Investing in Whisky Part 2 – Where to Start?
Robert Burns once wrote that John Barleycorn was a “Hero of noble enterprise.” That said, not even Burns could have predicted that a bottle of “good Scotch drink” would be listed on the World Whiskey exchange for €65.000,00.
Now, it’s unlikely that you can nip off down to the local liquor store and find a 1919 bottle of 50-year-old Springbank. That said, there’s a couple of tips for those looking to speculate in the single-malt market.
There’s money to be made in Scotch. The question is—how?
Well, it’s not wine. Wine, when invested in, will age in the bottle. Investing in wine is therefore relatively simple; find a good-but-young-wine, age it, sell it table-ready. Whiskey, however, practically ceases to age when it is bottled. That means a price fluctuation in whiskey has nothing to do with age; it has to do with rarity of the bottle.
To begin with, research your distillery. Certain distilleries, such as Glenlivet or Glenfarclas, make their profit by producing as much whiskey as they can. Their reputation amongst Scotch collectors, therefore, is such that investing in their whiskeys will likely never see a price rise.
That said, there is always an exception to every rule. In 1975, for example, Bushmill’s distillery (best known for funneling blended whiskey down the throats of as many Irish-Americans as possible) laid down a row of casks called the “millennium malt.” It was a special project, and they allowed investors to buy a cask. Investment clubs sprang to life, with enthusiasts purchasing a portion of a keg.
Anyone who did that has, by now, multiplied their money by a full degree of magnitude or more. These special projects often involve a high-quality product, but any investment in them is going to be a long-term bet that the distillery doesn’t go broke in the meantime.
Next tip: visit your distillery, and buy directly. Skipping the middle man can save you a pretty decent chunk of your initial investment. If you can’t get to a distillery then you can buy online at stores like The Whisky Exchange.
If you are making a serious investment in whiskey, see if you can reserve (say) a cask of whiskey to age longer than possible. Many distilleries will sell casks directly, and negotiating a special age for your whiskey could fetch a high price when it comes time to sell. If you go this route, however, beware: older is not always better. There are regions of Scotland that produce fine, delicate whiskeys that begin to lose their flavor after 15-20 years in the cask. These tend to be Lowlands, Highlands, or Speyside Scotches.
If, however, you can get a special age on a “peated” Scotch, then you’re in business. “Peated” scotches generally come from Islay, though there are other distilleries now smoking with peat. Peaty Scotches tend to age much slower than wood-smoked ones, making a custom aging time much more desirable. Look for distilleries like Ardbeg, Laphroiag, and Bowmore for whiskeys like this.
Finally, for investment purposes, look for smaller distilleries. The current international market is driving distilleries toward corporate mass-production, and the smaller distilleries are beginning to be squeezed out. For lovers of good Scotch, this is a shame. However, for investors in Scotch, getting a large collection from a small distillery as it begins to go out of business or reduce its production can leverage the eventual rarity of that particular whiskey into higher value.
For an example of this, look no farther than Fettercairn. Fettercairn is a two-still distillery in the Eastern Highlands that, until 2002, produced a lovely bourbon-casked whiskey. In 2001, the mom-and-pop distillery sold themselves to corporate owners, who changed the production methods. In 2007, it went from bad to worse when that corporation became a part of a larger conglomerate. The result? A 25% increase in the price of Old Fettercairn 10 yr.
Investing in Scotch has the potential to be very lucrative, if done correctly. It’s certainly a unique investment, and guaranteed to add diversity to a portfolio, if nothing else.
Just…make sure not to give in to the inevitable temptation to consume your investment.