Monday, 20 August 2012

In both music and investing, harmony is key.

Philip Kenyon, Divisional Director
Philip draws some interesting parallels between musical performance and portfolio management

The evolutions of both music and investment over the past 250 years have been continuous, and both have made important contributions to civilisation as we know it today. The practices of both have changed enormously since 1762: today's modern technology and its ability to transfer information or sound globally at a rapid rate has transformed the practice of both disciplines and extended their availability to millions of people, on a scale which would have been unimaginable when Brewin Dolphin started out. Nevertheless despite such advances, many of the fundamentals of both disciplines are essentially the same as they were 250 years ago, and also have some interesting similarities.

Consider the performance of a great eighteenth century choral work. The performance of every individual singer and player (like each holding in an investment portfolio) will contribute towards the overall performance, both in terms of individual ability (like a strong share price) and each section's prominence relative to the whole (sector weightings). The soloists will have a higher risk profile, and can disproportionately affect the whole performance (positively or negatively!). However, such temperamental stars need the solid backing of the rank and file orchestral players and choir (collective funds) to ensure, like newly discovered AIM stocks, they can reach the high points at just the right moment. Precision in execution is vital to the processes of both musical and investment performances – wrong notes or miscalculated trading quantities can greatly detract from performance.

What of the conductor or portfolio manager? Both must understand – or, better still, have practical experience of – the various technical and analytical functions which contribute towards a successful performance. He or she must also be able to steer the overall strategy and pace of the performance; setting a tempo which feels 'right', either in the concert hall or in the stock market, is a skill which comes with experience. The latter arguably counts most in a 'live' performance – some of the more difficult choruses in Handel's Messiah are littered with potential profits warnings for those who misjudge market sentiment on the night!

Philip Kenyon
Divisional Director

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