How Vintage Impacts Your Portfolio
A Study of Wine… and Your Online Customers
Vintage seems to be a difficult concept for many people. Yet, it is a fairly simple and straight-forward subject. My best guess is that many people over-think it. Others utilize the concept to intimidate. In the end, it is an extremely useful tool that anyone with a portfolio (of any type) should understand. This article should help, at least enough to never be intimidated again.
Why Vintage?
Establishing a vintage system for wine, investments, customer acquisitions, or any other portfolio of assets serves a few purposes. This can be summarized very succinctly. Vintage is a reference point. Simple and to the point, but lets develop that a little further. Below are listed some of those major purposes, why they are useful, and why they are limited.
Naming a Vintage
Vintages are named based on an event that is typically viewed as a starting point. For wine, this was the year that the grape was harvested. More complicated assets, like people, may be tagged by the year they graduated — Class of 1998. The key take away is that vintage names a starting point.
Age
Many great wines improve with age, so a wine vintage provides a reference point on the age of wine. It is equally true that some don’t or only for so long. So the vintage is also a reference point for the expiration date.
Knowing the age of a vintage allows us to compare it to other vintages at the same age. That can be done in retrospect by looking at notes and data collected when older vintages were of similar ages. It can also be used to select the proper comparisons today.
Apples to apples is a popular idiom, but only because we naturally assume that one apple wasn’t picked three years ago. Similarly, one would not compare wines of differing ages. There is a limit to this. Age often becomes less relevant as it increases.
When we reference age, it is to understand the length of time an asset has had to mature. Maturation is not always a linear process. An extra year early in the life cycle is almost always more important than one later. In wine, this takes the form of complexity created by oxidation and other chemical processes. These changes slow or even end as age increases. Conversely, the cost to store a wine is a linear process. Vintage analysis comes from understanding these dynamics in the aging process.
Starting State
Wines use annual vintages for two main reasons. First, they have reasonably long lives making a yearly division very practical. Ports for example, often round their aging process off in decades.
The second reason for yearly vintages on wine has to do with providing a reference point on the conditions in which it was grown. Grapes are grown in a single growing season (an annual event) and typically bottled soon after.
In this fashion, vintage serves as a reference point to the conditions the grapes experienced on the vine. This starting state can be very helpful. The grape harvest is impacted by the temperature, the moisture, and the amount of sunlight they experience. Using vintage allows us to investigate the impact of these factors on the quality. In the wine world, it provides a tool for collectors to forecast the likely quality of young wines.
Of course, this process has limits. Vintage alone is rarely sufficient. For wine, grape varietal, wine region, and even the specific location of the vines (on a southern facing hill, etc) are needed to really understand the true growing conditions. Then there is the added complexity of timing. The sensitivity of the grapes changes throughout the growing season. Knowing the average temperature, rainfall, or number of sunny days is only a so good…
To further complicate the matter, each vineyard and winery is well aware of these elements. The good ones work to compensate for any adverse impacts from the elements. Grapes can be irrigated, picked earlier or later, mixed with other grapes to create balance. All of this means that vintage is a starting point both by definition and practice.
So to complete this reference
Remember that vintage is a very useful tool. It helps you compare your assets. It allows you to account for maturity and age. It summarizes the conditions present when they were acquired.
But it is only a starting point. It may help you predict the future, but mainly on the margins. It is best used as a reference point for understanding how things change over time and to understand whether your processes are improving at comparable ages and with comparable starting states.
For more information on the author visit his profile on LinkedIN — George Earl
