This is the kind of story that places in doubt the wisdom of investing in wine. A great Italian red adulterated (allegedly) to pander to the palates of its wealthiest customers.

Producing what others think the prettiest brunello should be - rather than what is the prettiest brunello – would be an instantly recognisable act for JM Keynes. Equity, like wine, is mostly sold, not bought. Yet, ironically, ‘meeting customer requirements’ – as in this case - now threatens an entire denominazione.

The investment heart of Keynes’ ‘prettiest’ metaphor is that equity buyers often buy their own perception of future price levels - and not the reality of the underlying earnings power of the asset. And this is another parallel with the brunello story. Wine investors will always buy Bordeaux and a handful of other regions (like Tuscany) mainly on their perception of future price levels. But wine aficionados will buy what they appreciate as sound value regardless of region.

Stretching an analogy, of course. But the point is that perception is usually more important than reality when choosing an investment. Just not for the most apparent reasons: it is the contrarian value of popular perception that is usually the most precious.

A final, somewhat related note: a decade ago nearly to the day a great investor and educator, Roger F Murray, died. A pure value investor, one of his long-held complaints was that CFOs take the blemishes and worry lines out of the accounts in order to provide as perfect a picture as possible. That’s fine with wine but not so good for investments.


Disclosure: scribe owns no DOC Brunello di Montalcino. Please send.

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4 comments

  1. Charles Butler // 4/24/2008 05:19:00 PM

    One has to wonder a bit about that country. They are currently involved in a jurisdictional dispute with the EU over their wish to force producers of food products to state the exact origins of their products. They're even trying to lock up 'pizza' The assumption is that this will benefit Italian products because of their innately superior qualities. My guess is another couple of years like last and this will turn into a consumer warning.

    Did you note the prosecutor's last name in the NYT article?

  2. RJH Adams // 4/25/2008 08:59:00 PM

    What you got against Scicilians, CB?

  3. Charles Butler // 4/27/2008 12:23:00 AM

    Well, nothing really. But it reminds me.. the guy on the Telvent board who you thought was King JC is, in fact his cousin - HRH Carlos de Borbón y Dos Sicilias. The 'HRH' part seems to be that, were the post to still exist, he would be king of Naples.

    Yes.

  4. Charles Butler // 4/27/2008 12:30:00 AM

    Ah yes, and the brother of whatever Sebastián it is on the Abengoa board, the same brother that was parachuted in by the PSOE to run for mayor in Madrid (did you bet against him like I told you to?), has just been made Minister of Industry. Head/up/arse/each other.

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