- 1 Investing in whiskey
- 2 1) Investing in bottles of valuable whiskey
- 3 2) Investing in whiskey maturation
- 4 3) Investing in a whiskey company
The price of whiskey has skyrocketed in recent years as more consumers have become interested in drinking it. This has led to some whiskey aficionados stockpiling valuable whiskey to enjoy it sometime in the future.
While most whiskey aficionados collect whiskey for the love of it, there are an increasing number of people who are investing in collecting whiskey to make a profit.
In addition to stockpiling high-value bottles of whiskey, investors are purchasing dozens of barrels of whisky which are aged, then sold for a profit. In some cases, they are also directly investing in their favorite distilleries.
But is whiskey really a sound financial investment? In this post, I’ll take a closer look at how whiskey stacks up as an investment product and identify some of the key risks that are involved.
Investing in whiskey
Investing in alcohol is by no means a new trend. People have been investing in wine for many hundreds of years, with some extremely rare bottles of wine fetching as much as USD $550,000.
Whiskey has been bought and sold for just as long, but the whiskey market has become much more active in recent years.
Some whisky market analysts believe that the price of whiskey has increased rapidly due to demand from China. Chinese buyers often stockpile expensive whiskey and use it as a gift for business partners.
Consumers are also more interested in trying rare whiskeys than they once were.
There are three main options for investing in whiskey:
- Investing in bottles of valuable whiskey
- Investing in whiskey maturation
- Investing in a distillery
Each investment option has certain advantages and disadvantages, which I’ll share below:
1) Investing in bottles of valuable whiskey
The most obvious way to begin investing in whiskey is to purchase some highly valuable collectible whiskeys. Investors simply store these valuable bottles for several years as their value increases, then they are sold for a profit.
The primary challenge with this investment strategy is choosing whiskeys that are a worthwhile investment. Most whiskey investors will look for bottles that are extremely rare, as their scarcity will increase their value very quickly. They will often look for limited edition runs or bottles that have come from “silent distilleries” — which are distilleries that have closed down.
A primary factor to consider is the collectibility of the bottle. Whiskey collectors will look for bottles that come from a sought-after brand.
The specific whiskey will also need to be high-quality. If the whiskey is mediocre now, it will still be mediocre in 10 years time, so its value won’t appreciate very much (if at all). That’s why many investors stick to well known and high-valued brands like Macallan, Highland Park, The Balvenie, Glenmorangie, Ardbeg, and Bowmore.
One of the main challenges associated with investing in bottles of whiskey is that can be difficult to obtain some extremely rare whiskeys. This is why many serious investors will attend trade shows and develop relationships with distillery owners and other collectors.
They sell dozens of whiskies that are high enough quality to be considered collectible. Rare Whisky 101 has created an index of the 100 most valuable whiskies which can give you an idea of what the market currently considers collectible.
Once you have managed to obtain some rare whiskeys which will appreciate in value, you simply store them in a secure location and wait for their value to increase.
How much profit can be made?
Profit varies dramatically based upon the particular whisky you purchase, but some investments do extraordinarily well. If you had purchased an 18-year old vintage Macallan in 2015 it would have cost somewhere around £19,000 ($25,000).
By 2016, the same whisky was worth about £46,000 ($61,000) a bottle. That’s an extraordinary 142% increase in its price, which is a far better return than most wines held over that period.
Risks of investing in bottled whiskey
You need to know your whiskey
If you are purchasing the whiskey yourself, you will need to be extremely knowledgeable about what you are purchasing. You will need to learn about:
- Different distilleries
- The batches being produced
- The wood used in the cask
- The fair market value of each whiskey
- How much it is expected to appreciate in the coming years and much more.
You will also need to know how to authenticate the whiskeys that you are buying – particularly if they are coming from other private collectors. Forgeries of expensive whiskeys are rare but they do exist.
Even if you love drinking whiskey and know a few brands well, you may not have the in-depth industry knowledge needed to invest in whiskey in this way.
It can be difficult to source the most valuable whiskeys at a good price
Obtaining rare whiskeys that are guaranteed to appreciate in value isn’t always easy. You need to use a variety of approaches and in many cases, you will need great negotiating skills. It can also be difficult to sell your whiskey at a price you are happy with.
Storing whiskey is risky
It can be quite challenging to store valuable whiskeys safely. You will need a location which is secure and has the ideal environment for whiskey storage (dark, cool, and temperature-stable).
The whiskey can be stolen, a fire could destroy it, a natural disaster could damage it. It’s also notoriously difficult to obtain insurance for whiskey that correctly values your investment.
It can take a long time to secure a return
It may take several years before your bottles have appreciated enough in value for the investment to have paid off.
2) Investing in whiskey maturation
Whiskey maturation investing is an interesting alternative to collecting whiskey by the bottle. Investors will buy recently distilled whisky at a wholesale price, then pay to have it stored in a cask at a distillery’s bonded warehouse.
The most obvious benefit of this approach is that some whiskeys can improve significantly if they are left in the barrel longer. The investor can decide precisely how long they want to store their casks before selling them to a distillery or bottling their own whiskey.
The costs associated with this kind of investment include:
- The whiskey and the barrel
An upfront fee must be paid to the distillery for the whiskey and the barrel it resides in.
The cask must be stored in a safe location as it matures. Distilleries and storage companies will charge a rental charge which covers storage and insurance costs.
If you are bottling the whiskey, you will incur charges for obtaining a cask sample, moving the cask, and placing it in bottles. There will also be labeling costs.
- Various taxes
Along the way, you can expect to pay several taxes including VAT and Duty.
How much profit can be made?
The profit will vary based upon the quality of the whiskey that you have produced and the current prices being offered in the market. Investors have the option of selling to a distillery, which would typically use the whiskey in a blended product, or bottling the product themselves for retail sale. According to Whisky Invest Direct, the net return on a 4-year cask after trading and storage costs is above 50%.
Risks of investing in bottled whiskey
Theft and loss
There is a risk that your barrels will be stolen, lost, or destroyed by fire while they are being aged. Although most whiskey maturation schemes include insurance, you may not get paid what the whiskey was “really” worth by the insurance agency if it is stolen, lost or destroyed.
Vulnerable to market forces
It’s entirely possible that the whiskey market might collapse in a few years time. Perhaps too much supply will be made available or consumers might move onto another product. This could devalue your casks significantly.
The distillery you have invested with may go bankrupt and your casks could be lost to a liquidator. While companies like Whiskey Invest Direct do have procedures in place to prevent this happening (the casks return to the investors), not all companies do.
You might be choosing bad whiskeys that do not go up in value
Choosing which whiskeys to buy isn’t always easy. If the distillery is not producing high-quality spirits, you may not see the returns that you expected.
3) Investing in a whiskey company
The final option is to invest directly in a whiskey company. This is fairly straightforward as some companies are listed on the London Stock Exchange, including Diaego PLC, who own Johnnie Walker, J&B, Bell’s, Buchanan’s, White Horse, Black & White, Vat 69, and Old Parr.
There is also an exchange traded fund (ETF) available which is dedicated to the buying and selling of companies that own distilleries. The fund purchases companies like Diego, Pernod Ricard (owners of Chivas Regal, Glenlivet and others), and Brown-Forman (which owns Jack Daniels). Because this fund is diversified between several companies that own several distilleries, your risk is reduced.
Other whisky companies may take direct capital investments from investors for a share of the company. Another interesting option is to invest in a company that invests in rare whiskey. One such company is the Single Malt Fund, which buys and sells rare Scotch whiskies. There are several of these companies around now, which makes investing in rare whisky a much simpler prospect.
How much money can you make?
It simply depends on the quality of the company that you invest in. In the past year, Diageo PLC has done very well, delivering a return of more than 24% to investors. The Single Malt Fund claims to deliver an average net return of 10 percent per year during the period of the fund’s investment capital.
The main advantage of this form of investing is that you are leaving the decisions to professionals — which reduces your risk. You won’t have to pick which particular bottle of whiskey to purchase or how to store it. You are trusting the talented people at the Glenlivet distillery or Buchanan’s distillery to continue producing a product that people want to buy and sell it for a profit.
Risks of investing in a whiskey company
The company becomes insolvent
The primary risk is that the company you invest in fails. However, other risks are somewhat mitigated because long-running distilleries have a track record for producing great products that sell well.
A stock market crash
Investing in stocks always carries risks. If the global economy has another event like the Global Financial Crisis, you can expect the value of your shares to decline.