [00:02:39] And we should just say that nothing in this episode is personal financial advice. Listen to the episode. Do your own research. Any information is general advice only. We're not aware of your personal financial circumstances, but with that disclaimer, let's get stuck it. 

Bryce: [00:02:54] Let's do it well. Maxwell, welcome to the Equity Mates Investing podcast.

MAxwell: [00:03:01] Thank you for having me. Bryce and Alec, pleasure to be here. 

Bryce: [00:03:04] Now to kick off, it's a would you rather and this one is in fame would you rather whine for the rest of your life or whisky for the rest of your life or.

Maxwell: [00:03:16] Tough question. I'd rather whisky and a bit more whisky than wine. Yeah, yeah, yeah. 

Bryce: [00:03:21] Whisky on the rocks. Wow. I don't think I've reached the stage in my life where I can hand on heart say that I enjoy whisky. 

Alec: [00:03:30] You still have it with coke. Mix them. 

Maxwell: [00:03:34] Oh no, don't tell me that I don't

Bryce: [00:03:36] I don't. It's not true. Yeah. I mean, I've had some good whiskies, but they've always been given to me as a glass from someone's shelf. That is something that is out of my price range. And I admit you can understand how you could acquire the taste for it, but it's something that I guess I haven't acquired a taste for yet. From a sit down and have whisky on the rocks. What about you, Ryan? Where would you go? 

Alec: [00:04:00] I know nothing beats a boozy dinner with wine. So I think, like, I'm not replacing that with whisky. So for that reason, one line. 

Bryce: [00:04:10] Yeah. Yeah. Same rosé on a hot summer's day. Red on a cool summer's. All right. I'll take it anyway. Anyway, as we said in the intro, we're here to discuss the investing case for wine and whisky with Maxwell, who is managing partner at Wednesday Wine and Whisky Investment Fund. And we're going to start with focusing on the wine market. Max. So can you help us understand what is the current state of the wine market on a global scale? 

Maxwell: [00:04:38] Yeah, Yeah, absolutely. So, you know, when we talk about the wine market for investment, we're only talking about the top 1% of the market. So these are generally rule of thumb is generally bottles $50 or more generally put in about 1% of the wine market, not all the time, but most of the time. And the topic of the wine market has flooded that little bit. You know, I think all markets have flooded out and they're in the process of consolidating, which is, you know, a little bit counterintuitive, think about it. But it's it's it's actually really good. For new investors and investors because you know that you're you know, you're not buying into a bubble. You're buying into a consolidated, really steady bedrock of of of value. Rather than buying into a bubble like, you know, the bubble that's just happened and, you know, brings me back to that quote that I see all the time for Warren Buffett. You know, you want to buy what others I a fearful want to be greedy when it is a fearful but obviously if when I was a greedy. 

Alec: [00:05:41] So Max ,you mentioned the top 1% of the wine market to help us understand what are some of the I guess like the real premium wines that we we might be aware of, I imagine in Australia, Penfolds is one that often comes up and then I imagine it's sort of like, you know, French and Italian wines and stuff like that Give us give us some names or some things to go. What are some of those, those primo wines that you're investing in? 

Maxwell: [00:06:07] Yeah, well, you know, if you Google Primo Wines, they're all coming in, you know. Okay, So first of all, Penfolds as a brand is, you know, arguably in the top ten wine brands in the world, probably top 100 brands of all types in the world. It's a very, very strong brand, especially in places like China, you know. Henschke Is in there as well, definitely in the top 1%. You know, you want a fact checking of this stuff as well. The best place to go them is actually Vivino. Vivino actually has a feature that says, Yeah, it says Top 1%, top 4%. I don't know what, what a bass. I don't mean it's based on consumption or brand power or pricing. But, I would agree with most of them. Basically, you know what, we talk about the top 1% of brands in the world. A lot of people think, yeah, it's got to be French fries that can be fried, it's going to be Penfolds. That's not always the case. You know, some of my favourite brands are German, Greek. You know, there's one brand that we have in our portfolio, which is from China, and they make a real kick ass leathery smokey chardonnay. That's really great with cheese, right? And you know, there's really good brands in Spain as well that I can't pronounce, you know, even look bad. But, but it's, you know, you wouldn't know any of these brands but that's the whole point because they are so exclusive, limited, high end and all that sort of stuff. A bit like a bit like luxury watch brands. 

Alec: [00:07:37] I couldn't couldn't think of a German wine that I've had, to be honest. 

Bryce: [00:07:40] No. Well, I've just come back from Greece. I must say. I couldn't get around some of their what's when you speak of the smoky, leathery chardonnay, that's what I'm after. And a lot of the Greek wine was very that sort of fruity Sav Blanc style of wine which I couldn't get around. But anyway, we're not here to discuss wine. 

Maxwell: [00:08:00] Bryce is showing off.

Alec: [00:08:01] Yeah, I know, I know. Well, let's take that. Because, you know, when we talk about wine we'll get to whisky in a sec, like we all think about the wine we like to drink. And, you know, Bryce loves his leathery wine and I love a full red, but we're investing in a podcast here. A.A. is an investment fund, so flip it around from what we like to drink to what we should be putting our money in. What makes a good investment when it comes to wine, What are the factors from an investment standpoint that we're looking at? 

Maxwell: [00:08:37] So there's a few, right? I'll give you a few high level ones. So the first one is you want a worldwide brand. So if you're in a restaurant in New York, you're at a nice steak restaurant or you're in a restaurant, Sydney, you're in a restaurant in Denmark, in Copenhagen, and you'll generally see the same sort of syndicate of wines. You know, they'll have French and Italian and Australian and Napa, and that's what we want to invest in. You know, we want to invest in things that are well known all around the world and they're being dropped and consumed all around the world because we want the price of a wine to double. You know, economics is pretty simple. You know, either demand it's a double or supply and it's a half. You know, and a beautiful thing about these assets is that supply gets too hot at some point. It's just about timing that in the market and you're in pretty good shape. So if you do that exercise, you know, go to a nice restaurant this evening, look at the wine list. If you see something, see the same types of wines on that restaurant and the next one, the next one, we probably have investors in those brands, if not those exact bottles. So what we brand is definitely one of them. You know, it's no use having a really good wine brand that is really undervalued to has a lot of upside, but it's only drunk in South Africa, right Because that market isn't big enough. You know, you want a world wide market, you want someone that has already done the hard work to put that brand into the corners of Michelin star restaurants all around the world. So it's got that ever reaching, growing audience that's constantly consuming and sucking out the supply of. What you want. So worldwide brand is one of them. You know, limited supply is one of them. You know, it's no use investing in a brand waiting for supply to off when they're making 2 million bottles a year at the same vintage. You want that to be well and truly under 100,000 bottles a year, sometimes even as low as, you know, 5000 bottles for less than that. And you also want a track record, right? So you want typically we invest in brands that are usually about 150 years old. And in the example that. More than 100 years old. Right. And you want these brands because they have seen more economic instability, recessions, depressions, worldwide conflicts, wars, sanctions. And the brand is still here. Right. So the something that these companies are doing really, really well. Right. You know, these companies are just like any others. They just like Apple, you know, Nvidia or whatever. Just let their product is wine. And the last one, which is my favourite, is you want to invest in brands and produces that I you know what I call our in the luxury economy. So you want them to be in that luxury bubble where they sort of cater to being a luxury good. That's huge for a special occasion or celebration. Who's the richest person in the world right now? Right. It's Elon Musk, last time I checked. But number two is: But I know 200 billion, right? And he owns the largest luxury conglomerate in the world, LVMH. And he became number one last year, you know, jumped over Bezos and Musk in like the worst economic market in the last 20 years. And he did that because the luxury market in its own little bubble. So we love to invest in that bubble, you know, where there's like a cult following of demand and supply and the consumer is constantly sucking up The supply.

Bryce: [00:12:04] The supply is an interesting one because it's not the idea of investing to buy and hold like you want to hold that why not buy and then drink? Or you're trying to find wines that teeter on that sort of line of, you know, people are going to want to pay a lot of money to drink this. But also then if you happen to have it from an investment, you can benefit from reduced supply. 

Maxwell: [00:12:26] Yeah, good question. You know, it's like old, old, you know, breakthrough things are pretty counter-intuitive, right? Otherwise everyone would be doing it. So let me put it to you this way. So I'm writing a book, right? I'm writing a book called The Wine Investor's Playbook. And, you know, the first chapter in the book is, you know, buying the best is the worst thing that you can do, right? So what I mean by that is if you want outsized returns, abnormal returns, you can't do what everyone else is doing, right, because everyone else is doing the same thing. And usually what happens if people invest in wine, they stick to French and they usually stick to Bordeaux because Bordeaux is part of the most famous French region all around the world. And that's really great. But if no one ever consumes those wines, they aren't going to increase in scarcity value, which means the price isn't going to go up. So sometimes buying the best wines working that you can do because people never drink this stuff, right? So it's never consumed. It never becomes even more rare. And also people use it as trophies, so people use it as something that they'll never, ever consume. So you want movement in a market, you want traction, you want supply just being sucked up so fast that the next batch that is released comes at a higher price, right? So you want like a balance between, you know, very restricted supply and also very, very consistent demands of people constantly drinking and taking the sell off the market. 

Alec: [00:14:01] Maxwell That's why I only invest in Fruity Lexia. Because my consumption rates are through the roof. 

Bryce: [00:14:07] To various Australian wines.

Alec: [00:14:10] You should take it to your investment committee. They'll, they'll like it. 

Bryce: [00:14:13] Uou buy it in the in litres. 

Alec: [00:14:15] Five litre can take five Litre Containers

Maxwell: [00:14:19] It's cheaper than water, right? 

Alec: [00:14:21] Definitely more nourishing.

Bryce: [00:14:22] And there's a game called Gain a Grain of Fortune where you would hang it from a hill's hoist and spin it around and if it came to you you'd take a swig from it anyway. 

Alec: [00:14:31] Anyway, love. 

Bryce: [00:14:32] You any day. So. 

Alec: [00:14:35] So Maxwell, when we're talking about wine and whisky as well, I guess the question becomes why the product, you know, the finished wine rather than, you know, the picks and shovels of, you know, suppliers to the wine industry or the vineyards themselves. So how do you think about the different sort of points in the supply chain and why you focussed on the finished product? 

Maxwell: [00:14:59] Yeah, good question. So, you know, a really wise hedge fund manager once told me he's got like 38 experience in investing in equities and all that sort of thing, the reviews. Policies you only invest in where you have an advantage. So, you know, investing in a new vineyard is really tough because it basically comes down to the sales and marketing of that vineyard. You know, unless you happen to be investing in a celebrity brand, you know, like a is endorsing this this new brand and all the existing brands that I would love to invest in don't take outside investment the family owns. They want to stay family owned Either they sell out to a private equity fund or they don't sell it at all. But all the other brands like Hennessy and stuff, Yeah, it's so family owned and you know, a lot of these brands, when they say family owned, they don't optimise for profit. You know, they optimise for longevity, they optimise for the beauty and the craft. So I don't know how good the share price growth would be even if you did invest, right, because they're optimising for perfection rather than profit. So because of all that, usually from what I understand, capital gains is much faster and higher in bottles rather than vineyards and less risk.

Bryce: [00:16:14] Speaking of risks, what are some of the risks that, you know, you've given us, the factors that, you know, go into a good wine investment, but what are some of the risks that we should be thinking about when making an investment in one? 

Maxwell: [00:16:26] It'd be ignorant not to consider fraud for what happens in the wine industry. It's a perfect crime. You know, it's a funny story, but I would say that it's a perfect crime because, you know, some of these brands, no. One slice of this stuff, you know, like a $10,000 bottle, how often you type 10,000, someone sold it to you another right. And then by the time you open a $10,000 bottle or even a $500,000 bottle, usually pretty drunk. 

Bryce: [00:16:52] So I've actually honestly thought about this if asked. Yeah, I've thought about this. If I was to somehow be gifted a super expensive bottle when you open it like you don't want to be opening it when you come home from the pub being like, we need a nightcap or like, Yeah. But two vaccines for it, like. 

Maxwell: [00:17:12] Yeah, exactly. So. So wine, you know, fraudsters get away with it all the time, right? And as an estimate, no one really knows because you don't know this number. But there's an estimated $3 billion of fake wines in the market that I've read. And that's pretty significant considering the top 1% of wine is only about $4 billion, three 4 to $5 billion. That's four out of five right bottles loosely could be fraudulent. So you want to be you know, I would never, ever invest in wine without an advisor. You know, an advisor like you know, the really smart guy I work with here. And when I was I can verify, authenticate, validate wine and whisky because you don't want to run that risk. Right. And also you don't want to burn bridges. We try to sell to someone, they say, Hey, look, this is fake like that. That's what it's going to be. And the fake wine is definitely not there sort of work. Anything different for you? The next big risk is, yeah, the world sucks drinking wine. You know, lots of drinking wine? 

Bryce: [00:18:19] Impossible. I've been drinking wine for thousands of years. 

Alec: [00:18:21] I don't think that's a big risk. 

Bryce: [00:18:24] That's like, wow, something may just happen.

Maxwell: [00:18:28] Yeah, Yeah, you know, but it's a risk. You know, if. If that did happen, then the price will actually go backwards. Less people, you know, there's less desire, less demand or sort of thing. And the sanity check for that one for me is. You know. Have you ever been down Murphys and seen your favourite brand of wine, Vodka? You know, does anything consistently go backwards in price? Yeah. Yeah. So I went up to see that. Then something's wrong. But, you know, I haven't seen that yet.

Bryce: [00:18:58] All right, well, let's turn to the market for whisky, because you're the whisky guy. You said at the start you'd rather whisky for the rest of your life. So help us understand the current state of the whisky market. 

Maxwell: [00:19:08] Yeah. Cool. I'll share some numbers because I've got the numbers. So when we say whisky, you know, not all whisky is equal. You know, there's the different pillars of whisky and the three main ones are Scotch, Irish and American Fireball. So we had the three biggest markets. Yeah, five. Okay, so Scotch whisky exports was up by 37% last year, up by more than a third. You know, and that's often going to markets where people are willing to pay more than if it was drunk locally. So it's not just there's more bottles going out the door, there's more bottles of people willing to pay a higher price. So that's just a ridiculous amount of demand. And I can tell you that a Scotland is a small country and B, it's very, very hard to start any distillery. So whilst demand is up 37% internationally, supply is not 37%. Right? So that's the imbalance if he keeps pulling the price up. Irish whisky is estimated to grow by a compounded rate of return of about 7.44% over the next five years. Right. So 7%, 7% compounding every year and you know, supply the same supply barely moves if , if, if at all. It might grow by 1% a year, but not knowing near as much demand. And then American. American is also growing and about 5.4% compounded. And that's on an already big number, talking about more than 15 billion, which is the American whisky market. Right. U.S. dollars. And that's growing by, you know, five and a half just on the five and a half percent with supply not being able to catch up to that. So. All the indicators are pointing towards that. The same thing is happening and it's going to keep happening, which is there's not enough people making the stuff and more people want to drink it, which therefore pushes up the price. 

Alec: [00:21:11] Yeah. Fascinating. Um, so you mentioned a little bit about the performance there. I guess let's turn to what makes a good whisky investment and put your analyst hat on and you look at it. Obviously some of the factors are going to be similar to the wine market, but is there anything different or anything additional that we're looking for when we're analysing what Whisky's going to do Well? 

Maxwell: [00:21:37] Yeah, there is actually. So in the whisky world you can blend. So winemakers usually don't blend wine from other brands, especially if they're in the top 1%. But in the whisky, what happens all the time? So for example, some of the best investments you can make in the whisky world is when it's always when it's still in the barrel. Right. So whisky stops ageing so it's not increasing in value once it's been bottled. So is when you want to keep it in its costs in the barrel. And some of the best investments are the ones that could be used in blends with multiple costs. So if you think about it as like the crude oil of whisky that's then sold to, you know, 15 other different brands. That's who you want to invest in. You will invest in the crude oil supply. So in America, for example, one of the best, you know, crude oil supplies, so to speak, is called MGP. And it's very, very high. Look, you've got to be pretty much a wholesaler like us to get your hands on this stock. And they're stuck to their crude oil, so to speak, is used in about, you know, at least 16 other brands. So it's a bit like investing in a venture capital fund where instead of just focusing on one start up, you've got all the concentration risk that I once thought up. You could throw in a fund that then invests in 16 other brands, you know, so you get the the upside and the lift and the drag plus the diversification across 16 other brands. So that's the sweet spot for me in the Whisky Method. 

Alec: [00:23:15] Now, we were going to ask you about some of the leading whisky markets around the world and you mentioned three to the US, Ireland and Scotch, which is Scotland. I always love how particular the Europeans are when it comes to what you need to meet a certain qualification, like for Scotch whisky to be scotch, you have to be produced entirely in Scotland, have no other added substances except for water, barley or other grain yeast. Occasionally caramel, just occasionally. You have to be oak aged for at least three years. Within Scotland. It's just there. They can be. Yes, quite finicky. But you know, that is how they are premium. And I guess that lends itself to the investment case. But outside of those three markets that you mentioned, are there any up and coming markets that might be making their way into the OTO portfolio? And I'm thinking particularly here, maybe Australia, maybe a state just off the coast of Australia, Tasmanian whisky maybe. How does Australia go there? Any other markets we should be watching? 

Maxwell: [00:24:26] Well, this is a really good educational podcast because I didn't know that Tasmania was not a part of Australia. 

Alec: [00:24:32] No. Sorry. It is, it's just not on the mainland. Yeah. 

Maxwell: [00:24:37] Yeah, yeah. So the notable was the really notable ones that are punching. Well, it's really above their weight. You know, there's a brand in Taiwan called Kavalan. If you go through like Singapore Airport or even any of the European airports, you'll find a beer that's actually from Taiwan. And that's a real kick ass, you know. Punching above its whites Scotch. There's also some good scotch coming out of Canada. No, no Scotch. Sorry. There's one whisky that I know of coming out of Canada that they age the whisky in barrels outside rather than inside because they want to let that natural sort of air and, you know, fermentation and outside exposure. And these barrels aged under the northern lights in Saskatchewan, in Canada. So, you know, the whisky has been, you know, the story is that they've been touched by angels. They've been ageing. 

Alec: [00:25:42] That feels like a bit of marketing. 

Maxwell: [00:25:50] Yeah. Under the Southern Cross. Yeah. You know, we should. We should let a sort of distillery equal that Southern cross. 

Bryce: [00:25:56] Well Max, to close out for any of the equity mates community the listening and, and you've mentioned a couple of times here that you know a lot of the wines and whiskies that are of that investment grade are often difficult to access as small time investors. If you don't have the wholesale, you know ability or you just don't have the contacts, it's a, you know, industry of who you know and, you know, having the relationships directly with a lot of the growers and producers. So when I offer a private portfolio option for retail investors. Can you just talk us through like what a typical portfolio might look like for a beginner investor in wine and whisky on the platform? And just what we could expect if someone was sort of sign up with you guys. 

Maxwell: [00:26:43] Yeah. Yeah. Good question So first thing is we would say, look, your time horizon has to be five years or more, and then we look at your budget, right? So let's say your budget is $10,000. What we would then do is we then say, you know, do you know the number one question that always hit us is if we buy stuff that I also like to drink, could I sell some and drink some? And the answers. The answers the questions. Always asking for answers. Always. Yes. Right. So the first thing we understand is, okay, look, do you want me to focus purely on financial return or do you want something a bit of fun and that you know, you want to drink some as well? Because we've got to factor that in. And let's say you want pure financial return, right? For ten grand, I would want to diversify across whisky and wine because, you know, whisky appreciates at a pretty steady rate in the past its appreciated about around about 20% per annum, you know depending on the ones that you pick obviously, but that is averaged out over four or five years or more. It's pretty common to get those numbers. But then you also want a bit of wine exposure as well, because sometimes a bottle of wine can double in value within one year. One of the wines we have an ideal portfolio is a French Burgundy made by La Romanee-conti, which is like the Michael Jordan of a wine. And their 2009 vintage doubled in price last year. So, you know, you don't want to shut yourself off from that happening as well to just pick your portfolio. And then what we would do is we then, you know, you'd secure your portfolio with a deposit, right? And then we'd go out and buy the best stuff for you at the best price. And price is really important, you know, because you can invest in wine, whatever you like. You know, you could demo things, just go straight to top shelf, go to a local wine store with the and get a top shelf and just buy it. But if you overpaying and you don't fly at a wholesale price through a wholesale distributor, you're not really investing it just you just sort of collect it, right? Because for someone to go to buy that off you at a higher price, even though you've already overpaid for it, that's really difficult, you know, even for us to try to achieve that for you. So we would secure you portfolio, basically your goals and good to secure the best price possible, were able to absorb your storage and insurance costs as well and the price of your investment because we've got enormous economies of scale. The place that we store wine or whisky at, it's in London, it's essentially a free port. So freeports where goods like wine, whisky, art, all that sort of stuff is kept pre sales in alcohol tax. So it's like a tax free zone. So they can then be sold to any country and they're really, really easily sort of double dipping on importing and sales tax. And then we would hold it for you until you're ready to sell. 

Bryce: [00:29:46] Nice. Sounds pretty straightforward. Well, Max, we will put a link to the, I guess, landing page for the winner's private investment fund. Correct me if I'm wrong, but if anyone's interested, it's for a minimum of 5000. But that comes with a bunch of, I guess, support from when it comes with an account manager and you sort of really get taken through the process, as you've just alluded to there. But that does bring us to the end. A massive thank you for joining us on equity mates again and appreciate the support. And yeah, it's been great to understand a little bit more about the wine and whisky market and yeah, really appreciate it. Thanks for your time. 

Maxwell: [00:30:24] Amazing. Thanks, Bryce. Amazing. Cheers.