The Morrissey Exchange
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The Morrissey Exchange
The Morrissey Exchange, Shaw and Partners: Decanting the riches in this Gold edition. A journey into Luxury Investments with Expert Danny Younis
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Welcome to the 50th episode of the Morrissey Exchange.
Imagine unlocking the secrets behind luxury investments. Our guest today, has a record that shows you can combine both an interest in luxury items and make money in the process.
Danny is both a former equities analyst and adviser to the crème de la crème of luxury brands.
Together, we uncork the world of high-end collectibles, from the mysteries of successful wine investment to the craftsmanship of Swiss watches. Danny reveals a rich tapestry woven with psychology, scarcity, and the artistry of luxury goods; from toy Japanese robots to vintage Ferraris. His stories of investment success, both personal and otherwise, serve as a testament to this oft overlooked asset class.
We hope you enjoy listening to this discussion as much as we enjoyed making it.
Luxury Investment
Speaker 1Hello and welcome to the Morrissey Exchange podcast. The information contained within this podcast has been provided as general advice only and does not take into account any of your personal circumstances or objectives. You should consider if this advice is right for you and consult your financial advisor for further information.
Speaker 2Hello and welcome back. This month's edition is a little different than usual, but should be a whole heap of fun. We're talking all things luxury For a man with far too much Scottish blood running through my veins. I'm not known for my interest in brands nor luxury, and struggle to justify too much non-investment related spending. However, our guest today has a record that shows you you can combine both an interest in luxury items and make money in the process.
Speaker 2Today we're having a chat with Mr Danny Younes. Danny is a former analyst at the House of Shore, boasting 22 years in the industry. This, however, undersells Danny, as his full profile is vastly more interesting. He is a former banker to Mowat, hennessy Australia and LVMH, including providing debt financing for Christian Dior, louis Vuitton, fendi, cape Mentel and Domaine Chandon. In the wine investment and consulting space, he has asset allocation expertise, especially producer specific expertise with burgundy, bordeaux, champagne, cellar construction, viticulture, enology, which is the study of wine sales and marketing.
Speaker 2Now this is where it gets interesting. His wine portfolio investment performance is absolutely staggering and achieved a compound annual growth rate, or CAGR, of 56% during the 20 years from 2003 to 2023. For comparison's sake, the ASX 200 achieved 9% over the same period. Before I get on to this interview, I do want to emphasise this is merely a discussion and in no way is it investment advice. Do not rely on this discussion as a reason for buying any of the items we discussed Now. With all that said and done, danny, thank you for agreeing to be on the podcast and welcome. Can you tell the listeners a little about your?
Speaker 3career to date? Yep, thank you, ben, and thanks again for the opportunity, and it's a pleasure to be on your podcast. Look in terms of my career, as you said in your introduction 22 years in finance, and that's really broken up in two buckets. The first one is I spent about 19 years in stockbroking where I was a sell-side research analyst, covering about 230 stocks over that time period across various sectors developers and contractors, mining services, technology, retail, building materials, food and beverages, et cetera, et cetera. And I spent also three years at Westpac as the head of food and beverages there as well, where I did the Foster's acquisition of Southcorp, and that was more on the debt side. So I've had both equities experience and debt side experience. And before that I spent a couple of years while I was at uni working in the wine industry and in retail, and five years in the film industry. So quite a varied background there.
Speaker 2So what attracted you to the luxury inverted commas industry? Was it because of the products being so appealing, or was it that you thought there was an opportunity there for investment?
Speaker 3Well, firstly, I'd say I never looked at the luxury asset class as a potential vehicle for investing. That sort of came out of luck and I'll talk. I'll expand on that a little bit later. I think for me the interest came about in a couple of ways. The first one was I've always been interested in the finer things in life, whether it be the artisanal craftsmanship of fabrics or clothing or products or even services and experiences. So I think that was the first thing that was really interesting.
Speaker 3The second thing for me that generated a lot of interest was when you look at the semantics of luxury itself. I mean, effectively these are goods that you don't need, but people desperately want them. And I was very interested in the human psychology. You know my background in terms of my education was in science, so I had a very scientific or psychological interest in why people are so enamored with luxury goods and why they pay exorbitant amounts of money for items that are usually not worth either their cost of manufacturer, because a lot of the value derives from the intangibles, the status that you get from it and other facets. So I think that psychological element was also something that really fascinated me, and so I decided to do a lot of work around it and clearly, because I was a wine buff at the time, that became an emerging avenue for wine investment and I was buying wine high-end wine well before it became an investment proposition and it just turned into something that grew out of hand. But we'll talk about that more, a little bit more.
Speaker 2So, given it's been an interest of yours for some time, can you recall your first investment in the luxury space?
Speaker 3Oh that's a tough one. Look, equities were always my first investment and traditionally that's the way most people go. But in terms of luxury items per se, I never bought a luxury item with a view to investment appraisal or potential or resale value. That's a relatively new thing. That's something that's really happened over the last five, six years in terms of now, and that's been driven by Gen Z and millennials, who are really only now buying luxury goods that have a significant premium above retail price or significant resale value. But the first luxury goods that have a significant premium above retail price or significant resale value, but the first luxury item would have probably been wine, obviously, and it would have been 1982, bordeaux.
Speaker 31982 Bordeaux was an outlier 60s and 70s in France, particularly around wine, a lot of average wine was being made in France, notably in Burgundy and in Bordeaux. There were various reasons for that. 82 was a perfect vintage in terms of warm weather, ripe grapes, good tannins, fantastic acid structure and it ended up being a vintage that was really the best vintage since 1961. Now I took a lot of interest in this vintage and I bought very, very big in that vintage and remember I was still at uni in these days, so I was spending all my AusStudy payments, which should have been used to buy my textbooks and things like that. I spent it all on these 82 Bordeauxs. Now, bordeaux in general is Cabernet-based, you know, with Merlot, petit Verdot, cab Franc, et cetera, and I went out.
Speaker 3I remember going to Roseville Cellars most days after uni, buying one or two bottles and then just keep building a collection. At the time I was also buying Grange, but I never thought of Grange as an investment proposition at that time. Grange at that time was, I remember, $49 a bottle. It came out in Chatswood Chase, but I knew Bordeaux was something special. That was a one-in-a-generation event with a perfect vintage. All the critics were raving about it, dishing out high scores. The wines tasted fantastic when they were eventually released and I set up a Langtons account. Langtons is the biggest auction house here in Australia and I started buying a lot of the wines on auction that I missed out first time around, either because I couldn't afford them or I was too young at the time. So I'd say probably Bordeaux was my first big luxury wine investment.
Speaker 2So that's the 82 Bordeaux. How much did that?
Speaker 3what did the first bottles cost you? Yeah, so first grades at the time were all under $100 a bottle. Now, at that time in the late 80s, early 90s, when I said Grange was going for $50 to $60 a bottle, it was crazy to spend $100 on a bottle of wine. I remember 82 Petrus was like $110 a bottle. Petrus is a wine from the right bank in Bordeaux. It's a 100% Merlot, so it's unique in that it's not a blend, it's a single variety of Merlot and it was $110 a bottle. And I thought what idiot would spend $110 on a bottle of wine. I didn't buy it at the time.
Speaker 3That same bottle now is selling for $8,000 a bottle and this was the era where you could buy a mixed dozen bottles of DRC. So DRC is probably the most sought after wine in the world. It's from Burgundy, so it's Pinot Noir derived. It stands for Domaine de la Romigny Conti. You could buy a mixed dozen of those eight nine wines they make for under $1,000 a bottle. That same case. Today you can't get them because they don't release in mixed dozens anymore. But that same case, if you still had it, would be well over $120,000 a case.
Speaker 2So what's changed? You talk about bottle of Grange at 50 bucks or your Bordeaux at under a hundred dollars. That escalation in value is vastly in excess of CPI. Something has changed within us as human beings, our desire. Is it ego? Is it much more money going around the world? Is it social media? What has fundamentally changed to drive this interest?
Speaker 3It's all those things. So number one, it's immigration patterns, so more high net worths coming into Australia, for example. Who are seeking these wines? That's the first thing. It's scarcity.
Speaker 3When you look at luxury investors, particularly non-traditional luxury asset classes wine, whiskey, watches, art, sports, memorabilia, et cetera the reason their value exponentially increases is because they're so super scarce, they're super rare. So it's the old economic binary equation around supply versus demand the rarer something is and the higher its value, the more sought after it is. It's what people want. People want the Ferrari that they can't get because they know there's a three-year waiting list on it. And people want the Hermes, birkin or Kelly because they know it's an instant status signal and they know there's a waiting list for it. Or the Rolex or the rare wine.
Speaker 3Now Burgundy is the most sought after wine in the world, largely because it's predicated on scarcity, unlike Australia, where you can blend wines like Grange across various states, across various grapes. Grange can have 10 or 12% Cabernet in it, so it's not all Shiraz and you can change that recipe every year. Burgundy is different. You basically have a vineyard that is the size of a football field owned by one producer, and that's all they can produce. They can only grow Pinot or Chardonnay on it. You can't expand your boundaries. It gets rated in terms of a village, premier crew or grand crew, depending on its history and the quality of its soil and what the French call terroir, ie everything that contributes to that vineyard quality the sun, the aspect ratio, the hills, the soils the average annual rainfall, all those factors that determine the quality.
Speaker 3And, unlike Australia, it's produced in thousands of bottles, not thousands of cases. The typical example is Grange. Here in Australia they make 10,000 to 15,000 dozen every year of that wine, so it's hundreds of thousands of bottles. The great Burgundies that are most sought after. Usually they're less than 10,000, 15,000 bottles for the whole world Hotels, restaurants, bottle shops, collectors like myself, etc. Etc. So they are super rare and depending on annual temperatures or annual weather patterns and depending on annual temperatures or annual weather patterns, that could be plus or minus 10%, 20% per annum. But you can't scale up Burgundy, unlike Bordeaux, where a first growth Bordeaux, like Latour or Lafite or Margaux, they can make 30,000 to 40,000 dozen a year. Or champagne, a luxury good like Dom Perignon, which is owned by Moet de Chandon they make five to six million bottles a year because you can blend you can blend grapes and you can blend across regions but you can't do that in Burgundy.
Speaker 2So if you were to make the comparison on, let's say, it's a standard crop for the year, you got a bottle of Grange what are we 2024? And a bottle of Burgundy what would be the?
Speaker 3difference in cost, the cost of manufacture. There's lots of academic papers on this. So the cost to produce a bottle of Grange and this data came from a peer reviewed study about five, six years ago is about $27, $28 a bottle. Okay, Most of that is marketing. It's not the cost of the grapes, it's not the cost of the, predominantly how you distribute that product into overseas markets. I mean even a cork, because grain still uses cork. Even a cork, a good quality cork now, can be $2, $2.50. Okay, so once you get to the total cost, the all-in cost of a bottle of wine, it's usually under $30 a bottle. It's a bit higher in Burgundy, largely because they use, instead of using tractors and mechanical harvesters, a lot of them still use traditional horse and carts and human pickers. So the cost of labor there is much higher. But really you're not paying more than 40 to 50 dollars all in cost for a bottle of wine, irrespective of where it comes from and so what am I paying for?
Speaker 2a 2024 grange versus a 2024 burgundy?
Speaker 3The current vintage Grange is $1,000 a bottle Current Premier Cru, even a Grand Cru, from Burgundy. Now, $1,000 doesn't get you a lot if you want one of the top 10 producers In many cases now the top producers in Burgundy. If you look at the top 10 producers in Burgundy whether it be Domaine Loire, rousseau, coche de Rie, ramonet, meunier, rumier, mayo, camuset You'll find in many cases village wines which are really their basic level pizza wines which used to be like $30, $40 a bottle of wine. It's something you'd buy on a Saturday night to have with your pizza. They can be $600, $700, $800. In the case of Loire, some of those village wines can be $2,000 plus.
Speaker 3Remember, this is an entry-level wine. So what are you paying for there versus granted, you're paying for scarcity and bragging rights and social media has been driving this. You mentioned social media. Social media really drives this that people are on there and showing, hey, look at me, I can get these super exclusive Vareja wines that are hardly available in Australia and Asia. In Australia, because largely we're irrelevant, we only get 1% of the world's allocation of these great wines, given we're not very meaningful in terms of turnover.
Luxury Goods and Investment Strategy
Speaker 3And Asia, because Asia historically haven't received these wines because they haven't been a traditional wine drinking or wine consuming country. That's only changed in the last 10 years with China, hong Kong, et cetera, et cetera. So they've been very aggressive in trying to get these wines from these channels and that's why they've been driving prices up, because you can't get them at first retail, so you've got to get them on the resale markets where you pay one, two, three, four, five times or even more over what they originally sold for. So you're paying for scarcity, you're paying for status and you're paying for bragging rights if you're on social media, because there's a lot of these wealthy people on social media who are saying hey, look at me, I'm drinking DRC and Loire and Coche de Ré and Chateau.
Speaker 2Reyes every night of the week. De Grange strategy is not bad, though from a business perspective. It costs, say, 50 bucks. They're selling it for a thousand bucks. Hell of a lot of intangible a 2000,. What's that 2000% markup? A hell of a lot of intangible value in that.
Speaker 3Correct. But what I would say with Grange and this is true for a lot of mass produced wines, so it would include champagne as well, and it would include Bordeaux and it would include the US resale values are pretty poor on Grange. So I would say Grange is not a good investment. Now let me give you a couple of examples. Yes, when I was buying Grange when it was $50, $ $60, up to say $300 10 years ago, it was a good investment, because those same wines are now selling on the resale market, on the auction market, for $600, $700. The current vintage of Grange, which sells for $1,000, you can buy the last three vintages of Grange at any auction market in Australia for $500, $600. Yeah right, at any auction market in Australia for $500, $600.
Speaker 3So the point here is for a mass produced item, whether it be Burgundy, champagne or Grange, if it's not scarce, if it's not limited in production, you've really got to hold on to these things for a minimum five to 10 years, preferably five years at the bare minimum. Otherwise you're not going to get a return. So I wouldn't be investing in Grange at the moment because it's freely available. You can always buy Grange. It never sells out.
Speaker 3The Australian equivalent of Burgundy would be a much smaller producer who only makes thousands of bottles. So it'd be something like Henschke Hill of Grace and I know you know Stephen Henschke because I remember we had a lunch several years ago in Melbourne in your offices he only makes 8,000 bottles a year of Henshiki Hill of Grace. So that wine does sell out and it does hold its value. But other wines around Australia, like Mount Mary in the Yarra Valley, the Tyrrell Single Vineyards in the Hunter Valley, you know, like Four Acres and Old Patch, sammy Odie in the Barossa, Rockford Basket Press and, most importantly, wenduri. Wenduri in the Clare Valley where there's a three-year waiting list to get on their mailing list. You know those wines sell for $65, $70 on the mailing list but they go for $200, $300 at auction. Why? Because they're scarce, you can't get them. You know people want these wines but they're only made in the thousands of bottles rather than the thousands of cases.
Speaker 2I bought Hill of Graces at that lunch. However many years ago it was, and I looked it up because we drank it on Christmas Day last year. Fantastic yeah, and it had doubled in value. I couldn't believe it. Like, here am I. You know we're focused on equities analysis. You know you've got to focus on the core fundamentals and all of a sudden, this silly bottle of wine has doubled in value in a fairly short space of time. It stunned me, correct.
Speaker 3Two points around that, ben. The first one is Hilligrace is almost the antithesis of Grange. Okay, so Grange gets criticized in Australia because it's seen as it's like making Coca-Cola. It's a formula that's made every year. They taste the same pretty much.
Speaker 3You know a Grange in a blind tasting sticks out like a sore thumb. You can always pick it. Usually there's a bit of VA. Although they've cleaned them up now it's usually really rich oak treatment, quite resiny oak. What's VA? Oh sorry, volatile acidity. So you know, like a nail polish remover, you know it's that really high tone acetone and that was the style when Max Schubert made this wine in the 50s. You know he really pushed the boundaries of ripeness and you know the juice on skins and all that. So you got full flavoured wines.
Speaker 3But the reason I say Grange is the antithesis of Hill of Grace is Grange is a blend across various regions and it's not a single grape. It often includes cabernet. Then hill of grace is one specific site out of the eden valley, the hill of grace vineyard. You know, outside that church there it's about one, two football fields in size and it's one grape. It's always shiraz and it's always shiraz from the oldest vines, the ancient vines from the 1860s and younger, so it's completely different. So the hill of grace model is single terroir, singles and younger, so it's completely different. So the Hill of Grace model is single terroir, single vineyard, single grape, so it's more closely aligned to the Burgundy model in France, whereas Grange is more aligned to the Bordeaux blending across regions and grapes model in France. Be very wary, as I said, that unless you're holding these items for five years, particularly the Grangers and so forth, you're not going to see meaningful increases in value.
Speaker 2All right, so skipping it. As an equities analyst, you were required to determine valuations of businesses, more often than not utilising valuation techniques based on cash flow, which we just touched on. Dialing into what you were just saying on this rarity issue, putting wine to one side, is it still again purely scarcity when you attribute valuation to certain things?
Speaker 1and the reason I ask this is I.
Speaker 2I get stunned by so. We're our office, top collins. I can walk down collins street and there'll be queues at the front of gucci. There'll be queues at the front. It stuns me, but the queues are still there. Now there is an element of scarcity to the products that they're selling. I understand that. But one of those handbags I've seen, my wife's got one right, one of the-.
Speaker 3Chanel, Gucci, Louis. Vuitton.
Speaker 2Louis Vuitton right, and it must have cost five bucks to make. Seriously, it's not that impressive. Why on earth are these Muppets queuing up for these things when, based on what you were saying about grain, they're likely to reduce in value anyway?
Speaker 3Fully loaded question. Ben, it's a fantastic question.
Speaker 3And it's one why I'm interested in terms of. You know the whole luxury goods industry, so there's a couple of things to pass there with what you're saying. So, firstly, you're absolutely right. The average cost, if you believe all the brokers, if you believe all the papers that have been out on this, the average cost of a handbag max, putting aside the exotic leathers like alligator, crocodile, ostrich, stingray, whatever a normal leather calfskin handbag tops, you'd be paying 180, 200 bucks to make it. Okay. And that includes the two most sought after bags in the world, which is the Hermes, birkin and Kelly. Maximum $200 to make, and those bags sell for $10,000 plus. So that's the first thing.
Speaker 3The second point is to you and I. They may be Muppets queuing up in front of those luxury goods stores, but for a lot of these people, particularly those who are emerging countries, who are now becoming wealthy, gentrifying, moving from a B tier to an A tier in terms of their earnings capacity, they need something in that community to signify status, and luxury goods are one way of doing it. For a woman it may be a handbag or a Cartier bracelet. For a man it might be a fancy watch or a car. Okay, so I think that's the third thing I would say is what else is driving this? It's the intangible factor. Yes, we know these items don't cost anywhere near what they're priced at, and that goes for all things in life A $100 t-shirt which costs $2 to make? It's the same. It's not only in luxury goods, it's in every avenue. So the intangibles is also what is really important. What the luxury goods companies have been exceptionally good at doing is promoting the desirability of that product or experience that you have to have it Even though you don't need it. It's not a necessity like food or taking care of your kids or buying a home or whatever, that you need this product to make your life happier and to give you pleasure and to provide status to either your friends or your community who say, hey, this guy or girl's made it, look at them. So that intangible and desirability factor is so important to luxury goods companies and they deliver through their advertising and promotion, which they're the best at, and that's why companies like Microsoft and Apple have stolen the whole strategy, advertising and promotional playbook. You know they often say pornography is at the advent or at the forefront of all technology. You know they're the first to adopt all that stuff. I'd say luxury goods companies are probably the second, and then you get everybody else following. So I think that's the third factor.
Speaker 3The fourth factor, going to the grain of your question around how do you value these things? It's very hard, given they're not non-traditional assets. A lot of these luxury items do have a secondary market outlet, so we do have a visible, transparent market in terms of what do customers and what do markets perceive as the value of these goods. Okay, so you know. There are auction sites for wines so we can determine your value value of your wines.
Speaker 3You can go to various watch analytics sites who track all the auctions around the world on. You know the prices, prices of Swiss watch brands and what they're currently valued at. You can go to Christie's auction for all your art valuations. There are online fashion resellers of handbags for women whether it be the Chanel flap or 255 or the 2MS bags that I talked about where you can determine the value there and what people are paying. So there is a proxy market out there to determine these values, but they're not like property assets or equities, where you can do a sum of the parts or an EV to sales, or an EV to EBITDA or a PE multiple or a DCF valuation.
Speaker 2You can't do that, it's interesting though you talk about specific cultures, and they want to show that they've made it by having one of these handbags, cars, et cetera. From my perspective, I look at them with a bag or one of these cars and I think, well, you're an idiot. You have no comprehension of what money really is, as opposed to sort of looking up to them. But I suppose maybe that's just me.
Speaker 3Yeah, the point I would make there is number one. That's a very important driver. People don't. People used to buy things for self-pleasure. It would give them pleasure and that's why Logomania was such a big thing over the last 20 years, because that's an outward, external validation of success. It's often said Rolex don't sell watches, they sell status. Chanel don't sell handbags they sell status.
Speaker 3And part of the status of these people lining up in queues is. It's really interesting the psychology around this. There's been a few papers in business journals about this. 50% of people perceive them as losers. You know standing out waiting in line because they know real VIPs or the real ultra wealthy don't need to queue up. You know they just have special appointments. But the other 50% believe being seen standing in a line outside a luxury goods company is in itself a sign of success. It's sort of a binary outcome there.
Speaker 3The other thing I would say, ben, is when you see returns on luxury goods, you've got to be very, very careful. This is why I'm very, very wary. Just as I said, there are big exceptions in wine in terms of investment potential and resale values and the premium you can achieve. It's a very select small field. It's 20 producers in Burgundy, it's probably 50 names globally in wine where you can make money. The other thousands you're not going to make money on. It's the same in luxury goods.
Speaker 3People say, oh, I saw a post on Instagram the other day saying 10 years ago I bought a Chanel 255 handbag. It's tripled in price in the last 10 years, whereas gold has barely moved in the last 10 years. Now what they don't tell you is Chanel makes about 50 handbags as its SKU count, you know, in terms of its manufacturing and its offering to customers, and they've selectively chosen the one bag that's done well over the last 10 years. There's actually a second Chanel bag, the flat bag, that's done well as well. Put that aside. So two bags out of 50 have done well. The other 48, you'll lose 50% of your money on if you held them for 10 years. Okay, so people forget that.
Speaker 3People talk about Hermes bags, but you know any other Hermes the Birkin and the Kelly and, to a lesser extent, the Constance. Yes, if you get them at retail you can sell them for double the price. But 75% of Hermes earnings doesn't come from those two bags. It comes from everything else where you'll make a loss on? Same with Rolex. You know it's the same thing with Rolex.
Speaker 3Rolex, where you make your money on the watches is at the low end stainless steel stuff. Rolex really focus on the stainless steel stuff, the low end, between 15 grand to 30 grand, unlike their higher tier peers who look at precious metals, platinum, gold, diamonds on the dial et cetera. Rolex has got a perfect business model because it's mass production versus high prices 10% annual price increases. They've really perfected that model perfectly because you're effectively getting a luxury, good item. If you do reasonably well in life, you can afford a $10,000, $15,000 a watch. And what makes it more attractive now is they make 1.2 million watches. But people want those watches because they're status deriving and they're very desirable and they're very durable and they're good quality watches and you can sell them for twice the price. It's a very important caveat. It's only a small subset of each of these categories that does well. It's the old 80-20 rule 20% carries, the other 80%.
Speaker 2I often think of the James Bond movies and all the product placements they'd have through those movies. It looks as though wine is your forte, given this conversation, and you recently sold over 5,000 bottles of vintage and rare wines at auction. You were talking about the need to hold these things for an extended period of time. How long had you owned them? How hard was it to build that collection? How long had you owned them? How hard was it to build that collection and why did you sell?
Luxury Wine Collection and Investments
Speaker 3them. Yeah. So three good questions. Number one why did I sell them? We'll do it reverse backwards. Largely because I had over 8,000 bottles of wine just in Australia. I've got a couple of hundred in New Zealand, I've got wines in France, I've got wines in the US, I've got wines all over the world that I still need to bring back. So I had 8,000 bottles of wine and based on my current consumption being an ex-analyst, based on my current consumption of about 150, 200 bottles a year it was going to take me many, many years to get through that inventory. So there was no point holding them. So I had to get rid of a significant portion. I got rid of 60, 70% of them. So I think that was the first point.
Speaker 3How hard was it to build the collection? Look, in the initial stages it was very hard. As with most things that are sought after, you've got to build a reputation and a track record with your supplier. In this case I deal with all the liquor stores and restaurants around Australia. You get to be known. You get to do minimum pre-spend levels, ie how much you spend per year will determine which wines they allocate to you. So the more you spend, the more likely you are to get these rare wines. It's like anything you go to rolex or hermes or chanel and you want the most sought after products in those stores. They're only going to give it to the customers who have been pre-existing customers, who have been buying these wines or bags or watches for years. Same with Ferrari you can't buy a brand new Ferrari unless you've previously bought a Ferrari if you want one of the new models.
Speaker 3So I started at an age where I was relatively young. I was buying wine before I was even of legal age. I was 16, 17. I was buying wine. I never thought of it as an investment asset. It just turned out to be that the wines I loved ended up being some of the wines that were sought after.
Speaker 3Now, for me, I'm unlike most collectors. Most collectors, as they get older, will focus on one area, like all Australian wines is all they'll buy, or all Burgundy. Burgundy files are the most snobbish people in the world. I've got to say and I used to be one or they just buy Burgundy, or they just buy Bordeaux, or they just buy US wines. Me, I wanted to have an eclectic collection that had all the greatest wines from all around the world, and I don't mean just the traditional winemaking nations like the US, australia, new Zealand, france, italy, germany and Spain, but I mean my collection of 8,000 bottles, plus everything overseas, had all the greatest wines from South Africa, from Chile, lebanon, hungary. I had wines from Ukraine. So I had a very, very eclectic collection and that's what really drove me.
Speaker 2Was there an unusual one in that list that performed better than expectation, or it performed exceedingly well on the side?
Speaker 3Burgundy did very well, which you'd expect. I mean, on some of the Burgundy wines I made easily 10 times my money, in fact more 15 times my money on some of these wines. The second thing was I was really surprised by Australia. Like even current vintages of Mosswood, wenduri, Mount Mary, rockford, basket Press, you're getting multiples of what they were. So there are always exceptions to the rule in anything, as you know, ben and this was one exception to the rule of holding things for five years. Mount Mary in the Yarra Valley, which is one of my favorite wines in Australia, that quintet, even the current vintage, which goes from 150, 160 a bottle, you'll get 200, 250 for it straight away at auction. Giaconda Chardonnay, which is in Beechworth, one of Australia's best Chardonnays again $150 on first release and they're going for $300, $400 at auction now.
Speaker 3So there are always exceptions. But one of the other reasons people like myself also sell their wine collections is health reasons. I don't have any health issues, but as you get older you drink less and you want to drink better quality. So that was also an issue and I faced not an existential crisis but more a philosophical crisis around a lot of these wines I was drinking at $200, $300, $400 a bottle. Now, really good wines drinking at that price. But when they're now suddenly valued at $10,000 to $20,000 to $30,000 a bottle, you really question whether or not you want to drink these wines.
Speaker 2All right. So who do you admire in the luxury investment world landscape?
Luxury Asset Classes and Investing
Speaker 3There's probably a few answers to this, I think the first one if you're looking at the listed space, hermes is still probably the only existing listed luxury goods company that adheres to the old school luxury model, where it's all about artisanal craftsmanship, it's all about quality, it's all about limited distribution. You know, they don't need brand ambassadors, they don't need celebrities to tout their wares, they don't need to go on advertising blitzes. That's really that old school model that was really. If you go back to the 50s and 60s, you know, pierre Cardin, yves Saint Laurent, Coco Chanel, christabel Balenciaga, that's that old haute couture model which has really died now, ever since the 70s, because it's just too expensive to produce. But Hermes is that last bastion of a classic old school company. And you look, they're the most profitable company out there. They're best performing on a quarter on quarter basis. They're not logo driven like a lot of their peers. And you mentioned Gucci earlier on. Gucci is having a lot of problems at the moment because they went full circle into the current trends all about logos, all about China, all about the younger millennials chasing those three buckets, and now that's working against them. So that's the first bucket.
Speaker 3Second bucket is in terms of my personal interest. I still like the private Swiss watchmakers because they've been around for hundreds of years. They're not focused on advertising to the extent of the luxury fashion apparel companies like the Hermes, lvs, gucci's, et cetera, or even Rolex in the watcher space, because Rolex are very big around sports events, you know, like Wimbledon et cetera. But you know so companies like Breguet A Longhi, unzunde which is a German company Patek Philippe, audemars, piguet, fp Jean, in the microcap space, richard Mille, you know a lot of these brands aren't very well known but they have an almost obsessive compulsion to produce the absolute best quality product out there, irrespective of cost, and that's why a lot of these watches can be $100,000 to millions of dollars in cost. A lot of them have, you know, six, 700 movements, multiple complications. They're extraordinary mechanical feats of engineering and human ingenuity and that's why I think they're for me they are the ultimate luxury goods out there.
Speaker 2Which has been the best performing luxury asset class over the last 20 years, not like a specific wine, but which asset class itself It'd be the three Ws Wine.
Speaker 3If we don't include that, the others would be whiskey and watches. They've been. You know, art, art, yeah. So if you look at any of the studies that have come out from McKinsey's, bain, kpmg, deloitte's, any of those that have tracked over the last 10, 20 years, the threeWs have been the best performers. You've also got ARD in there has done reasonably well. Sports memorabilia has done pretty well, but that's more around US baseball cards and things like that. Cars you know rare automobiles, like if you've got a rare Porsche or Jag or Ferrari from the 50s, 60s, 70s, you'll be doing very well as well, but the 3Ws have been the best performing additional assets what are the whiskey brands that do well?
Speaker 3oh. So again with whiskeys, it's good, they've got to be vintage, dated and they've got to be, you know, old casks from the 50s, 60s and 70s. They've got to be from the top. These, you know, beaumont, mccallan. Even at auction, when I sold my wine collection, I sold a 1965 beaumont and a 1968 mccallan and it gets five to ten thousand dollars a bottle for those things because, again, they're very hard. You know, occasionally they'll find a rare cask from the 30s, 40s, 50s, 60s that was forgotten about. They bottle it and you get thousands of dollars, you know, and there's only like a thousand bottles, mates, a limited production, and people scramble for these things and then they'll pay hundreds of thousands of dollars for them my son, who similarly to me interested in whiskey, said mckellen's doing more mass production now or more blending.
Speaker 2Is that the case, correct?
Speaker 3Correct. Yeah, so they're. And you've got Japan. So I'll give you an example. Five, six years ago I used to go to Dan Murphy's and buy a Hibiki 17-year-old for $150 a bottle. Five years ago. Now that same bottle sells for $1,500 a bottle at auction. You can't get them. You can't get Japanese any of them because or Yamazaki, because they're in such demand. They can't keep up with demand in terms of their production. It's the same with the Scottish, whether it be, you know, islay's or any of the others. It is very, very hard. So, like champagne, you have to have a consistent product out there in the market every year, and for champagne it's the non-vintage blend.
Speaker 2For whiskeys. It's their blend as well.
Speaker 3If you were to buy a watch today for pure investment value, which one would it be? I'll still protect philippe. I mean the big three. There's no doubt about the big three being protect, philippe, rolex and automars piger. They're the three big three and the reason protect rolex has done very well, but at the lower end. Okay. So in their stainless steel daytona, their submarineriner, the GMT Masters, those three watches, fantastic watches.
Speaker 3Hard to get, two three-year waiting lists and you can still get two to three times your money on those rare stainless steel models, particularly if it's the Panda or the Pepsi. But with Patek Patek, you're playing in a different field. So the average price of a Rolex is $15,000. The average price of a Patek is $70,000. If there was a Patek Philippe boutique, unless you walked in as a male forget about women's watches, because it's a small segment If you walked in as a male into a Patek Philippe, you'd have to have a minimum $40,000 ready to spend, because that's the starting price of Patek.
Speaker 3But they are fastidious in terms of quality, right down to the things that nobody cares about. You know the internal parts, bracelets. They still hand paint a lot. They still make pocket watches, for example. They still make jewelry watches, for example. So they've still got those really, really old traditions. So their most sought after watches, which are the sports watches you know, the Nautilus and the Aquanaut they are still going for seven to ten times their current retail value and there's a 10-year waiting list. And that's one of the reasons they actually canned one of their most popular models of the Nautilus, because it was becoming too big in that portfolio. It was 30% of their business and it was gaining too much attention at the expense of all the other watches. But basically, Patek Philippe is the king 10-year waiting list still for some of their Nautilus watches and they got the best resale values in terms of multiples, up to seven to 10 times, which no one can match.
Speaker 2What about number plates? They've gone through the roof to go through your justification or your validation of what luxury items have done over the last sort of 20, 30, 40, 50 years. It's a rarity thing. I get that it's probably seen as being elite to have a custom number plate. Again, the escalation in the value of those number plates has been quite spectacular. Do you see that continuing? Is that a flash in the pan?
Speaker 3No, I think it's continuing. Again, you hit the nail on the head. Scarcity is the key point here. Number one it's unique versus other asset classes in that the taxi industry here in Australia has been deregulated, as you know, with the Uber coming in, so those plates at one point were worth a lot of money. Now they're worth a lot less.
Speaker 3But unique plates, either with the number one, whether it be Victorian plates, new South Wales, or a derivation of eight, eight, eight, eight, 88, et cetera, those plates, there's only one of them, so people want those, whether because you have a belief in the numerical value of those plates or because they're interesting, the number one really stands out. So the fact that there's only limited availability of these plates, but you've still, most importantly, got a very, very big market chasing these plates. You know there's a recent auction here in sydney for one of these plates that went for millions. I think it was a number eight, held for 10 years and it went for millions of dollars. So that market is going to continue as long as you've got a pre-existing market or a clientele who are willing to participate in scouring the markets and securing these products. And they're limited in their availability. It's like diamonds. It's like anything these products and they're limited in their availability.
Speaker 2It's like diamonds, it's like anything On that issue. Do you find economic cycles determine success in certain luxury items?
Investing in Art and Luxury Assets
Speaker 3Yes, now, it's always been. People used to say during COVID, luxury goods companies are resilient, they don't go through cycles. But if you actually look back through history, back to 2008 in the GFC, and you look now what's happening, they are not immune to cycles. The issue or the point I'd like to make about luxury goods companies is they are less sensitive to economic cycles than other companies. They are still impacted. We're seeing that right now. You look at Caring, you look at Richemont, you look at Ferragamo. They are all having problems around attaining growth in their turnover at the moment quarter on quarter, half on half, et cetera, et cetera because high net worths are now feeling the pinch as well. Ultra high net worths aren't, which is why companies like Chanel and Hermes are still doing very, very well. But it is a myth to say that luxury goods companies are immune from economic cycles. They are just less sensitive and history bears that out. As I said, we've seen that in the GFC and we've seen that in the last two years post-COVID.
Speaker 2What about art? Do you collect art, as in paintings?
Speaker 3Interesting about art, but many years ago I bought a Bill Henson. Bill Henson is one of my favourite Australian photographers Very controversial, he's been banned in a number of galleries here. But I bought a Bill Henson portrait for I think it was $4,500 from the gallery here in Sydney. I sold it about five years after I bought it so this is 10 years ago and I sold it for $12,000 and I thought I was a hero. Now that same portrait is going for like $40,000, $45,000 when I last saw it. So art can be a good investment. It is different from the luxury asset class, though, because it is very geographic. Like here in Australia, indigenous art does very well. The classicists do very well, john Olsen, a Namajira, a Brett Whiteley, a Drysdale, a Margaret Olley, a Sidney Nolan. That old school Australian art will do very, very well as well.
Speaker 3The sort of art that I'm interested in is probably more thematic and trendy around what's really sought after in the uk, particularly london and new york, and that's around street art, graffiti and whether it be banksia or baski art. Here in australia I'm more attracted to something that's a little bit more not risque, but more of an outlier. So I love, you know, surrealism. I don't mean surrealism like Dali in the 30s and 40s and Picasso and all that sort of stuff. I mean, like you know, james Gleeson.
Speaker 3I love his. You know visions here in Australia of his surrealist landscapes and so forth. You know he was a visionary artist here in Australia. They do reasonably well on the resale market but it's not something you put up on your lounge room wall. I mean, if you Google James Gleeson's surreal art, you'll see why they're pretty apocalyptic type stuff. It's not the indigenous stuff that is really popular in Australia, so you're going to be very particular. So what I'm saying in regards to the artwork, I'd like to do more investment in it. You can only do so many things, number one. Number two it's very, very particular around geography. You know, as I, new York is really big and in London here it's Indigenous art and old classics et cetera.
Speaker 2In cars. I mean, it's not as easy to play around with investment in cars because they're all so jolly expensive, of course.
Speaker 3Yeah, there's a high entry cost there.
Speaker 2Correct right. So are there areas there that you think you know? Is Ferrari going to continue to explode in value?
Speaker 3Yeah, well, as Enzo Ferrari always said, I always make one car less than the market demands, and Ferrari is a super fantastic business. I mean, even when you compare them to McLaren, lamborghini, bugatti, konigsberg, all those cars that can sell over a million dollars per car, what Ferrari have done is really built a fantastic story around their cars. Porsche have done the same thing, although you know they're more not mass produced, but the volume is certainly multiples of what Ferrari and McLaren do. So Ferrari, it's about limited editions, it's about high entry prices. It's about drawing a narrative around desirability and envy and iconic status around these cars, particularly what Enzo did and the mythology around Enzo, what happened in Formula One. This whole brand narrative they've perfected. It's something that Hermes have done really well. It's something that Rolex has perfected as well. All great brands know how to do this. Apple have done it in the more commodified space around software and mobile phones. So cars, I think, will always be something, largely because it's such a select few that can afford these cars and they are absolutely devout about them.
Speaker 3As I said earlier, you do reasonably well in life. You could probably afford a Rolex Five years ago. Rolex was very affordable. Most of the stainless steel models were well under $10,000 a watch, but a Ferrari, you're starting at $400,000, $500,000. It's very, very hard. Most of the stainless steel models were well under $10,000 a watch. But a Ferrari, you know, you're starting at 400, 500k. It's very, very hard and they're very limited. And you, you know you have to be an existing customer. You had to have spent X amount of hundreds of thousands of dollars in the past and effectively the customer becomes an ambassador for the brand. So I think there is always a case look at the Porsche GT3s. If you can get a Porsche GT3 in Australia base model $300,000, but they're going for $450,000, $500,000. That's before you consider the kits that come with them. Or you're upscaling the twin turbos or et cetera.
Speaker 2Where you can get a million bucks for some of these cars Is there an untapped market slash asset class that you can see over the next 10, 20 years, that should do well.
Speaker 3Ben, that's a tough one. I've always approached investing as a secondary outcome of something that you're passionate about and you love. Be passionate about something you love and if you're lucky like I was with wine and other areas it'll end up being sought after. But focus at the quality and whatever it is. I mean I have friends who collect vintage Leica cameras, for example, from the 60s, 70s and 80s. I got a friend who's Japanese, in Tokyo who collects vintage toy robots from the 60s and 70s that Japan used to make and they're worth hundreds and hundreds of dollars now, even though they don't work. I've got another friend who collects cricket bats signed cricket bats Sporting memorabilia is a massive thing. I've got another friend who she collects rare perfumes from the 60s and 70s. Forget about the fact that they're probably all oxidized now and off, but she collects those rare perfumes from the 60s and 70s that are still sealed and unused and they all end up being worth lots and lots of money. So I would say to anybody out there, whatever it is you passionately collect I mean people who collect old iPhones now they're worth a fortune Follow your passion, buy only the absolute best and if you're lucky and in most cases you will be. If you've picked the right things and if you've been smart about it, they will appreciate in value. I mean areas that I'm looking at in the future is like I'm a bit of a dinosaur.
Speaker 3I like first edition books. I still like books. I never had a Kindle. I would love to own a first edition, you know, dostoevsky or Marcel Proust of one of their novels and it's something I'm looking into because it's something I'm passionate about. You know first editions is something you can do really, really, really well in. Other things could be film posters. You know, when I used to work in the film industry I used to collect film posters and I made good money out of that. You know the original posters from the 1930s and 40s. You know Dracula, frankenstein. You know you can get hundreds of dollars. I remember the film company I worked for paid $12,000 for a full one sheet which would fill a wall of Federico Fellini's La Dolce Vita, a fantastic film from the 1960s $12,000 to put at the entry into the Dendy cinema chain. They sold it five years later for $40,000. So anything you approach in life that you're passionate about potentially is a collectible and therefore potentially, if you choose correctly, will become an investment asset for you.
Speaker 2Is there anything outside of a global depression that you think could disrupt this explosion in luxury items?
Speaker 3It's very, very hard. You know. You've got China. It took 20 years for Japan to ascend the scale in terms of becoming a major player in luxury goods consumption. China now is going through that and it's going to take another 10, 20 years. China still, if you average out their consumption out of the $400 billion luxury goods market is still about 10% now, but that's going to be half by 2030. So the number of millionaires and billionaires being minted in China every day forget about every month or every year. Now every day is multiples.
Speaker 3Then you've got India. India is the untapped market. That's the next one that's gentrifying and becoming westernized. And you've got you know, it's the most populous nation on earth, with 1.2 billion people. You're going to see a lot of consumption and demand coming out of India as well, because they haven't been luxurized to use a loose term as yet. And, as I said, it's taken China 10 years so far and there's probably another 10 years to go if we follow Japan's model. And you've got the Middle East as well. So there's a lot of.
Speaker 3What I'm saying is and you'd be very much aware of this as a stockbroker and an advisor there's a lot of cash liquidity out there. There's a lot of people with cash who want to invest in markets. The challenge you guys face is a lot of the young and upcoming people that I speak to and that I socialise with. They're not interested in traditional asset classes. They're priced out of property. Here in Australia, particularly Equity isn't sexy or attractive enough or not tangible enough. So they're looking at alternative assets like all these asset classes that we've been talking about, because you can own them, you can use them and then you can resell them for a profit. So that's the challenge for you guys.
Speaker 3But I don't see significant obstacles to continued growth. Look, covid was a bonanza for luxury goods companies. You had 20% plus growth rates a year on year for the last three years. Those days are over. You're going to go back to high single-digit growth again. You know 5% to 10% growth, which is fantastic, if GDPs in most countries are only growing at 2% to 3% per annum. So what will also drive that is not only the higher influx or minting of millionaires and that cash that's out there in the system that wants to invest, but it's also immigration patterns. So that cash that's out there in the system that wants to invest, but it's also immigration patterns. So you know in Australia we're big beneficiaries here. We punch above our weights and that is going to continue as well. And low interest rate. You know, in a low interest rate environment people are happy to spend, high interest rate environment less likely to spend, and that's why we're seeing pressures around some luxury goods companies at the moment.
Speaker 2What a fascinating chat. Thank you to everyone for listening to this interview with Danny. If you've got any queries about this discussion or require any other information, please either call us on 9268 1117, shoot us an email or jump onto our website at morrisseygroupnet. Thank you, danny, that was brilliant.
Speaker 3Absolute pleasure, Ben Absolute pleasure. Thanks again.
Speaker 1The Morrissey Group is a corporate authorised representative of Shore and Partners Limited, ABN 24003-221583. Our financial services guide is viewable at wwwshoreandpartnerscomau. Any content within this podcast is subject to the terms and conditions of Shore and Partners Limited's disclaimer as viewable at wwwshoreandpartnerscomau. Forward slash disclaimer.