Savoring a vintage wine is one of life’s great pleasures. But often overlooked in the joy of consumption is the carefully calibrated journey from grape to glass. Similar levels of care are critical to good investment outcomes. A host of variables can determine whether a wine is great, good, mediocre, or undrinkable. These include the quality of the grapes, soil, position of the vineyard, weather, irrigation, and timing of the harvest. And picking the grapes isn’t the end
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Insights
The Wine Lovers’ Guide to Investing
What Many Investors Get Wrong About “Average Returns”
You come to the edge of a fast-flowing river and want to get to the other side. You read the sign conspicuously posted at the water’s edge — “average depth 3 feet.” Feeling confident, you begin to wade across the river. Midway across you fall into a deep hole and get swept down the river. What went wrong? Unfortunately, your understanding of the word “average” was incorrect. This is what Stanford University Professor Sam Savage calls the Flaw of Averages1.
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