As a lover of good wine, I understand the attraction towards the most prestigious brands. Petrus, Romanée-Conti, Château Margaux, Sassicaia, Opus One, etc.
Not only do these producers have a history of making great wine, they provide the added benefit of inflating your social status when busting one out at a party. It shows you have good taste and that you can afford a bottle. In rarer cases, that you can even get your hands on one (especially the better vintages).
Is the taste of the wine the thing? Or is the other stuff more important?
I believe it’s the other stuff, especially for the overwhelming majority.
Taste tests are hard. Our biases inhibit our ability to actually admit if we liked the wine or not. The taste isn’t the determining factor, but brand, price, who serves it to us, where we’re drinking it, what glass we’re drinking out of, etc. All of these things factor into our feelings and opinions.
Investors do the same thing. They go with the funds managing the most AUM, the ones with the more charismatic leaders and those who provide the most scintillating quarterly reports.
Rarely is it about performance of the fund itself.
There are many mediocre firms out there with billions under management, but somehow keep people coming back for more. Perhaps there’s something I’m missing, but I think this phenomenon is rooted in taste test trickery.
So, my point here is to take notice when you might be getting tricked. What is driving you to grab for that bottle or invest in that fund? Is it taste and performance or something else?