Why and How to Invest in Whisky?
- Jimmy El Gemayel
- Jan 2, 2020
- 7 min read
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.
Luxury asset appreciation since 2010 Return on investment over the past 10 years for key luxury asset classes
Source: Knight Frank Luxury Investment Index 2020
The article also highlighted the viability of collectible whiskies as potentially safer medium-term investments, particularly 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: Over time, rare whiskies become even scarcer as they are consumed.
Tangible Asset: Unlike stocks or bonds, whisky can’t ‘default’; it remains a tangible asset that can be passed down through generations.
Low Maintenance Costs: Storing whisky bottles in proper conditions incurs minimal costs. However, owning casks may involve maintenance, insurance, and other fees.
Growing Demand: Rising affluence, particularly in Asia, combined with aggressive marketing and branding, is driving global demand for whisky, with an expected growth rate of over 7% annually.
Luxury Appeal: As global wealth disparity widens, luxury products become more coveted, pushing their prices upward.
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, focusing on rare bottles and casks containing premium quality whisky is essential. The allure for aficionados and investors often lies at the intersection of scarcity and quality. Yet, pinpointing these whiskies is challenging, even for experts, due to numerous factors:
Distillery and Brand: Often a strong indicator of quality.
Rarity: Limited bottlings tend to hold higher value.
Age and Vintage: Generally, older whiskies command higher prices, though certain limited editions or unique vintages can be exceptions.
Cask Type: The cask plays a major role in a whisky’s flavor. Oak type, size, seasoning (e.g., ex-bourbon or ex-sherry cask), and preparation all impact the final product.
Production and Aging: Location and methods of production and aging contribute to a whisky’s quality and distinctiveness.
Collectibility: Whiskies that are part of a collection or have a unique story often attract more interest.
While these factors typically signify quality and rarity, it’s important to note that some premium and rare whiskies haven’t appreciated in value over time. Similar to the stock market, prices can be driven by trends. Consequently, well-marketed brands like Macallan or Bowmore may experience exponential growth, whereas lesser-known distilleries, despite high quality, may remain stagnant.
HOW TO INVEST IN WHISKIES?
Investing in whisky isn’t as straightforward as buying stocks. It requires a more immersive engagement with multiple stakeholders and a steeper learning curve. Here are three primary approaches to whisky investment:
1. Buying Whisky Bottles
The simplest 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 bottles is where experience and know-how are essential. A common and relatively safe approach is to invest in whiskies from distilleries highly sought after by collectors. However, the potential returns on such investments are often more limited. Personally, I seek out less popular bottles that contain, in my opinion, the highest quality whisky—hidden gems that remain undervalued because they have yet to capture widespread attention.
To provide context, here are some whiskies and brands that have gained traction among collectors over the past 10 to 20 years:
Scottish Single Malts: Distilleries like Macallan, Springbank, Ardbeg, and Bowmore have been long-time favorites.
American Whiskies: Notable collectibles include Pappy Van Winkle, the Buffalo Trace Antique Collection, older editions of Rittenhouse, Willett, Michter’s bottles, and the Heaven Hill Parker’s Heritage Collection.
Japanese Whiskies: Rare releases from Japan have become increasingly sought after due to their surge in popularity and limited availability. Key collectibles include aged versions of Yamazaki, Hibiki, and Hakushu, the Hanyu card series, and bottles from Karuizawa, a distillery mothballed around two decades ago.
Whiskies from Emerging Markets: Select Tasmanian whiskies, Indian single malts, and whiskies from niche markets are emerging with great quality. Though they are not yet in high demand, they could gain prominence in the future.
Most collected Scottish single malts Ranking of Scottish distilleries based on the share of bottles appearing in UK auctions in 2019
Source: Rare Whisky 101 (2021)
If you’re keen on building a whisky collection, there are three primary avenues to acquire your bottles:
Direct Purchase: This is the most reliable method, as it involves buying directly from the distillery or an official distributor. This approach typically offers the best retail prices and ensures proper preservation of the bottles. It also minimizes the risk of counterfeit acquisitions, which can sometimes infiltrate the parallel and auction markets.
Parallel Market: This includes local specialty whisky shops and whisky brokers, who source bottles either from distributors or private sellers and add a markup. While many vendors in this market are reputable, the provenance of bottles isn’t always guaranteed due to the multiple transfers they may undergo before reaching the final buyer.
Auction Market: Auctions—both online and live—are where secondary market prices are set. Here, you might discover a fantastic deal or encounter an exorbitantly priced bottle. Engaging with auctions is generally recommended for seasoned aficionados.
When purchasing iconic and expensive whisky bottles, always prioritize dealing with reputable merchants, brokers, and auction houses. This is crucial to avoid counterfeits, which can sometimes be indistinguishable from authentic bottles, especially for less experienced buyers.
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 six months. Selling options include auction submissions, broker channels, or direct sales to individual buyers.
2. Acquiring Whisky Casks
For a more experienced whisky collector and investor, the next step is exploring cask ownership. This endeavor requires a distinct level of expertise and a passion for whisky, as owning a cask involves additional considerations. With the recent surge in interest in whisky as an asset class, many inexperienced investors are now eager to own a cask.
In cask ownership, you have two choices: buy a newly filled cask or an older one that has already matured for several years. Purchasing an aged cask is often safer, as the whisky’s unique characteristics have started to emerge through maturation. However, these casks usually command higher prices. Newly filled casks are generally more affordable but come with greater risks, as the quality of the aged whisky is not guaranteed, making it a longer-term investment. For optimal returns, it’s recommended to hold these casks for at least 6 to 10 years before selling. Typically, as whisky ages, its value appreciates—the rule of thumb being that the more mature the whisky, the greater its value.
Whisky cask appreciation Example of historical returns of a 'typical' single malt whisky cask aged for 12 years.
Returns estimation is based the average price of 8-year old Scotch whisky sold between 2010-19. The data shown are net of trading commission, storage costs and evaporation. The cost of wood is not included. Source: Whisky Invest Direct, Scotch Whisky Industry Review
There are two primary methods for purchasing whisky casks:
Distillery: Casks procured directly from a distillery and matured on-site are often the most sought-after and valuable. These casks are increasingly rare, allowing investors to build relationships with distillery management and staff. Historically, distilleries adopted this model to bolster 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: Brokers facilitate cask purchases through their extensive connections with distilleries and private clients, offering a wide range of options. However, navigating this market can be challenging, especially for less experienced buyers who may be misled by brokers. When considering a cask from a broker, it’s prudent to seek advice from whisky experts or seasoned buyers. They can provide valuable insights into the cask’s quality and suggest an appropriate purchase and selling price.
It’s important to understand the risks associated with cask purchases. A cask may develop off-notes during maturation that compromise the whisky’s quality. Alcohol content can also diminish over time—a phenomenon known as the ‘angel’s share.’ Additionally, whisky might peak prematurely, affecting its resale value. Cask investments come with added costs, unlike bottle investments. These include warehousing, insurance, bottling, VAT (if bottled), and transaction fees (if sold). Such expenses can be substantial relative to the initial outlay.
3. Investing in a Whisky Fund
Private whisky funds have emerged to meet the growing demand for whisky investments. These funds offer investors the opportunity to buy shares in a portfolio of rare whiskies, bypassing the hassle of selecting specific bottles or handling storage. These financial products are listed on regulated markets, making them accessible to retail investors. However, as with any fund, it’s essential to consider management and other fees, which can impact long-term compounded returns.
Investing in whisky is complex, requiring thorough research, expertise, and patience. Like all investments, it carries risks. But for those with a passion for single malts and an appreciation for rare, valuable items, it can be a rewarding venture that blends science and art. Just remember, the challenge may lie in ensuring that 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.