Better save some whisky for investing: it could net you millions over two decades
The golden hue of whisky is turning a rich green as investors clamor to purchase the fabled spirit drink for high returns.
Whisky (we’re talking mostly about Scottish whisky), a word derived from a Gaelic term meaning ‘water of life,’ has experienced a renaissance among younger drinkers and in geographies beyond its traditional heartland of Europe and the US.
With this demand, the market in fine whiskies has boomed, attracting a slew of investors keen to cash in on highly prized brands and special edition releases.
The numbers alone are staggering.
In 2013, the 1,000 best performing investment-grade bottles of whisky increased 23.8 percent in value, according to the Apex 1000 index, compiled by Rare Whisky 101, a company that tracks whisky investment performance.
“Year to date in 2014, the index has increased by 15.8 percent, so I expect 2014 to close around 18 percent and up,” says Andy Simpson, a professional whisky valuer, broker and consultant who co-founded Rare Whisky 101.
“I would expect around 15 percent per year to be seen moving forward, certainly for the next two to three years, with peaks significantly above that for the right bottles,” he says.
At that rate, a $1,000 bottle would be worth $16,366 after 20 years, but if the 23.8 percent return rate for top performing bottles seen in 2013 was maintained, that one bottle would hit $71,517 in value over the same period.
In theory, $100,000 put into investment-grade whisky with 15 percent returns would net you more than $1.6 million in two decades’ time.
But, “as with every investment, the risk for significant loss is very real,” cautions Simpson. For whisky investing, lower returns are often related to buying less-desirable bottles, he says.
“Quality is critical for a whisky to become collectable,” he says. “There are certain exceptions but poor quality whisky typically makes a poor quality investment.”
And age is not the best determinant of quality.
“Old whisky does not mean good whisky,” explains Tommy Tardie, owner of high-end Manhattan whisky bar The Flatiron Room. “Americans’ love affair with age statements is misguided – quality and value simply does not always correspond to age.”
Unlike wine, whisky does not age in the bottle and is less sensitive to temperature once bottled compared to wine.
Buying Investment-Grade Whisky
Purchasing investible whisky is done through online auctions or traditional auction houses, such as Sotheby’s or Bonhams. The traditional variety can charge around 25 percent of the purchase price of a bottle, a high fee that has helped spur the migration of sales online, where websites take around 10 percent of the purchase price.
Just Whisky, Scotch Whisky, Whisky Online, Scottish Whisky Auctions and Whisky Auctioneer are popular trading sites that have helped generate a liquid market in the spirit.
The popularity of these sites is driving strong growth in the number of investment-grade whisky bottles being bought and sold.
In 2013, 20,211 bottles changed hands in the UK auction market alone, a figure Andy Simpson says is on track to surpass 30,000 for 2014 – an astounding 50 percent jump in twelve months.
The market for casks of whisky is less buoyant, says Simpson, as few distilleries sell casks in order to ensure the quality of the product when it ends up in a bottle. Also, for an investor, there is less risk owning whisky in a bottle compared to a cask, which must be maintained by experts.
Important Factors For Investing in Whisky
With such high amounts of activity, investors must determine which bottles will increase most in value for the best return on investment.
Simpson says three factors above any others arm a whisky investor in deciding on a good bottle.
First, investors must decipher whether the whisky is from a distillery that is still operating. If from a distillery that has closed, or gone ‘silent’, the whisky will likely be much more valuable. Such is the case with Port Ellen, a distillery that shuttered in 1983.
One of the 6,000 bottles of Port Ellen ‘First Release’ originally retailed for under £100 ($157) in 2001, but now sells for around £2,000 ($3,136) per bottle.
“We’re seeing sustained increases for bottles from virtually every silent distillery,” says Simpson. “Brora, Rosebank, Glenugie, Glenury Royal, St Magdalene, North Port, Banff and Convalmore are examples of silent distilleries to look out for,” he adds.
Secondly, consider age. Recent high demand for whisky has sucked dry distilleries’ old stock, increasing the amount investors are willing to pay for aged whisky. For purely investing purposes, the older the better, both in terms of the vintage – the year it was distilled – and how long it sat in a barrel.
Thirdly, investors should seek out limited edition bottles, which have shown to fetch high prices on the secondary market.
“The smaller the batch the better from a collectors perspective,” explains Simpson. He says good examples of these include the Balvenie Tun 1401 batch 1. Only 336 bottles were made available, selling initially for £150 ($235.18). Those now sell for £1,800 each. Similarly, a 1,000 bottle run of Macallan commemorating the Royal marriage of Kate and William in 2011 sold for £150 ($235.18) per bottle and now fetch around £1,000 ($1,567.83).
But Tardie has a simpler investment ethos.
“If you enjoy it then you probably have a good understanding of it,” he says. “With understanding and knowledge you’ll better be able to differentiate the hyped bottles from those that would actually increase in value.”
He says the attention whisky continues to attract makes it harder than ever to differentiate the good from the mediocre.
“With the tremendous surge in whiskey demand comes an onslaught of marketers creating colorful and romantic stories, fancy hand blown crystal decanters, and corks made from the horn of unicorns,” Tardie quips.
“Just because the package says it’s rare and limited doesn’t necessarily mean it’s going to go up in value,” he says.
The Flatiron Room offers a selection of rare whiskies, such as The Balvenie 40 year, Glenfiddich 40 year, The Glenlivet 1964 Cellar Collection. These take pride of place on the very top shelf overlooking the bar, accessible only by a rolling library ladder, and cost upwards of $500 a dram.
“When the ladder is mounted there’s a certain buzz that comes over the room,” says Tardie.
“The fact that someone is about it enjoy a fine whisky sets a very nice tone for the room. They know they are amongst friends.”