Thursday, January 15, 2009

Old Puerh Auction

Last December, in Beijing, collectors could bid for vintage puerhs. This auction came after the young puerh bubble burst and a dismal year for stock markets in Asia and most of the world. So, how did it go? Are collectors dumping their old bings as fast as investors unloaded Lehman Brothers' stocks or Icelandic bonds? 

Looking at the results, the answer is probably 'No'. We can rather say that the situation is stabilized. The auction still managed to sell 65% of the proposed puerhs.  The achieved prices were mostly within (or slightly below) the estimates. And the reason why some puerhs didn't sell is maybe less a problem of price than of authenticity. 

So, what could you buy if you had 1,097,600 RMB (160,000 USD) to spend on an old (80 years plus) tong with 7 cakes? This one achieved this record price. At 2190 grams, this means 73 USD per gram (while gold costs roughly 26 USD per gram). That means that this old puerh is 3 times as expensive as gold! Is it unreasonable? The whole world thinks so, except the guy who made the winning bid (this is how it works in an auction! However, he's not completely alone since many other lots sold at similar price levels.)

From an investment point of view, this looks like a slam dunk. But is it really? Let's assume that the price for the tong was 1 USD 80 years ago (newspapers used to cost 2 cents or 50 times less than today, which means a tong at 50 USD in today's prices). You get a 160,000 times increase when you compound 16.16% for 80 years (1.1616^80). If the tong is 85 years old (we don't have the exact age), then this drops to 15.14%. Also, if you want to calculate the return on investment on this tong, you would have to deduct 80+ years of storage and handling costs (these also need to be compounded), the auction fees and the income tax. This should make the return drop several percentage points. It is still impressive to get over 10-15% per year, but not unheard of. 

And there were lots of risks along the way: preserving the cake during the war against Japan, the civil war between communists and nationalists, the cultural revolution. And with demand decreasing as price increases, there was also the risk of not finding a buyer willing to pay this price (the second tong listed didn't). And what if China's economy had not taken off like it did these last 25 years? 

We may never be able to drink these puerhs, but their pictures can still teach us many things (I will give you some examples in some other article). I suggest you first choose those lots that were sold (they have a final price) from this result table and then you click on the links on this page, in the last column. (Avoid the unsold ones to avoid the fake and/or less interesting puerhs). You may want to translate the page with Babel Fish. Some puerhs have better pictures than others. 



Anonymous said...

Interesting post! It's good to see your business background (I assume) coming out. I would love to see a similar Excel model for the return on making a FAKE 80-year-old tong - I bet the return on that is a lot higher!


TeaMasters said...

Thanks for your comment. Yes, up to 6 years ago I was in the field of financial controlling!

A general rule that applies to all investments: you need to know well what you're investing in. So, it's important to learn.

Elliot Knapp said...

Awesome post Stephane, love to see a sober approach to the usually slightly deranged world of pu-erh.

Will said...

This is interesting given how there has been lots of press that the pu-erh bubble has popped and prices were normalizing.

TeaMasters said...


It's the price of young puerh that came down. The prices of very old puerh are stable or continue to rise: their number is limited and even going down as rich drinkers brew them.