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Burgundy wine investors have beaten the stock market (economist.com)
76 points by known 56 days ago | hide | past | web | favorite | 56 comments



Anything with low volumes isn't fair to compare, you can pretty much always pick something that "beats" the "market"


And even with high volumes, you can always pick something retrospectively that beats the market. It's not useful to look back and say, for example, if you put money into X stock at Y time you'd beat the market. You can't go back in time so it's not useful.

What is useful is to figure out what, today, may predict outperformance tomorrow. In choosing fund managers, it's not enough to choose managers who've outperformed in the past - that's not in itself predictive of the future (same is true for home prices as we learned in 2008, individual stocks, etc.). But other characteristics might be predictive, like choosing fund managers who follow a true "value" approach to stock-picking: finding companies with a competitive advantage and buying them below their intrinsic value being one approach to value.

See Warren Buffett's 1984 article "The Superinvestors of Graham and Doddsville" for the best example I know of distinguishing chance price rises from predictable rises: https://www8.gsb.columbia.edu/articles/columbia-business/sup...


> It's not useful to look back and say, for example, if you put money into X stock at Y time you'd beat the market. You can't go back in time so it's not useful.

It's not only not useful, it's totally obvious some things will always beat the market. "Beating the market" is really just "beating the average". If there's nothing that beats the average, then it means that all stocks do exactly the same thing...

But yes like you said finding things that beat the market in hindsight certainly isn't very useful unless you can learn some specific strategy (e.g. insider information) that was used and employ it yourself (if you choose).


If you recall the time that “Eating chocolate helps you lose weight” took over the internet, the follow-up was an article by journalists explaining that they had planted the story.

What the did was take a group of college students and have them record what they did, what they ate, and various metrics like their daily weight.

When the “study” was over, the poured over the data looking for some correlation. In all that data, there was sure to be some random correlation, and they found one between chocolate and losing weight.

They then planted the story and watched everyone latch onto it. The follow-up story was about statistics and science, where they pointed out that given a small sample and a short time frame, and given that you are looking for a correlation, you will find one.

But confirming that correlation is where science begins, by testing the hypothesis with appropriate samples, time frames, and controls.


I think you are suggesting that they looked across the field and picked out an existing high performing investment rather than suggesting that's it's easy to find something low volume that will do well in the future.


Stock market means average. Every "investment" that is slightly over average stock market returns for some time beats the stock market in that timeframe.

Now, doing that consistently over and over again is something to strive to, but not many other investment in the same risk category do it.


Office pools buying lottery tickets can beat the stock market...once in a while.

If you aren't doing anything economically useful...don't expect returns greater than inflation in the really long run.


> If you aren't doing anything economically useful...don't expect returns greater than inflation in the really long run.

I think the British aristocracy would like a word with you.


> but not many other investment in the same risk category do it.

Only real estate.

https://economics.harvard.edu/files/economics/files/ms28533....

HN Discussion: https://news.ycombinator.com/item?id=19817584


Half of children score below average in tests!

>! Cue pedantry about what 'average' means.


Collector's items are like companies... Many of them beat the market for many years, until, one day, they don't!


Therefore?


Sell before the music stops!


So has Bitcoin -- so what? This is a useless article, written for content filler rather than any sort of useful, long term educational information.


> This is a useless article, written for content filler rather than any sort of useful, long term educational information.

I guess it was either this or blank page. The latter is less likely to grab your attention. Maybe "fillers" have some use after all :-)


Big problem with wine collections is transfering stock into money. Selling big stashes is not going to be easy and cheap.


And also paying for storage while holding it.

And also, what is total notional value of all burgundy in the world? 1bn? That’s nothing in scale with other markets.

Dumb article.


Oh yeah storage is huge part of what determine final price: for investment grade wines you need to proof that you store it in proper place with reputable vendor. those places are not cheap and will eat into your margin.



So did beanie babys... ... until they crashed.


Nobody drinks their beanie babies.


Yabbut, I can buy $1m in stocks for $9.95, and that includes storage costs and insurance against fire/quakes/storms. And sell it tomorrow for $9.95.


What brokerage are you using? That sounds incredibly expensive for stock trading.


The cheapest platforms in the UK are £5-10 per trade - $10 doesn't sound expensive.


Not US :(

But a good incentive to do less than 10 trades per year across 6 accounts.

I just sit in a small number of big ETFs.

The brokerage would make a lot more money off me if they charged $1/trade.


I suppose if I was buying a million dollars worth of stock I might actually care about getting front runned (front ranned?) on RobinHood and would consider paying a higher fee if it would mitigate that.


Here's a look at how discount brokers make their money, with HN comment for good measure.

https://news.ycombinator.com/item?id=20276551


A million dollars worth of stock is basically a mouse passing wind in a hurricane for anything in the S&P500.

On less liquid names you might have legitimate worries of big market impact, but usually what you get is the bigger the volume you trade the less you pay for actual execution.

That is, I expect to pay lower fees per share the bigger my volume is, not more. A retail(ish) broker will charge you $0.01 per share plus some fixed transaction fee.

An IB with access to dark pools and clever algos will charge you $0.0005 per share and pass on any rebates you get from exchanges if you provide liquidity (as many big orders will), but they will expect you to trade a hundred million $ per day and up.


What brokerage are you referring to which charges per-share for execution? I'm not aware of any which do that, seems like a terrible model.

Edit: looks like this is common in day-trading platforms?


I think brokers pay per share to the exchanges. It’s not a lot per share, so a lot will lump it into their fixed costs, but in larger volumes, that doesn’t work as well.


Are you implying robinhood is front-running trades? That's an extraordinary claim indeed. And even if they were, it would not impact you in this particular case.


Literally every retail broker sells order flow to HFTs for them to execute. What HFTs do with that afterward is up to the HFTs. Yes, they front run. Yes, they trade against you. Why else would they pay for the order flow?


That's not at all what front running is. But to let patio11 answer your question: payment for order flow is useful in many ways. See: https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone...


Not sure if this is frontrunning exactly but I think the point is that they make money by marketing your trades.

https://seekingalpha.com/article/4205379-robinhood-making-mi...


That's not front running at all.

In fact it's the perceived lack of front running risk by the buyers and sellers that make Robin Hood more valuable to Market Makers.

A big institutional shareholder may very well know more than the Market Maker at the other end of the trade, that's a risk for them if the market moves against them. Robin Hood investors are far less likely to have that kind of information so there isn't the same risk that market makers will get shafted.


> In fact it's the perceived lack of front running risk by the buyers and sellers that make Robin Hood more valuable to Market Makers.

Basically, you get a discount trading on Robin Hood, because the people taking the other side of the bet know that you're probably not making a smart move.


Last time i explained the concept I was even less polite and got downvoted :) but yes


That's the opposite of front-running. If the brokerage or HFT was front-running, you would pay more to buy or sell than e.g. Goldman Sachs would. But payment for order flow means you pay less, because the brokerage is confident that as a retail investor you don't have an edge -- there is no risk of you buying just before the price shoots up and leaving them at a loss.


They were/(are) selling order flow to market makers. Calling that front-running is a bit of a stretch though.


> Collectors who have drunk most of their Pinot already may need another glass after seeing the result

Don't get high on your own supply


On a risk adjusted basis? I seriously doubt it.


Seems like a lot of people here are using the term "beat the market" to mean "had higher nominal returns than the market" which is not a very useful metric without taking risk into account.


I wonder if wine experiences the same price volatility as stocks. I can speculate reasons why they wouldn't and would thus still provide better risk-adjusted returns but I really don't know.


Maybe they wouldn’t be expressed as annualized volatility and only expressed as long tail risk: blight, climate change, etc.


Note to self - buy luxury goods stocks after the next stock market crash.


Manufacturers of luxury goods won't be mispriced in a way you can exploit, even after a stock market crash.

Instead, what you want to buy is hobbyist and other niche goods, assuming you have cash through a recession. As people cut back their budget, there tends to be a glut of highly discretionary stuff in the resale market. Like, my brother-in-law got absolutely fantastic prices on model airplane kits in the aftermath of 2008.


You're using "recession" and "stock market crash" as though they're synonymous. That's a dangerous assumption to make. It's possible for either to happen without the other.


Folks I know got absolutely fantastic prices on houses on the Monterey coast in the aftermath of 2008. Could only afford one but damn, talk about a solid investment in a niche product. That house airbnbs for $900/night nowadays :D


"Manufacturers of luxury goods won't be mispriced in a way you can exploit, even after a stock market crash"

Why not? I would expect luxury goods manufacturers to suffer during a recession, and I would expect the stock price to follow suit.

I don't think it's a mispricing as it's reflecting to reality on the ground, nevertheless I would expect them to bounce back after the recession. So it does seem to be an opportunity you can exploit.

Your second paragraph seems to have shifted to a completely different asset class. No doubt there was fantastic prices on model aircraft kits, but you need to know the market, and it isn't apparent to me whether the model aircraft kit market will behave the same the next time. Plus it's more risky. If I buy a stock, I don't have to worry about it being fake, getting damaged, I can sell trivially at the touch of a button.


I would expect luxury goods manufacturers to suffer during a recession

Well, you can look at say Rolex to see what happens. They suffered yes but they didn’t cut (list) prices because that would undermine their status. Instead they launched Tudor as the budget-Rolex brand and that seems to have worked OK (for the company anyway). Luxury goods manufacturers often have long histories and are able to look further ahead than a single economic cycle.


List prices aren't stock prices the gg(?)p was talking about buying luxury goods stocks, not luxury goods themselves.

Plus the 2nd hand market would be more relevant to what you're suggesting.

Edit: Spelling


>So it does seem to be an opportunity you can exploit.

There are effectively zero opportunities you can exploit by simply purchasing the stock of publicly traded companies. The probability that they bounce back after a recession is incorporated into the price, the professional investors and hedge funds you're trading against aren't idiots.

>Your second paragraph seems to have shifted to a completely different asset class. No doubt there was fantastic prices on model aircraft kits, but you need to know the market, and it isn't apparent to me whether the model aircraft kit market will behave the same the next time. Plus it's more risky. If I buy a stock, I don't have to worry about it being fake, getting damaged, I can sell trivially at the touch of a button.

The point isn't investing, it's to get the hobby gear you want at a good price. Any potential resale profit is very much a secondary concern.


"the time to buy is when there's blood in the streets" Baron Rothschild

People are human, they over react to bad news, they inflate bubbles, etc, etc.

It isn't just hedge funds and professional investors you're up against, and even if you are, so? The average hedgefund bod will be thinking about the year end bonus, a stock that may bounce back in 18 months isnt of interest to them. And the higher ups don't want to end up bottom of the performance tables so they aren't going to keep it either.

Then theres the fact that the efficient market hypothesis can only really deal with knowns. The depth of a recession is an open question, sure you can make an educated guess, but theres plenty of wiggle room to take a different view, or maybe I should say your differing view is a vote in setting the 'correct' price.

And finally, I'm not entirely sure the efficient market hypothesis has even been proven, exhibit A) Long Blockchain https://www.bloomberg.com/news/articles/2017-12-21/crypto-cr...


There have been significant reforms in banking since the 2007 financial crisis. The next recession will probably be more similar to the early-2000's recession (post dot-com boom) than the financial crisis - shallow and short.

Don't expect such fantastic deals to be had again.


This is an interesting observation. I think you are saying that real estate prices crashed big time because the people who held the assets couldn’t afford to keep them because of their very high leverage. High leverage was possible because of subprime mortgages. But that channel is now closed because of post 2008 lending reforms.


Speak of economics and wine, one of the clearest examples of non-rational economics behavior was detailed by Richard Thaler regarding an economist wine collector.

https://www.aeaweb.org/articles?id=10.1257/jep.5.1.193




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