Meticulous planning and a good grasp of prevailing circumstances, coupled with experience, knowledge, diligence and patience, are just some of the elements that eventually culminate in an award-winning wine. As Marana Brand discovers, the same goes for investments.
Making wine is not just a case of selecting a grape, fermenting it and putting it in a barrel.
“The thing I’ve learnt from trying my hand at making my own red wine is that it takes much more time and skill than I thought. You can make so many mistakes along the way that can spoil the whole batch. You have to manage a legion of factors and elements and then tend to it daily. Even then, a great outcome is not guaranteed – and it’s a costly exercise. I realised this is an affair better left to the experts!” says Jean Minnaar, managing director of Old Mutual Wealth Private Client Securities.
“It’s the same when it comes to managing an investment portfolio: many people think they can do it themselves. Some may even have the knowledge to do so, but do they have the time to run a quality portfolio themselves? Do they have the skills, expertise and depth of experience to tap into when new information becomes available or trends and circumstances change, or to deal with multiple scenarios at the same time?”
He believes there are many interesting parallels between producing a fine wine and building a great investment portfolio. “Opening a treasured bottle of wine that you selected carefully, cellared well and protected from temptation over the years is one of life’s great pleasures,” he says. And so is reaping the exceptional benefits of a solid investment portfolio after years of carefully and patiently tending to it.
What makes a fine wine?
Ask wine drinkers what makes a great wine and they’ll probably cite the ‘outcomes’ of the process: the winemaker, the estate or the specific vintage. Ask winemakers and they’ll describe the journey from vine to blend to bottle, how ‘inputs’ like grapes, soil, climate, timing and ageing were carefully crafted and managed.
“Both investing and winemaking require professional skill sets as well as patience,
fortitude and conviction in one’s methodology,” says Jean. “While investors want to see an excellent outcome – strong investment returns – they often overlook the importance of a good investment process and the attention to detail required to achieve those returns.”
The vigneron: laying the foundation
When one explores the similarities between winemaking and investing, one should start with the role of the vigneron, the person who cultivates a vineyard for winemaking. When compared to the world of investments, vignerons are the management teams and entrepreneurs who build and grow businesses.
“As businesses are categorised by sectors and industries, management needs to constantly strategise and make tactical decisions to deploy different resources to different places. Both managers and vignerons are faced with varying economic conditions, technological changes, industry regulations, new trends, fluctuating market conditions and competition, among many other factors. Some of these they can control, others they can’t.”
That’s where a skilled winemaker or portfolio manager comes in; those who consistently outperform their peers and who continuously and sustainably produce better outcomes. “Certain areas are famously good wine producers with good reason, as there are companies known for consistently exceeding expectations,” says Jean.
Making a great wine
With the vast array of available choices, how does a consumer know the wine they have bought or the investment they have made will be ‘the one’ after a few years of meticulous care?
“Some winemakers aim to create good wine blends that consistently produce great results even if there are moderately adverse external conditions. This gives consumers confidence to invest in that bottle of wine. It’s about blending components that balance each other, that even over time, when one component contributes more than expected, another component might compensate in a specific flavour.”
Take the popular Bordeaux style as an example, where the different varieties each have specific desirable qualities and are used in different proportions to achieve the final result. “Good Bordeaux has basically one of two base wines: Merlot, which brings a richness to the blend, or Cabernet Sauvignon, which is more pronounced. They have a lot of longevity and age well. Add Petit Verdot and you bring tannin, spiciness and good colour to the wine, but too much will spoil it. Malbec contributes fruitiness and a long follow-through, and Cabernet Franc brings a herbaceousness that adds to older wines,” Jean explains.
Similarly, a good investment portfolio is a blend of a variety of components, products and businesses that complement each other. “You want to be exposed to industries and trends that are in ascendency, but also understand those trends have risks and if you are overly exposed to them, you are faced with the small but real possibility of being caught out by a specific economic factor or consumer change,” he continues.
“A good portfolio manager can stand back and see which high-quality businesses will be the best blend for an investor, which ones will be able to withstand disruptions in other segments and will yield consistent results over time. Like the winemaker, you can overweight and extract the value when it goes well, but when it doesn’t go as expected, you’ve got other components that can balance it out.”
Patience, patience
Someone who wants good returns over time, whether it’s wine or an investment, should be prepared to put it aside in the right conditions for a few years, says Jean.
“Investors shouldn’t let short-term fluctuations influence their behaviour in a way that would compromise how the portfolio was composed for the long haul. While over the short term there will be volatility and unexpected events, over the long term you have a set of companies in your portfolio that are selected to produce quality returns and are blended together to give you consistent performance,” he cautions.
It’s personal
Very much like making great Bordeaux, the private client portfolio managers at Old
Mutual Wealth Private Client Securities focus on following a clear investment philosophy that has stood the test of time. “Our portfolios are built on four key aspects: quality, valuation, diversification and time. This effectively means we pay a reasonable price for superior-quality assets that are able to generate long-term, sustainable returns,” Jean explains.
He believes they have the distinct advantage that as a South Africa-centric business, they understand South African clients well. However, Old Mutual has been operating
in international markets for a very long time. “We are uniquely placed in having global
expertise and local skill and experience, something our portfolio managers are very experienced in. They can draw on our investment team’s multiple sources of information and technology to do an analysis and make a sound decision on what to do at that time.”
For Old Mutual Wealth Private Client Securities, investment management is about a personal partnership and they are in it for the long haul. “We believe you need to pick a winemaker or portfolio manager who can cater to your specific needs. We personally and actively tend to our clients’ portfolios. Our managers are hand-selected and we have an internal process that enables them to cater to quite bespoke and varying client needs,” he says.
“I’ve realised that to find a good wine that will give me endless joy after a few years, I need to trust the experts to blend it for me. It’s the same with investment management: trust the experts.”
Jean Minnaar
Managing Director of Old Mutual Wealth
Private Client Securities
