By: Fred Huang
   Senior Investment Analyst, Investment Team

 

 

Like everyone, I appreciate the hobbies that help me unwind after a long day’s work. I really enjoy reading, watching movies, cooking and, most of all, baking. I love the hands-on aspects of baking—all the measuring, mixing and kneading. And as a bonus, it makes my home smell amazing!

My favorite things to bake are cakes and pies because I can easily share them with others. I love to bake desserts and then bring them to our monthly investment department potlucks. And it’s become an annual holiday tradition for me to enter (and for my colleagues to devour) an elaborate dessert in the holiday baking contest at work. This year I made honey cake.

Any way you slice it, I know there are many similarities between my escape and my job on Wespath’s investment management team, where I spend much of my time analyzing numbers, charts and spreadsheets. Baking and investment management produce the best (and tastiest!) results when you have the right mix of ingredients, precision, patience, an understanding of risk and a love of learning.

The photo gallery includes photos of a few things I’ve baked recently.

The Right Ingredients Are Important

In both baking and investment management, success depends on selecting the right ingredients. Each component can drastically affect the taste of the cake, just as the selection of the right assets is critical to a successful investment portfolio. A skilled baker understands how different ingredients interact and complement each other. An effective investor analyzes how various assets correlate with each other and diversify risk.

The baker must balance flavors and textures, knowing when to combine them for the best results. Likewise, investment managers must identify the right mix of assets to achieve optimal returns while minimizing volatility. In both cases, the initial choice sets the stage for success or failure.

Precision and Attention to Detail

Baking is both an art and a science. This is also true of investment management. Both fields require attention to detail and precision in execution. A small deviation in the amount of baking soda, the temperature of the oven, or the length of time in the oven can result in a failed dessert. Similarly, in investment management, consistently rebalancing a portfolio to its target allocation and resisting impulsive decisions can impact performance. Precision in both baking and investing is about following a disciplined process, using the correct measurements, and adjusting as needed.

Patience

The baking process requires careful timing and patience. A pastry needs to rest, rise or bake for specific durations to achieve the perfect flavor and texture. Investments also need time—and investors need to have the patience to hold those investments for the right amount of time. Rushing a pastry can result in a dense or undercooked product, just as hasty investment decisions can lead to poor outcomes.

Managing Risk and Uncertainty

Baking involves a degree of risk. The outcome is never fully guaranteed, even with the best ingredients and preparation. Having failed more than a few times, I’ve learned that factors such as humidity, the temperature of the room, and even the type of oven—things you don’t always have full control over—can affect the results. Investment management is also inherently risky. Markets are complex, and external factors like geopolitical events, economic shifts, or changes in government policy can have a profound impact on the performance of investments.

Managing risk is essential for both. A baker might use a thermometer to check the internal temperature of a cake or adjust the oven settings to account for environmental variables. An investor, on the other hand, can seek to mitigate risk in other ways, such as by diversifying their portfolio. In both fields, we may not be able to remove risk entirely, but we can plan for uncertainty and take steps to minimize the impact of risks.

Continuous Improvement

The best bakers, like the best investors, are those who are always learning and refining their craft. Baking is a skill that improves with practice, and even the most accomplished pastry chefs constantly experiment with new techniques, ingredients and methods. Similarly, successful investors understand that the financial world is constantly evolving, and they must stay informed about new trends, technologies and investment strategies to remain competitive. For instance, Wespath recently invested in the private infrastructure asset class to bolster its Inflation Protection Funds.

By recognizing the similarities between investment management and baking we can appreciate the artistry and discipline inherent in both baking and investment management. Both require careful planning, the right selection of ingredients, precision in execution, risk management, adaptability and a commitment to continuous learning.

To go along with this blog, I am sharing a couple of my recipes. Be on the lookout for my earl grey tea pie recipe on Wespath’s Instagram or Facebook accounts.