I love wine. Wine is more than a drink or a beverage. It’s a journey. A story from somewhere I am not. When I taste a wine it takes me to the place where the wine was made. It creates visions of the land, the scenery, the grape vines growing, the earth of each vineyard, the workers harvesting, the owners working and planning, the chateau, the caves, the barrels for aging, the pressing of the grapes, the blending of the grapes, the waiting, the testing, the entire process of getting the finished product into the bottle for the experience to begin for the consumer. Wine takes me back to a visionary standing over his plot of land and thinking I can plant grapes here, and the history of that endeavor even if it started hundreds of years ago. The risks, the triumphs, the failures, and the overcoming of challenges all so that an owner can tell the story of their vision in a single glass of wine to enjoy. Every bottle of wine is a great novel of a historical story and adventure that is being told by an owner. It’s a fairy tale that becomes a reality. Wine is a story.
When I pour a taste of that story I smell it, look at it, taste it, feel it, and contemplate it with every sip. I enjoy the figuring out of the story that is being told as if I were a Sherlock Holmes of historical wine journeys. Every nuance of this process embodies a element that, for me, is like going to a great movie where the story envelops me to where I feel as if I am living the movie’s adventure. It takes me to the point that when the story is over I crave for more of it. I want to go back and live it again. I was there. I was apart of that journey. There are very few things that tingle the mind and senses in such a way.
So what does wine and investing have to do with each other? Wine tells a story, and wine makers, distributors, and retail outlets know this. Stories sell. Research has shown that most purchase decisions are based on emotions. Stories evict emotions. Stories resonate with others. Stories sell products, services, wine, and investments. Good sales people know this, and rely on this technique to get their product or service in the hands of others.
The following is an excerpt from The Behavioral Investor, by Daniel Crosby on the effects of good story telling. “Almost every investor I know has gone through the mental storyboarding of how much money they would have if they had only bought (Apple, Tesla, Amazon, whatever) on the first day that it went public. The power of the narrative, emotion and fear of missing out combine to make IPOs extremely appealing to both professional and retail investors.” IPOs, for those that don’t know are Initial Public Offerings, and are the first time a company allows the public to invest in its business and trade on the open market. Many IPOs come to market and haven’t posted a profit yet. Crosby goes to add, “How has all of this excitement over IPOs served the investing public? Cogliati, Paleari, and Vismara show in “IPO Pricing:Growth Rates Implied in Offer Pricing” that the average IPO in the US has gone on to underperform the market benchmark by 21% per year in the first three years following its release.” Considering that the index averages such as the S&P 500 index average 6-7% over long periods of time this type of investment risk is not very smart. The professionals selling these investments know that the stories sell, and are very good at using this tool to their advantage.
The message I am trying to convey here is that when investing the story that the business is telling is often compelling. Enough so that many will over look the fact that the business is not turning a profit. If a business is not making a profit this means it is posting a loss every year. If they never turn a profit, meaning that they are not covering all the businesses costs, the business will eventually go under no matter how good the story. There are a lot of stories in the past that have gone under or disappeared. Everything changes, so be wary.
When you are considering investments you have to have a way to measure the business’s financial metrics. There are a lot of investment sites that simplify this research for investors today. You have to know if what you are buying is a good value, or is being purchased at a fair price. Sure the story of the business should be compelling, but if it isn’t making money or is too costly based on worth then one simple negative situation can turn your investment into a loss. Dreaming is good, but when it involves your future it’s important to make sure there’s some back bone to it.