Investing in Whisky ~ A Smooth Investment for Rough Times?
This is not another article about placing hard earned money in another incomprehensible and confusing investment. The financial world is already awash with these. CFD’s. Forex. ETF’s. And despite this increasingly mind-numbing procession of acronyms, two things remain true. First, it has taken the British stock market half a decade to return to somewhere near the value that preceded the Global Financial Crisis, essentially performing a five-year exercise in treading water. Hardly a standout return. And second, one cannot hold or truly feel passion about owning any one of these investments.
Which brings us to Whisky. While the more traditional function of the drink in the business world has been as an addition to a CEO’s corner office, or as part of a celebratory toast following a deal, recent trends confirm that buying and holding Whisky is now a serious investment option.
The move toward Whisky as a portfolio holding can be seen as part of a wider investment theme. The implosion in the prices of share holdings, real estate, both residential and commercial, and their knock-on effects shook the belief of many investors in traditional markets. The flight to perceived safe assets such as cash and bonds, coupled with the actions of central banks worldwide in Quantitative Easing and associated programs, has severely lowered the returns available on these safe havens. Which has led to an emerging trend toward converting low yielding cash into higher yielding luxury goods. Diamonds, rare art, vintage wine, designer fashion pieces and whisky are all among the tangible, high value goods that are now being sought after, not just as ostentatious displays of wealth, but as a means for accumulating it. The logic may seem counter-intuitive. Surely the prices of luxury goods must mirror the health of overall financial markets? The returns of these alternative investments has shown that there is low correlation. The performance of the diversified luxury goods house Moet Hennessy Louis Vuitton (LVMH) illustrates the point superbly. While the Italian stock market has languished under the spectre of debt woes and the Eurozone crisis, the retailer has returned over 225% from its GFC lows. Similarly, fashion icons Hermes and Prada trade on multiples exceeding 40, more than double that of other traditionally ‘defensive’ sectors. Demand emerging from Asia from an internationally aware and wealthy middle class projected to number a billion strong by 2015 has also fuelled the stellar returns for this class of investments. So why would you single out some single malt from this field?
£125,000. That buys you an Aston Martin Rapide. Or a Maserati Quatrtroporte. With enough left over for a Mercedes-Benz S-Class. It would also go a long way to buying an apartment in any major capital city (not London of course, but you know, the rest of them). Or, in 2011, it would have gotten you an exclusive, single bottle of The Dalmore. This is not an outlier either. Harrods has stocked a bottle from the ‘world’s most revered single malt’ (their words, not ours) that has sold for £120,000, while at auction two more went under the hammer for £100,000 each. Nor are such gains confined to this brand. Market leader in whisky investment Whisky Highland has published research that states that since 2008, the same period in which the stock market took to recover from the hangover of the GFC, the top ten performing bottles returned £400,000 from an initial £100,000 investment, equating to a 300% plus capital gain.
We’re not suggesting you mortgage the home, sell the car and cash in the retirement plan to pay for one of these. But opportunities exist in the whisky market at much lower price points, and for obvious reasons. Whisky mirrors the characteristics of a term deposit, in that it gains value as it ages. It is a limited resource, and therefore, like a commodity, is subject to the same supply and demand economics, with demand currently growing and outpacing high-quality supply. And it is protected against imitators. 1000 new Whisky’s could flood the market tomorrow with negligible impact on the prices of higher end bottles, as their value is contingent on their brand, rarity and reputation.
Trooping down to your local off licence and stocking up is not the way to grow your wealth. But, by applying the same rules of any sensible investment: understanding the market through research, selecting superior products and maintaining a long-term focus, the potential to gain through investing in Whisky is a real and viable opportunity for investors.