Financial PlanningInvestment

The science, magic and journey behind winemaking and investments

By: Francois Lombard, Investment and Savings Specialist from Momentum Investments

I would be the first to profess that I am not a wine expert by any means. I would like to think of myself as more of an informed wine snob, fascinated by the complexity and creativity of wine and winemaking. Wine on its own is a fairly simple thing, right? It’s just fermented grape juice. You crush some grapes, ferment the juice and bottle the product. While enjoying a superb wine is one of life’s great pleasures, the carefully managed journey from grape to glass is often overlooked in the joy of consumption.

Similarly, levels of careful decision making are critical for superior investment outcomes. The trick in making a superb wine – and indeed the trick to having a smooth and predictable investment experience – is making the right choices at the outset of your journey. The process of winemaking is as important as appreciating the drink itself. The Art of Winemaking and the Art of Investing both require specific professional skillsets, whilst also requiring the human traits of pure patience and faith in one’s process or methodology!

Even with ample strategic planning, the winemaker is constantly on a journey of discovery. While he knows the vineyards well, his learning and adjusting in the search for success never ceases. It is exactly the same with an investment manager; he positions his portfolio for success, yet is constantly balancing risk against return.

Just as the winemaker invests in his craft by upskilling to become a cellarmaster and viticulturist in order to understand the entire winemaking process before he can provide superior quality to the wine community and it’s connoisseurs, so too does the investment manager upskill to become a behavioural expert and economist in order to understand the market dynamics at play before he can enable a strategy to get the investor to his desired outcome.

Great wine is made in the vineyard

Any good winemaker will tell you that the decision-making process starts long before the grapes start ripening. A host of variables can determine whether a wine is superb, good, mediocre or undrinkable. These include the soil composition, rainfall, direction of the sunlight, prevailing winds, gradient of the vineyard, row direction and timing of the harvest. Like all things that originate in nature, the earth where the grapes are grown is the single most important aspect in winemaking. The French refer to it as terroir, that little bit of je ne sais quoi that turns a good wine into an unforgettable experience.

Terroir in winemaking is akin to an investment manager’s philosophy and process. An investment philosophy represents the guiding principles behind a company’s belief system when investing. While a study of different investment philosophies is beyond the scope of this article, every successful investment philosophy and process will have the following core principles:

  • Proficient, passionate individuals where client centricity is at the core of the process;
  • A robust, repeatable and flexible process that has been tested through a range of market cycles;
  • Where the ultimate focus is achieving the client’s investment outcome over the long term.

Staying the course

If you start from scratch and want the best Cabernet Sauvignon, how long do you think it will take? Preparing the vineyard, especially if it involves removing old vines and minimising pest or disease control, is likely to take at least two years. From planting to reasonable crop, is likely to take four more years and to desired yield levels and stable quality can take a few more years. The wine is likely to require at least three years of maturation and aging before release. This means the entire process takes at least nine years. Arguably, many a wine snob will tell you that a good Cabernet needs seven to nine years in the bottle before savouring.

Patience and staying the course in winemaking can be likened to an investor choosing to stay invested in his portfolio and reap the ultimate rewards by not becoming emotional and taking risks. Staying invested over the long term is the best solution. Most times, staying still and being grounded delivers a stronger outcome than having much noise and activity that result in a non-outcome. Like fine wine, investing needs the right blend of preparation and perseverance in order to yield the best results.

Here are five steps to take when choosing the right investment:

  1. First and foremost, before you make any investing decision, sit down and honestly assess your entire financial situation
  2. Choose an investment house that focuses on its client – putting the client’s needs first
  3. Stay invested, stay in the markets, have a plan and know the goal that you are working towards
  4. Plan your journey and understand that you need compelling reasons to change course
  5. Finally, choose an investment house that stands for predictability and stability in what they do. Ensure that your financial planning journey is made as comfortable, predictable and as smooth as possible

“Tell me what you drink and I will tell you what you are” once said Brillat-Savarin (one of the first gastronomic writers). Appreciation for wine shows that you have taken time to understand complex things. This is a social proof and it is the same if you’re new to investing – it’s very easy to feel overwhelmed. There are strange new words to figure out, complicated ideas to understand, new decisions to make, and plenty of conflicting advice about all of it. However, it doesn’t take a Ph.D. in finance to be a good investor, same as not having to be a viticulturist to learn about and enjoy this mysterious, liquid silk beverage called wine.

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