Investing in Whisky? We will tell you how it works.

Investing

Is investing in whisky new to you? When you speak to people about investing, the stock market is typically the center of the discussion. How much the person is up against the S&P 500 this year will be part of the conversation.

Next, you will hear how many shares of Tesla they recently bought or sold, and what percentage of FANG (Facebook, Apple, Netflix and Google) stocks they hold in their portfolio. More recently, the conversation may turn to cryptocurrencies and the falling price of Bitcoin. Where and when will it end? With Bitcoin tumbling, what other cryptocurrencies should I be investing in?

While Bitcoin and cryptocurrencies are not supposed to be correlated directly with the stock markets, rising, and falling with the stock markets; the current correlation with the stock market couldn’t be clearer. Which means any diversification and hedge investors thought they have by investing in cryptocurrencies is nonexistent.

Investors believed cryptocurrencies also added protection against rising interest rates and inflation, but that isn’t the case either. Across the board, with few exceptions, cryptocurrencies have been plunging as interest rates are rising and inflation sores.

Investors need to turn to alternative investments in these turbulent markets in the search for alpha. Many alternative investments have stringent barriers to entry and absorbent fees to invest in them.

Fee terms like 2 and 20, 2% flat management fee applied to all assets under management and 20% performance fee, slice deeply into any potential profit margins. Where can you turn for added alpha without these typical fee structures and low barriers to entry?

Whisky, direct investment in bottles of rare whisky. That’s right, investing in whisky can be a great way to diversify your portfolio, add alpha with little correlation to the stock markets, and whisky has low barriers to entry.

Investing in Whisky vs. Stocks

Over the past 10 years, rare whisky has returned 564% as of 2021, according to the Knight Frank Luxury Investment Index, a benchmark for rare whiskies. This translates to a year over year return of roughly 18.9% over the past decade.

For context, the S&P 500 index returned only 340% over this same time period. For a year over year average return of around 14.4%. Not only did whisky outpace the S&P 500, it also outperformed other alternative investments such as fine wine , art, vintage cars, coins and stamps over this ten-year period.

While these returns are outstanding, let’s dig a little deeper into the benchmark. The Knight Frank Luxury Investment Index measures the price movements of 3.3% of available Scotch whiskies, 100 of them. There are over 3,000 Scotch whiskies made, therefore the price of all Scotch whiskies did not move 5.6x over the ten-year period, the price of 100 of them did. Some could have moved more, others less. On a positive sidenote, a sub-index of Japanese whisky appreciated even more than the Scotch whisky index.

With investors seeking new opportunities in this post-pandemic world, they have bolstered the whisky markets as of late. According to research, the global whisky market had an estimated worth of nearly $58 billion dollars in 2021. With around a 6% compound annual growth rate (CAGR), the total whisky market is estimated to be around $85 billion by 2026. Which adds up to added opportunity for investors.

Better yet, the market is not being driven by a very few top-end bottles on the market. The middle market, bottles in the hundreds of dollars to thousands of dollars, are driving whisky prices northward.

Another interesting nugget is Millennials are not the biggest consumers of whisky. They tend to consumer less than other groups but consume higher quality whiskies when they do indulge, which, given the scarcity of premium brands also drives the price.

Scarcity

While rare whisky markets and auctions are constantly shifting, bottles of rare whisky are scarce. Like fine wine, old, rare whisky is a dwindling resource. Each barrel or cask of whisky is unique unto itself, it cannot be reproduced. Once it is consumed it is gone forever. The more each of these rare releases of whisky is consumed, the price goes up automatically. Reduce supply equals an increase in demand. Additionally, production capacities cannot be increased in the near term.

A 30-year-old whisky was produced and put into cask 30 years ago. The whisky aged in this cask for 30 years and can only be bottled one time. You cannot go back and tap into this cask because it has been fully bottled. To produce a similar 30-year-old whisky, it too will have to undergo the timely and costly production and cask aging process.

While there are new releases of rare whisky annually, the older bottles become more scare due to consumption. Not all collectors of whisky buy them for a profit, they enjoy drinking them.

How rare can whiskies be? Well, in 1926, Macallan, a Scotch producer from Speyside, filled a sherry seasoned cask with Macallan spirit. 60 years later, they finally bottle the cask and filled just 40 bottles. In May 2021, a bottle of The Macallan Valerio Adami 1926 60-year-old sold for $1.1 million.

It is unclear how many of the other 39 bottles are still in existence today.

A few other recent auctions prices are a Hanyu - 2000 Single Cash #9500 Ichiro’s Malt - Card 2 of Clubs Japanese whisky sold for $23,455, another Japanese whisky Yamazaki -25th Anniversary 1984 sold for $12,345, an Ardbeg - 1975 Singe Cask #1375 Islay, Scotch Whisky sold for $3,086, while a Macallan -50-Year-Old - The Red Collection sold for $46,293.

Liquidity

While scarcity is a positive attribute of upward price movement, investing in whisky does not have the volatility of the stock markets. As we know, there are many things that contribute to the volatility and price movements in the stock markets.

When investing in the stock markets, not only are you contending with the financial performance of the underlying stock you are investing in; you also have to worry about economic data, algorithm trading programs, the pundits on CNBC, the Reddit trading crowd piling in and buying puts on specific stocks, and platforms like Robinhood working against you.

When investing in whisky, you have none of these external factors. You buy your bottles either directly from the distiller or auction, then store them properly like you would fine wine, and sell when ready. Whisky is also a long-term investment. While sometimes you can flip your whisky upon purchasing it, you will be more likely to hold the assets for 5-7 years or longer, before offloading them.

Long Run Benefit of Investing in Whisky

There are many long-run benefits of investing in whisky. We outlined a few of them in the liquidity versus scarcity section above. Of course, things happen. Corks can leak or become damaged, air can get into the bottle, funky smells and mold can penetrate the cork if not stored properly and glass bottles break, but mostly whisky does not go bad.

Unlike wine, whisky does not continue to age once placed into bottles. Whisky only ages while it is in the oak casks. Bottles should be stored upright, away from direct sunlight and away from mold and damp areas. You will want to store your whisky at a lower temperature than typical room temperature to keep the corks in good working condition.

Another long run benefit of investing in whisky is, you don’t have to worry about vintage conditions with whisky like you will when investing in investment grade wines. Whisky production does not have the same risks of harvest yields, temperature, and rain concerns, and all the rest that wine does.

How to Invest in Whisky

Like investing in fine wine, Spiritory is a great marketplace to begin your search and investment in rare whisky. Our marketplace offers real time pricing and full price transparency into the rare whisky markets. Much like the stock market, our model allows investors to buy and sell instantly, and guarantees the authenticity of each asset on our platform. Collectors, aficionados, and investors alike from all over the world are able to purchase directly from our marketplace.

While you can also invest in casks of whisky, we will focus on bottle investments. Begin by educating yourself on current market conditions and recent prices. As with everything, knowledge is the key to your success. Attend different whisky tasting events and form your palate. Look for recent casks drops and expect to hold them long term.

If able, visit different distillers and purchase limited releases offered directly from them. Besides Single Malt Scotch Whiskies, seek Japanese, American, and Irish whiskies. As mentioned above, the Japanese index returned more than the Scotch index.

Look for the big in demand names:

• For Scotch whiskies, seek single malts, single malt limited edition releases, and vintage releases. While the list of producers is long, Glenmorangie, Macallan, Ardbeg, Balvenie and the other distillers mentioned above are a good place to start.
• For Irish whiskies, Knappogue Castle, Green Spot, and Middleton Very Rare are worth looking into. )
• For American Whiskies, look no farther than Pappy Van Winkle for the best returns.
• For Japanese whiskies to monitor are Karuizawa (closed since 2001, so increasingly rare), Miyagikyo Single Malt, as well as those mentioned above, especially Yamazaki and Hibiki.

Conclusion

Whisky can and will be an interesting investment asset for the current and the future. For some people it sounds weird investing in a bottle of liquid, but for those who do those, there will be returns in the future.