September 27, 2019
Investment Adventures: Whisky
Funding, General News
Investing in whisky hardly conjures the image of a sensible investor – it sounds a lot like a risk or even a scam. We specialise in valuing a wide range of assets, and whilst we may not stretch to permitting whisky as collateral for a business loan, it’s definitely an exciting asset class.
The question is: can you make a return in the whisky investment game?
Well, according to the excellent Rare Whisky 101 website the returns do have potential. One feature of the Rare Whisky 101 site is an index that tracks whisky prices over time.
For example, one index is the Rare Whisky Icon 100 – a price tracker for 100 “iconic bottles” that started in January 2008. For investors fully diversified over that portfolio the return since 2008 is a touch under 500% – pretty high. We assume there were some big winners and losers in that index so that increase doesn’t tell the full story. But there is clearly some potential in the sector.
The Vintage 50 Index charts the performance of 50 of the rarest and oldest Scotch whiskies. The performance since 2008 has been a tasty 664% increase.
Andy Simpson, co-founder of Rare Whisky 101 is understandably bullish about the sector, stating that: “the increase in value is nothing short of phenomenal”, although he also concedes, “it’s difficult to predict demand for today’s premium releases once they reach the secondary market”.
Rolling out historical data to demonstrate the strength of a market doesn’t necessarily indicate a bright future – and as soon as the information becomes mainstream the returns tend to stabilise.
To understand the potential of the whisky market let’s look at a few factors.
It’s pretty unclear how easily you can sell a bottle of whisky. It seems the market is growing but it still feels incredibly niche.
In a 2018 report the value of whisky sold at auction was around £16m, an increase in £11m from the previous year and only £2m in 2013. The total market seems small but is evidently growing rapidly. For context, the combined UK and Geneva wine market in the same year was £37m.
A quick look uncovers several auction houses; there is this one in Glasgow, a London-based online auction house and various others scattered around. There are clearly people buying and selling vintage whisky – but who are they?
According to a report by Rare Whisky 101 the buyers in the whisky market are broken down like this:
- Collectors: 43%
- Connoisseurs: 33%
- Investors: 24%
41% were aiming to make a financial gain but that wasn’t their primary motivation.
There are some interesting factors affect the supply side of the industry.
Distilleries know that high prices can be maintained by trickling the release of different batches and marketing certain batches as a limited release.
By its nature, different whisky batches are likely to taste a little different meaning that batches are materially different, rather than just claiming so with marketing spin.
As mentioned, many whisky buyers are collectors that buy whisky to drink rather than as an investment.
Whisky doesn’t age, so once bottled it can be matured for longer; this generally increases value and presents an opportunity for the patient investor.
There is a limited supply of older casks, and as confirmed by whisky broker Charles Beamish: “distilleries are generally reluctant to sell”.
Scotch whisky is an iconic product that many people love, so with such positive sentiment it’s likely there will be interest in collectibles. The process to make whisky is highly specialised and takes a long time, suggesting both good quality and that mature bottles should hold genuine value.
According to a Knight Frank report overseas demand for whisky is strong. Sales of Scotch whisky to India, China and Singapore rose 44%, 35% and 24% in 2018. The same report mentions that Amazon founder Jeff Bezos and Chinese billionaire Jack Ma are both collectors.
Worth a Dabble?
It’s not our place to draw conclusions on the whisky sector but there are a few points that stand out.
- The indices at Rare Whisky 101 are a brilliant indicator of value but it’s hardly like an investor can buy a tracker like the FTSE100 to spread the risk. Rare Whisky 101 stresses caution: “the market is exceptionally buoyant for the right bottles. Seriously punishing for the wrong bottles”.
- There is a ton of information asymmetry in the market, there are precious few experts and verifying key information like bottle legitimacy, the release schedule of distilleries, auction house data and market size is highly challenging.
- There are almost certainly returns to be made in this asset class, but as with any investment the most important consideration is market knowledge – in such an opaque market it would be folly to get involved without some serious research.
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