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The Wine Lovers' Guide to Investing

Written by Tim Decker.

wine-lovers

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 can determine whether a wine is great, good, mediocre, or undrinkable. These include the quality of the grapes, soil, position of the vineyard, weather, irrigation, and timing of the harvest.

And picking the grapes isn't the end of it. The harvest must be sorted, the grapes crushed and pressed, then fermented, clarified, aged, and bottled. At any stage of the process, a lack of attention to detail can spoil the final outcome.

As in winemaking, we here at ISI never underestimate just how much 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. Not every harvest will produce an excellent vintage, but expert professionals can still maximize their chances of success by putting their greatest efforts into things they can influence.

For winemakers, that may be taking extreme care in picking the grapes at a times that delivers the desired balance of acidity and sweetness. For investment manager, it can mean precisely targeting the desired premiums while ensuring sufficient diversification to lessen idiosyncratic risk in the portfolio.

Winemaking is as much an art as a science. While fermentation comes naturally, the winemaker must still guide the process, using a variety of techniques to ensure the wine is as close as possible in style and flavor to what he is seeking to achieve.

Similarly in investment, real world frictions mean that basing one's approach purely on a theoretical model is unlikely to be successful. For instance, 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.

Just as in viticulture, investment outcomes can also be affected by any number of external events—such as the imposition of capital controls in an emerging market, or changes in regulation, a severe financial crisis, or a major geopolitical event.

Dealing with uncertainty and navigating the "unknown unknowns" are part of the job. So investment managers must build into their processes a level of resilience—through diversification for instance—so they have sufficient flexibility to work around unforeseen events.

Ultimately, the benefits of discipline and attention to detail are easy to overlook for most investors. Great ideas count for a lot, of course. But here at ISI we completely understand that great ideas without efficient implementation, can mean even the best grapes in the world go to waste.


 

This content is based upon information believed to be accurate by ISI Financial Group, Inc. However, it should not be relied upon for legal or accounting purposes. You should always use the custodian's brokerage statements as an accurate reflection of your portfolio. Past performance is not indicative of future performance. Investments involve risk, including the possible loss of principal. Always seek professional advice before making any financial or legal decisions.

 

On the Air

newsradio-WHP-webTim Decker hosts the weekly radio show “Financial Freedom” on WHP 580 AM Harrisburg every Saturday at 10:00 am Eastern.

He brings his extensive knowledge and over 28 years of experience to the discussion of current financial and wealth management topics. Each show also includes a Q&A session when Tim provides straightforward, unbiased answers to questions from callers. This is the program that represents your best interests, not Wall Street's.

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The Sleep-Well-at-Night Investor

The-Sleep-Well-At-Night-Investor

ISI Financial Group helps clients take all necessary steps to properly develop and implement a holistic financial plan using evidence-based, time-tested strategies centered around financial science. In his book, “The Sleep-Well-At-Night Investor,” Tim Decker shows readers how misinformation from the mutual fund industry has created widespread harm amongst investors. The book also discusses the temptation to think of investing like gambling, and the tragedy of gambling away savings and security under the guise of investing.

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