Sour Grapes and “Ignorance is Bliss” Finance

Sour Grapes and “Ignorance is Bliss” Finance

About six years ago, I fell in love with wine.  My wife and I took a last minute vacation and flew out to San Francisco.  The plan was to start in the Bay area, and spend a week driving down the Pacific Coast Highway to Los Angeles.  It was our first trip to San Francisco but since we were living in Boston at the time, neither of us had much interest in spending time in the city.  We drove up to Napa for the day and caught the wine bug.  Our Pacific Coast Highway trip turned into a tour of different California wine regions and we’ve since returned to Napa on four other occasions.

What really intrigues me about wine is how subjective the experience can be.  Every wine has a unique sense of place.  Every bottle comes with a story.  A story about the vintage, the harvest, and the winemaker.  When you drink a wine, especially when visiting a beautiful vineyard, you create a lasting memory.  You begin associating wine with the feelings you had and the place you were at when you drank it.  It will remind you of that great vacation, the dinner with friends or the romantic picnic with your wife.  You fall in love with the memory and the story behind the bottle.

Last month, I watched Sour Grapes, a documentary that follows the life of Rudy Kurniawan, one of the most esteemed wine connoisseurs and collectors around who ended up conning an entire multi-million dollar industry and some of the most powerful men in the world.  Rudy would drive up the price of expensive wines at auctions, then re-sell the wine he bought at a profit to other collectors.  He was well-liked in the industry…but he was a fraud.  He sold a lot of fake wine and turned the high-priced wine industry upside down.  Before Rudy, most people assumed if they spent thousands of dollars on wine, it was real.  Unfortunately, that wasn’t the case.

What fascinated me most about the movie was the reactions of some people after they discovered that they had been buying fake wine.  A lot of people didn’t want to know their cellars were full of fakes.

Jefery Levy, a film producer who had bought a lot of wine from Rudy had the following to say:

“I was hurt and I felt like a fool, but the number of great experiences I had with him outweighed any anger.”

A few scenes later, Jefery is shown with wine he bought from Rudy in an upscale Beverly Hills wine shop.  He has 6 bottles of 1985 Cote-Rotie La Mouline that he paid over $6,000 for.  Jefery insisted that 90% of the wine Rudy sold was real and opened a bottle for people to taste.  He commented on how beautiful and authentic the wine was and people around him agreed.  He then asked well-known sommelier Christian Navarro to taste the wine.  Excuse the pun, but Christian pissed on Jefery’s bonfire.

“I’m very familiar with the ’85 La Mouline.  This is not it.  This is…skunk juice.”

Ouch.

Jefery, and many like him, wanted to believe the story they were told.  Even after learning the wines he bought were fake, it didn’t really matter.  Rudy “had an incredible pallet and was very generous.”  Jefery liked Rudy and was happy whether the wine was fake or not.

And I think that’s fine.  As long as Jefery is enjoying himself, who am I to criticize him?  In this case, ignorance truly is bliss.

Pivot to finance…

Much of the financial industry is also about telling good stories.  However, with wine, if you buy into a story, you can convince yourself it’s true and enjoy the moment no matter what.  Wine is pretty subjective.  You drink what you like.  With finance, there’s a scoreboard.  If the good story about an investment strategy or product ends up being fictional, it costs you.  You can’t simply convince yourself the story was real and have dollars reappear in your portfolio.  Unlike wine, finance is objective.

With that said, too often I’ve seen Jefery Levy’s “ignorance is bliss” approach to wine, taken when people talk about their financial advisors.  I hear things like:

  • “I’m not really sure how my financial advisor gets paid, but he does a good job.”
  • “My advisor picks stocks for me but he does better than the market…I think.”
  • “I don’t really know if my advisor is doing a good job, but he’s a nice guy so I’m ok with that.”

Do you see the similarities?

People are uncomfortable having difficult conversations.  If somebody treats you well, it’s tough to question the job they are doing.  If they share a good bottle of wine with you, why question whether or not it’s real.  But, it’s important not to mix business with pleasure.  By all accounts, Rudy Kurniawan was a nice guy.  Don’t let him build out your wine cellar, though.

Just like you probably shouldn’t be buying a $1,000 bottle of wine if you can’t tell whether or not it’s real, you shouldn’t hire a financial advisor if you don’t know how to tell whether or not they are doing a good job.  Good stories are a dime a dozen.  When it comes to your money and your future, make sure you aren’t caught believing in fairy tales.

 


Tim Brennan

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