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The Butterfly Effect

Published on 21/01/2021

Sometimes, events thousands of miles away don’t have the same impact as things on our doorstep. You can’t relate to them, or even begin to understand the devastation they could cause. And because it’s so far away, how could it affect you? But it’s events thousands of miles away that actually change what you wear, what you eat or drink, what you can buy in shops. Take the devastating wildfires in Australia and California for example.

You’re an investment analyst, mainly focussed in on the food and beverage industry, the Consumer Staples sector. The companies you look at are defensive plays, often capable of withstanding an economic downturn.

In recent years, you’ve had your eye on the vineyards and wineries in Northern California - that is after a brilliant dinner out when you first (consciously at least) had a Californian wine. And wow, it was a great one. It has led you down a rabbit hole of fantastic grapes, rich earth and at least on one occasion, a bit of a headache the next day.

There has been - especially in recent times - the threat of wildfires in this region and that has been in the back of your mind as you research these wineries. Of the 10 biggest fires to hit the region since 1950, seven have struck since 2015. This year the area is facing more of the same. But the fires in the summer of 2020 have been completely devastating, on the people living and working in this area, on wildlife, and on the environment.

By early October, there were a total of 8,500 wildfires in the state as a whole, and a total of 4,267,386 acres have burned. A few years ago, only a few wineries were affected, now, they’ve become a threat to the entire industry.

It’s not only the grape plant themselves which can be destroyed - it can take up to five years for a damaged vine to heal - the distilleries and their sensitive equipment can be damaged by heat or in the worst case, razed to the ground. The barrels from previous years could be swallowed by the fires, and even the power outages can mean that the refrigeration units required to keep the wine cool at specific sections of the fermentation process are switched off, ruining an entire season of work.

Plus on top of that you have the halting of tourism which brings in both money, and overseas distribution connections. Then you have the damage to the grape itself - the soot and smoke can permeate it’s waxy skin, changing the flavour - some have said it will make the wine taste like an ashtray. Not the investment or drinking opportunity anyone is looking to buy into.

Finally, the vineyards are less able to keep their workers onboard - these are hazardous, arduous manual jobs made more difficult by the choking thick smoke. They have moved on to more stable and less dangerous jobs where the air is cleaner.

This change in the environment, these events over 5,000 miles away from London is now affecting you - because there are fewer bottles of that delicious Californian wine on the shelves in the supermarket, but also that the price has gone up.

And it’s not just in the shops that you notice it but on the market too - stock prices are plummeting. It’s time to change the recommendation on your investment idea. As an analyst, the most important thing is to research, and keep revisiting your idea, updating it, refining it. Which is why you’ve kept a close eye on the fires, you’ve set up Google Alerts, you’ve been following all the wineries on Twitter and been keeping up with their news, predicting and refining, and looking to the future. How will this look in six months? Twelve months? Five years?

Here at Upside, we know that an investment idea is a living thing, it is something that will change, as the prevailing winds do. Our ecosystem encourages you to update all your investment ideas, keeping them on track when wildfires strike, or other events happen.

There’s a science to making wine, and a science to being right.

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