The Wine Lovers' Guide to Investing
Savoring a vintage wine is one of life's great pleasures. But often overlooked in the joy of consumption is the carefully calibrated journey from grape to glass. Similar levels of care are critical to good investment outcomes.
A host of variables determine whether a wine is great. These include the quality of the grapes, soil, position of the vineyard, weather, irrigation, and timing of the harvest.
As in winemaking , investment management requires attention to detail-researching and identifying the dimensions of expected returns, designing strategies to capture the desired premiums, building diversified portfolios, and implementing efficiently.
Just as winemakers don't have any say over the weather, investment managers can't control the markets. Expert professionals can still maximize their chances of success by putting their greatest efforts into things they can influence.
For investment managers, it can mean precisely targeting the desired premiums while ensuring sufficient diversification to lessen idiosyncratic risk in the portfolio.
Wine making is as much an art as a science. The winemaker must still guide the process to ensure the wine is as close as possible in style and flavor to what he is seeking to achieve.
Similarly in investment, tradeoffs must continually be made between the expected benefits of buying particular securities and the expected costs of the transactions. Managing the effects of momentum and being mindful of tax considerations are among the other issues to be balanced.
Dealing with uncertainty and navigating the "unknown unknowns" are part of the job. Ultimately, the benefits of discipline and attention to details are easy to overlook. Great ideas count for a lot, of course. But great ideas without efficient implementation can mean even the best grapes in the world go to waste.
Dealing with uncert