Growing Grapes Isn’t Easy
February 28, 2006By Dave Polstra, CPA, CFP®, CIMA®
I grow grapes. My wife and kids say that I kill grapes, and I admit that I’ve destroyed several plants. Understand that my vineyard isn’t Chateau Elan, with hundreds of acres of vines. We’re talking about seven vines scattered throughout my backyard. Actually, with the exception of one Concord vine, the grapes I grow aren’t really grapes; they’re muscadines.
First discovered in 1554 on an island off the coast of North Carolina, muscadines look like large grapes with seeds and a thick skin that’s either purple or dark green. I mention muscadines because by attempting to grow this tasty fruit, I’ve found remarkable similarities between growing healthy vines and building a healthy investment portfolio.
Principle #1: Patience breeds success.Growing fruit-bearing vines is a slow process. In fact, it takes three years before muscadines produce fruit. When I started growing muscadines, the instructions clearly explained how much fertilizer to use. At the time, I was inexperienced and wanted my muscadines to grow really fast. I thought if one quarter cup of 10-10-10 was recommended, a half cup would make my plants grow in half the time. (Remember they say I don’t grow grapes, I kill them.)
Similar principles apply to investment portfolios. You spend years patiently, diligently saving and your investments mature over time. It is so important that investors allow adequate time to achieve results. If you expect immediate fruit from an investment portfolio, you set yourself up for disappointment. And trying to “make it happen” through aggressive or high risk schemes can result in disaster.
Principle #2: Prune for a consistent crop. Consistent and abundant muscadines are the result of pruning when the plants are dormant. Although branches lying on the ground around the plant can make it appear dead, pruning the vines (especially the ones that grew so well during the summer) actually results in significantly more fruit the following growing season.
Similarly, when a specific asset class in your portfolio (small cap stocks, for instance) performs well, over time it becomes necessary to “prune” this category back so it doesn’t get out of control, increasing risk with lower upside potential. Adjusting portfolio allocations should result in more consistent returns with lower risk.
Principle #3: To produce fruit, diversify your plants. Some varieties of muscadines are males and others are females, and cross-pollination is necessary for successful fruit production. By having different varieties, fruit is produced throughout the growing season.
Different varieties of investments (i.e., real estate, global value stocks, municipal bonds), when put together in the right combination, also result in an investment portfolio that is more consistent and well-rounded, and produces returns throughout the investment cycle.
By following these principles you stand a good chance of achieving financial and investment success. My experience tells me there are no shortcuts. And for me, growing muscadines is a hobby. I have great appreciation for the farmers who grow muscadines for the produce department at Publix. Those huge bunches of succulent fruit don’t come easy. So much work goes on behind the scenes to arrive at a presentable product. The same applies to producing investment results.
Disciplined saving and patience are two irreplaceable qualities of a successful investor. For many, a third quality might be the foresight to have a skilled “vineyard keeper” in charge of the pruning, and different varieties of asset classes to produce healthy and abundant fruit over time.
