Wine improves with age, the older it gets, the better it taste.
How many of you agrees with that?
Personally, I do not know how to appreciate wine but I do hear of this quote very much often from people who knows how to appreciate wine.
A quick search on the internet revealed that as wine age, tannins that come from the grape stems, seeds, and skins will react with the wine’s alcohols and esters to gradually change the taste of the wine. Together with the oxygen that leak in through the cap also help to define the characteristics of the wine.
However, if oxygen is added into the equation at too quickly, it will overwhelm the tannins and start oxidizing the other molecules, causing the wine to turn bad.
How is Investment Similar to Wine
Dividends are like the tannins in wine. As time passes, if the dividends are reinvested, they will add more shares to your portfolio and eventually change the flavor to your investments making them better and better. If investments are held over long period, you will eventually be able to enjoy the sweetness of your investments.
Similarly to wine, investments may turn bad as well. The company that you invest in may have too much bad finances that overwhelm the business returns. This is when we, as investors, have to make the decision to change the investment or risk losing all the investments.
The Bottom Line
What is important is in an investment, the longer the age of the investment will bring more flavor to our investments but equally important is, during the period of investment, the investment has to be constantly monitored so that we can save our investments when it is turning bad or lose everything when it has turned bad.