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A Golf-Inspired Approach to Curbing Unpleasant Behavior

ARI Group • July 12, 2023

A few hours into a power-packed assembly of the sharpest minds from Ivy League institutions like Yale, Harvard, and Princeton, influential business leaders, trailblazers in AI, investments, and real estate, and a few renown figures.

From a gathering of such minds, a simple apparent theme emerged: the universal need to mitigate the global pandemic of... “selfishness”; a rather “unpleasant behavioral pattern”. Reflecting on this in the context of institutional investment, the metaphor of a golf hole sprang to mind, providing an apt analogy.

After a quarter century navigating these institutional investment greens, several peculiarities that add a dash of humor to our serious occupation. When playing, you must take into account not just the position of the hole, but also the direction of the wind, the lie of the land, and the state of your swing. And just like in golf, in institutional investment, it's not enough just to aim for the hole – in our case, maximizing returns per unit of risk – we also need to factor in our fiduciary duty and the need for transparency. It's like trying to sink a 50-foot putt on a green that has more undulation than the Himalayas. It makes the job challenging, rewarding, and yes, at times, a bit exasperating.

We have the 'cloak of invisibility' or the classic 'hide the name' trick. A common practice: when performance drops to the bottom quartile, the firm's name is quietly removed from the product description. It's the financial equivalent of not writing down a triple bogey on your scorecard, hoping that your playing partner won't notice. For our youth golfers- It's akin to sharing that incredible birdie on Instagram but conveniently forgetting to mention the less impressive follow-ups.

Also rather surprising, and in institutional investors’ portfolios, still common practice to this day despite the oversight, institutions still only update their websites with only outperforming strategies to the most recent quarter and underperforming products with returns from 2 quarters ago. If you've got an army of CFA charter holders in your team, put those hard-earned titles to work. Keep it GIPS compliant!

Lastly, consider the 'apples and oranges' situation. Compare a full 18-hole game, not just a fleeting 9-hole performance. Comparing two managers on a 3-year basis when one of them has been in your employ for less time? That's like comparing your golfing skills to those of Tiger Woods’ process. After all, even in golf, the player who maintains their cool, even after a bad shot, often ends up playing the best. So, instead of resorting to these tricks, investors can understand them and appreciate the why.

So, let's stroll these greens with a renewed spirit, aim our shots with diligence, and remember that we are players in a grand game that values not just high returns, but also transparency and fiduciary responsibility. It's not a quarter’s performance or even a year. That's the real hole-in-one in this; it is about carving a legacy of sustained excellence.”

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Luxury Brands and Investment Dynamics: Drawing on Ferrari and Hermes

January 20, 2025

Luxury brands epitomize exclusion, craftsmanship, and status. Ferrari and Hermes are the market leaders in high-end markets. This article provides an insight into investment dynamics from the two companies and their significant lessons to investors. Ferrari and Hermes' brand heritages are their main sources of comparability. Ferrari, established in 1939, is known for its high-performance sports cars, while Hermes, founded in 1837, is known for its luxury quality goods. High-end brand success is greatly dependent on a sense of exclusivity. Ferrari manufactures a few car units, allowing it to preserve demand and appreciation over time. The firm produces only a few models that guarantee profitability and loyalty over time. On the other hand, Hermes ensures that its products, such as the Birkin bag, remain highly exceptional. The company occasionally manufactures the bag, making it scarce and expensive. Ferrari and Hermes are highly considerate of demand and pricing dynamics. Ferrari balances production to meet demand and at the same time maintain exclusivity. The company further encourages its clients to personalize cars, reducing the likelihood of unsold cars. Hermes produces goods in small quantities, making them unique and unsellable. Unsold products are often destroyed to protect market exclusiveness by ensuring that their products never appear in sales or outlet stores. Market trends and consumer preference significantly influence market sales. Hermes is changing focus to sustainability to safeguard future markets. The firm can boast about its continued focus on quality and sustainability, hence retaining a steady market. Hermes has expanded to emerging markets while still focussing on sustainability. Ferrari and Hermes offer steady performance and are promising to investors. Ferrari thrives on limited production capacity, which guarantees profitability. Moreover, the company has adeptly innovated designs to tap hybrid and electric markets. Hermes uses pricing strategies and limited products to grow while expanding in developing economies. Investors ought to learn from the strategy and develop unique laws. Firm heritage and supply control are the primary lessons. Commanding premium prices and exclusivity is another chief mega law from the two. There is a need to focus on quality and personalization to attract customer loyalty. Luxury brands like Ferrari and Hermes provide insightful examples of how strategic business practices can drive success and create valuable investment opportunities. By leveraging their rich heritage, managing supply and pricing, and adapting to market trends, these companies have established themselves as leaders in the luxury market. For investors, the resilience and growth potential of Ferrari and Hermes offer compelling reasons to consider them as part of a diversified investment portfolio. As these brands continue to innovate and expand, they are poised to deliver sustained value for years to come. Moreover, the practice of destroying unsold inventory to prevent discounts and maintain exclusivity further underscores their commitment to preserving brand integrity. This, combined with their strategic supply control and pricing strategies, ensures that Ferrari and Hermes remain at the pinnacle of luxury, offering not just products but a promise of unparalleled quality and exclusivity.