HOW FINE WINE FITS INTO AN INVESTMENT PORTFOLIO

Non Correlated Assets Round off an Investment Portfolio

  It’s Not Artificial Intelligence…….. It’s just Intelligence

Watson Wright and I started Dorsey, Wright & Associates January 2, 1987. I’ll never forget that day. We met at a sandwich shop early in the morning. I had a legal pad of names to call that day and Watson was going to get going on our technology what there was of it. 

I knew that to have a successful company one person must do the “right thing” and one must do “things right”. When I decided to start Dorsey, Wright I asked Watson to come down the street with me as my partner. After some serious deliberation and a couple weeks he decided to make the move. We had very little cash but a tremendous vision. The vision was simply to help advisors become the best they could be coupled with their firm’s research and our Point & Figure work. Between us Ms. Jones would be served and this was our end vision. We would accomplish this by educating advisors in the Point & Figure Method of analysis in the hopes it would be combined with their firm’s fundamental research. It would be this combination approach that would ultimate serve their firm’s clients. Thirty years later Dorsey, Wright, now owned by NASDAQ, is still doing the same thing. 

We have come a long way from our first Tandy 3000 computer to today’s state of the art computer programming. But you know what? We haven’t changed anything we do in 30 years. It was when I learned the Point & Figure method of analysis and met Mike Burke the editor of Chartcrart that I realized I had found what I thought was the holy grail of investing. It brought me back to my most important class in the University, that of Economics 101, and the irrefutable law of supply and demand and I knew I needed to go no further. Point & Figure was the epitome of Econ 101. It was the way the world worked. 

At Dorsey, Wright we subscribed to Chartcrafts monthly Point & Figure Book which provided charts on almost all stocks that traded. Once you got the book it was outdated so selectively we updated by hand what we needed to do our daily reports. One adjunct to the monthly book was the Relative Strength book which came separately. It carried only the mainstream stocks because the calculations for relative strength differed from just updating a stock chart. Relative Strength required division, simple division, division a 4th grader understood. It was a way of comparing one stock to another. It went like this. One stock price, say Coca Cola, would be divided by another stocks price, say Pepsi Cola and the resulting division would produce a number which in turn was recorded on a Point & Figure chart. On a basic Point & Figure trend chart we simply record price. On a Relative Strength we record the number that dividing one stocks’ price by another stocks’ price resulted in. The chart looks like a trend chart but is very different. To me this was absolutely brilliant. Chartcraft had been doing these relative strength calculations since the 1960’s. Well, Tammy Derosier was the youngest employee at DWA and this task fell to her. We needed to keep updated about 200 stocks a week. So she did that simple division and maintained the relative strength charts by hand. As technology got better, and we had newer and faster computers we ultimately went from updating 200 by hand each week to 14.5 million relative strength charts each night. Yes, this is available to you now on the DWA system and nowhere else.

Thirty years ago we found that relative strength was the key to long term investing that most investors today are interested in. We created 80 different automatically run, relative strength models available for you to mix and match for your customers account. These models are not governed by Artificial Intelligence, where one computer learns from another computer only to change the investment approach as the market responds to different stimuli. Our approach is simply “intelligence”. There is nothing artificial about it. We know Relative Strength works and has for us for over 30 years. Since computers understand 1’s and O’s it certainly could understand X’s and O’s. All we need to do was to simplify the steps in managing a relative strength portfolio by automating it.

Because Relative Strength is straight forward and easy to calculate it was a natural extension to create batches of stocks that were of the same origin. In other words we took the Biotech sector, organized them and performed the same Relative Strength calculation on each of the stocks underlying the sector and then counted up the Point & Figure buy signals on each stock. The stock with the most buy signals was ranked #1 and so on. So, let’s say there are 70 stocks underlying the Biotech sector, it would take 1400 charts to organize them from strongest to weakest. This is where technology comes into play. Imagine trying to create 1400 stocks by hand like we used to do? That would be impossible. Each night we compare every stock around the globe against every other stock.

                                  THE “VIN FIN” ADDITION

Let’s think for a second how we might construct a portfolio of stocks. I will use some of the 80 models we maintain daily. Let’s look at a theoretical portfolio one might construct. Each model is theoretically bolted to each other model creating a band of asset classes and sectors functioning as one portfolio. This is what it might look like: Dow Jones Model+Ishares Sector Rotation Model+DWA (Dorsey, Wright & Assoc.) Global Factor Model+First Trust Fixed Income Model. So, with these 4 models I have invested in U.S.Market, U.S. Sector rotation, International, and a Fixed Income piece of the equation. Each of these models are Relative Strength Rules based as we have dictated to the computer and it is run automatically exactly as if we were doing it by hand. When a change happens in one of the models the advisor is notified by email, and the advisor who controls the account, makes the changes.  So what is left? This is where most portfolio managers use Hedge Funds to fill the alternative asset class space. But here is the real problem – Volatility. Instead of decreasing the volatility of the portfolio they tend to increase it. 

There is one last piece of my portfolio which is Fine Wine. In my 45 year career on Wall Street I never considered wine being part of the portfolio, that is, until ALTI Wine Exchange www.altiwineexchange.com debuted in 2019. I buy some of each new Initial Bottle Offering IBO. This is similar to dollar cost averaging in a portfolio. My intent is to create a unique, interesting and lucrative piece of my portfolio that ultimately will go to my children and possibly down to their children. I plan to have one bottle delivered to me for tasting at small events in my Family Office. The value of fine wines has risen since 2016 as it can be seen on the research done by Alti Exchange. 

Wine is seen as being uncorrelated to the stock market, and so is desirable for those who want to insulate themselves from stock market corrections or bear markets. 

Thanks to Alti Wine Exchange there is a sophisticated way to help people invest in fine wine and it is very accessible. 

A well-diversified portfolio is essential for managing risk and countering periods of volatility. Including fine wine as an alternative investment is something any investor can now do even if they have a minimum amount of funds to invest.

Fine wine is wine that gets better with time and appreciates in value. As a general rule rarer vintage wines are more sought after, and the first 3 wines listed at Alti Wine Exchange are very rare.

You need to remember that investing in wine is not the same as investing in individual stocks. Buying rare wines should be safer and more lucrative, providing you hold your investment for at least 3 years. As I mentioned I plan to pass the wine down to my children so decades is my time horizon.

While the central banks continue to create more money out of thin air causing paper assets to rise significantly, Fine Wine has provided a stability not found in other investments. Think about it.