Volatility, technology, investing and wine.
Written By Patrick Thornton-Smith.
Technology now underpins almost every investment asset available. Information is immediately available at our fingertips – time is money.
The underlying volatility of each asset class and pricing methodologies are huge drivers behind any fintech platform. For the end user, these elements need to be considered given the nature of each investment, based on the realistic timeline or 'hold' of the asset.
By this I mean the technology we need for short-term opportunities such as day/crypto trading, where volatility, scale, volume, timing and pricing are paramount, demands significant development, cost and on-going support. All of this cost inevitably gets passed on to the user. Having 'tech for tech's sake' is often a vanity project.
For assets where the 'hold' is medium to long term, pensions for example, the technology needs for the end user are considerably different. For example, it is accepted that a well-constructed personal pension plan does not need to be looked at daily, and any re-balancing or change in strategy need only be done, at most, semi-annually. Granted, supporting this end user view requires many layers of sophisticated technologies, but I am specifically talking about the UI.
Alternative assets are traditionally long-term hold assets, and their core economic drivers are supply/demand, with price movements typically small and infrequent. Wine is perhaps the most sophisticated in some respects, with some liquidity and pricing venues giving opportunity and transparency, Liv-Ex being the most widely recognised.
Technology costs are ultimately paid for by the end user, be it a fee, or incorporated into a service or transaction cost, so the end customer needs to align their investment strategies, risk appetite, and duration of hold against the technology on offer.
There is little point in being offered a 'bells and whistles' UI with meaningless features and endless alerts/recommendations and pop-ups if the underlying asset is accepted as a medium to long term hold. Low volatility and steady price movements mean that an annual revaluation may be sufficient.
volatility and steady price movements mean that an annual revaluation may be sufficient.
Wine collecting and investment has to be viewed as a medium to long term hold due to underlying fundamental characteristics. These characteristics then dictate the technology required to manage these assets over the long term. Trying to treat a case of fine wine (that needs to age) like a fast-moving, highly liquid financial instrument is the wrong approach. In this fast-moving world, the adage of 'keep it simple' can still hold true.
The author has spent the last 10 years in the world of fine wine, working for a number of merchants and wine technology (vin-tech?) providers. Prior to this, he spent over 30 years in finance and technology, working across a range of fintech vendors, from electronic trading systems for derivatives through to post-trade clearing and settlement, and latterly large data model reconciliation platforms.