Over the past decade, old and rare whisky has emerged as a profitable investment, often outperforming many securities and other luxury assets. For many, it serves as a stable store of value amidst the unpredictable swings of the financial market. But how does one initiate investment in whisky?
In my previously published article ‘Investing in Whisky — The New Gold’, whisky’s potential as an investment was explored, where I revealed that within the last decade, whisky investments could have vastly outperformed other luxury assets, showcasing impressive returns exceeding 500% since 2010.
The article also argued for the viability of collectible whiskies as potentially safer medium-term investments, especially in uncertain economic climates.
- Limited Production: An aged whisky like a 50-year-old requires at least 50 years of maturation in an oak cask, inherently limiting its supply.
- Increasing Rarity: As time progresses, rare whiskies become even scarcer due to consumption.
- Tangible Asset: Unlike stocks or bonds, whisky can’t ‘default’. It remains a tangible asset to be passed down through generations.
- Low Maintenance Costs: Preserving whisky bottles in the right conditions incurs minimal costs. However, owning casks might entail maintenance, insurance, and other fees.
- Growing Demand: With rising affluence, especially in Asia, coupled with aggressive marketing and branding efforts, the global appetite for whisky is surging, with a projected growth rate of over 7% annually.
- Luxury Appeal: The widening global wealth disparity makes luxury products more coveted, driving their prices up.
Recognizing whisky as a top-performing ‘alternative investment’, many are eager to capitalize. But how does one discern which whisky to invest in?
What to look for in a whisky?
For those considering whisky as an investment, it’s crucial to focus on rare bottles and casks containing premium quality whisky. The allure for aficionados and investors often lies at the intersection of scarcity and quality. Yet, pinpointing these whiskies is challenging, even for experts, given the numerous variables:
- Distillery and Brand: Often a significant indicator of quality.
- Rarity: Limited bottles often equate to higher value.
- Age and Vintage: Typically, older whiskies command higher prices, though exceptions exist for specific limited editions or unique vintages.
- Cask Type: The cask contributes significantly to a whisky’s flavor. Factors like oak type, size, seasoning (e.g., ex-bourbon cask, ex-sherry cask), and preparation influence the final product.
- Production and Aging: The location and methods of production and aging provide insights into a whisky’s quality and uniqueness.
- Collectibility: Whiskies that are part of a collection or have a unique story are often more sought after.
While the above factors signify quality and rarity, it’s essential to recognize that some premium and rare whiskies haven’t appreciated in value over the years. This can be likened to the stock market, where prices surge due to trends. Consequently, well-marketed brands like Macallan or Bowmore may see exponential growth, while lesser-known distilleries, despite having quality offerings, might stagnate.
How to invest in whiskies?
Investing in whisky isn’t as straightforward as buying stocks. It demands a more immersive engagement with multiple stakeholders and requires a steeper learning curve. Here are three primary investment approaches.
1. Buying whisky bottles
The easiest way to invest in whisky is by purchasing and storing bottles, whether at home, in a safe, or in a dedicated storage facility. Choosing the right whisky bottles is where experience and know-how play crucial roles. The most common and safest bet is to select whiskies from distilleries sought after by the majority of collectors. However, the potential upside of such investments is often more limited. On the other hand, I seek out less popular bottles that, in my opinion, contain the highest quality whisky — the hidden gems — and are still undervalued, as they’ve not yet caught the attention of the masses.
To provide context, here are some whiskies and brands that have gained traction among collectors over the past 10 to 20 years:
- Scottish Single Malt: Distilleries like Macallan, Springbank, Ardbeg, and Bowmore have been favorites.
- American Whisky: Notable collectibles include Pappy Van Winkle, the Buffalo Trace Antique Collection, older versions of Rittenhouse, Willett, Michter’s bottles, and the Heaven Hill Parker’s Heritage Collection.
- Japanese Whiskies: Their rare releases have become hard to come by, given the surge in popularity and limited availability. Key collectibles include aged versions of Yamazaki, Hibiki, and Hakushu, the Hanyu card series collection, and bottles from Karuizawa, a distillery mothballed approximately two decades ago.
- Whiskies from Other Markets: Select Tasmanian whisky, Indian single malts, and whisky from niche markets are emerging with great quality. However, these whiskies are still not in high-demand yet but could gain prominence in the future.
If you’re keen on building a collection, there are three primary avenues to procure your whisky:
- Direct Purchase: This is the most reliable method, as you’re sourcing directly from the distillery or an official distributor. It typically ensures the best retail prices and guarantees that bottles are well-preserved. It also minimizes the risk of counterfeit acquisitions, which can sometimes infiltrate the parallel and auction markets.
- Parallel Market: This includes your local specialty whisky shops and whisky brokers. They source bottles either from distributors or private sellers, adding a markup. While many such vendors are reputable, the provenance of bottles isn’t always certain, given the multiple transfers they may undergo before reaching the final buyer.
- Auction Market: This is where secondary market prices are established, and it’s a place where you might find either a fantastic deal or an exorbitant one. Engaging with online or live auctions is best left to seasoned aficionados.
When considering the purchase of iconic and pricey whisky bottles, always prioritize reputable merchants, brokers, and auction houses. This is paramount in avoiding counterfeits, which, at times, can be indistinguishable from authentic bottles for those less experienced.
For those looking to sell their whisky, the process is relatively straightforward, especially in developed regions like Europe and the USA. Whisky bottles are considered fairly liquid assets (pun unintended), and a sale might conclude within a span of six months. Disposal methods include auction submissions, broker channels, or direct sales to individual buyers.
2. Acquiring whisky casks
The natural next step for a more experienced whisky collector and investor is to delve into the realm of cask ownership. This endeavor requires a distinct level of expertise and a passion for whisky to purchase a cask. However, with the recent surge in interest to consider whisky as an asset class, many inexperienced investors are eager to own a cask.
For cask ownership, one has two choices: buy a newly filled cask or an older cask that has already undergone several years of maturation. Purchasing an aged cask is often safer since the whisky begins to display its unique characteristics through maturation. However, these aged casks typically command higher prices. In contrast, newly filled casks are usually more affordable but come with higher risks. The quality of the aged whisky isn’t guaranteed, making it a longer-term investment. For optimal returns, one should buy and hold these casks for at least 6 to 10 years before selling. Generally, as whisky ages, its value appreciates. The rule of thumb is: the more mature the whisky, the greater its value.
There are two primary methods to purchase whisky casks:
- Distillery: Casks procured and matured at a distillery are often the most sought-after and valuable. These casks are increasingly rare, allowing investors to foster relationships with distillery management and staff. Historically, distilleries frequently adopted this model to bolster their liquidity, given the capital-intensive nature of the whisky business. However, over the past decade, most distilleries have phased out these programs due to the logistical challenges of the B2C (Business to Consumer) cask ownership model.
- Cask Brokers: These intermediaries facilitate the purchase of whisky casks. With their extensive ties to various distilleries and private clients, they can offer a diverse range of cask options. However, navigating this terrain can be tricky. Less experienced buyers risk being misled by brokers. Hence, when considering a cask from a broker, it’s prudent to seek insights from whisky experts or seasoned purchasers. They can provide valuable advice on the cask in question and suggest an appropriate purchase and selling price.
It’s vital to understand the risks associated with cask purchases. A cask might develop off-notes that compromise the whisky’s quality during maturation. During the aging process, the alcohol content can diminish significantly — a phenomenon termed the ‘angel’s share.’ Additionally, whisky might peak prematurely, affecting its resale value. Furthermore, cask investments, compared to bottle investments, come with added costs. These include warehousing the cask, insuring it, bottling, VAT (if the whisky is bottled), and transaction fees (if the cask is sold). These expenses can be substantial relative to the initial outlay.
3. Investing in a whisky fund
Private whisky funds are being assembled to meet the rising appetite to invest in whisky, where investors are offered the opportunity to buy shares of a portfolio of rare whiskies, without having to go through the hassle of selecting the ‘right whisky’ or storing it. These financial products are being listed on regulated markets and are accessible to retail investors. However, whenever considering any type of fund, one must be mindful of the management and other fees applied, which can often impact long-term compounded returns.
Investing in whisky is intricate, demanding thorough research, expertise, and patience. Like all investments, it comes with its risks. But for those with a passion for single malts and other whiskies, or those with an appreciation for rare and valuable items, it can be a gratifying venture that blends the worlds of science and art. But always remember, the discipline required might be in ensuring your investment doesn’t end up in a glass!
Jimmy is a whisky enthusiast and a long-standing collector with over 10 years of experience. He specializes in Scottish whisky and has a deep understanding of whisky economics and pricing. He built a whisky collection of many unique bottles over the years and owns numerous casks maturing in various distilleries across Scotland.
The information in this article should not be regarded as investment advice, but merely as an informative overview on investing in whisky
