How to Buy ...
By Robert Bohr
The futures market exists only in Bordeaux. Buyers need to compare the track records of great vintages from the various châteaux. What’s going to drive the wine’s future value is how well it was scored by experts in relation to vintages in its immediate age range. Weather conditions also play a role: not too hot, not too cold, not too humid, not too dry, not too windy. About three times a decade wines hit this kind of sweet spot where they’re really great. Next, you need to make sure that whatever international retailer you’re buying from has a history of actually delivering the goods, even if it means paying a bit more. Also, you’d like the shipping conditions to be ideal, that is to say refrigerated, so you don’t end up with a damaged product. You have the ability to request certain bottle sizes. If your spouse doesn’t drink wine, half-bottles are great. If you’re someone who likes to entertain, large bottles are a possibility. Magnums and half-bottles carry a premium on the secondary market. Magnums are also ideal aging vessels.
All this said, I’m not buying wine futures, because prices have gone crazy since about 2005. There has been a huge rise in global demand, particularly from China. It’s gotten so I can buy a case of 1982 Mouton Rothschild that’s perfectly mature for less money than 2009 futures of the same wine, which I won’t be able to drink for 20 years. — Bohr is wine director at Grand Cru Wine Consulting.
By Henry Galiano
Paying $3.5 million for a Brontosaurus or $9 million for a T. rex is not a lot of money for what you’re getting. I mean, some Picassos go for $40 million, and that’s just a piece of cloth canvas with some oil paint. In the future, dinosaur prices will go through the roof because the U.S. is one of very few places where you can legally buy a dinosaur, and demand is shooting up. If a museum in China wants a dinosaur, they buy it from the U.S. If you’re buying a dinosaur as an investment, get in touch with a reputable supplier. They’ll give you a menu of available fossils. I’d probably get something small enough to house or store, like a Camarasaurus. Next, get a lawyer to make sure you get the legal titles from the property owner, the company you’re buying from, the company that’s cleaning and prepping the fossil, and from your broker. And get documentation: osteological reports, photographs, GPS readings that say exactly where the bones were found, information on what other dinosaurs were found with it, geological reports, and what people dug there. Some companies will sell the dinosaur and also clean it, mount it, stabilize it, and articulate it. Fossils usually require reconstruction, and it matters how the gaps are filled, how the paints are blended, how anatomically accurate everything is. Hiring a paleontologist to assess the work is a good idea. — Galiano is director of Dinosauria International.
By Michael Tusiani
Shipping is not for the fainthearted. Those seeking roller-coaster thrills need look no further than the nearest tanker acquisition. While strong returns on investment are far from guaranteed, those with a sixth sense in reading market demand and timing and those with a nose for anticipating their opponents’ moves can do quite well in the tanker asset game. The first step is to understand market fundamentals. The market’s highly cyclical nature is not just a result of trying to match worldwide oil demand with vessel supply. For example, while global oil consumption increases over time, the cost of building a new VLCC (very large crude carrier) of 300,000 deadweight tons has decreased from roughly $150 million four years ago to $95 million today. However, wild cards could have a far greater influence on freight rates. Threats of conflict or actual war, canal or waterway closures, new legislation in different countries, and the role of alternative fuels must be considered. Then try to understand the psychology of ship owners and other players. Each has a unique personality and business style, with special relationships that provide varying insights into the possible timing of the market. Lastly, don’t try to predict the market bottom. Regardless of when you buy, if you are well capitalized you can enjoy modest returns over time. But you must secure your seat belt—and enjoy the ride. — Tusiani is CEO of global brokerage and consulting firm Poten & Partners.
Credit Default Swaps
By Peter Tchir
You don’t buy credit default swaps only when you think a company is going to default or have a credit event (which in the U.S., for a corporate CDS, would either have to be a bankruptcy or a failure to pay). You buy the CDS because you think the company’s credit will deteriorate—that its risk premium will move in your favor. A CDS is basically a trading vehicle. The first step in buying them is setting up a credit line—or International Swaps and Derivatives Association Master Agreement—with a bank, which is a long, formal process that can take up to six months. Once that’s in place, buying a CDS is not that different from trading any bond. Clients only ever trade with banks. Banks trade with clients and with each other. The more banks you have ISDAs with, the better your chances are of getting a good price for a CDS. Your goal is usually to buy from one bank and sell back to that bank or another at a profit. The standard trade size for a liquid investment-grade CDS is $10 million, so that’s why it’s big institutions, instead of individuals, that trade swaps. Banks regularly send e-mail messages to clients in which they list CDS prices. The prices are purely an indication of what that dealer might be able to provide. If interested, you contact the bank and negotiate a final price. From there, it’s settled electronically, and very standardized. — Tchir is founder of TF Market Advisors.