In a world fraught with economic uncertainty, investors are looking for ways to diversify their investments as a hedge against inflation shifts. Bitcoin has skyrocketed, tech stocks have soared, housing prices are up and down depending on your location and now whisky (or whiskey) is seeing a spike in investor interest.
When it comes to investing, time is your friend. This is as true of whisky as any quality stock. But when it comes to whisky investment, it may be the most important factor of all. The longer you can leave it to mature, the richer you will be. Many investors are pondering if they should buy whisky stock and whether whisky is a good investment?
Fundamentals of whisky stock
Producing whisky costs a lot, but one way distilleries capitalise on their efforts is to allow private investment. By investing in newly created whisky, the private investor can leave it to mature for as long as they like, making annual profits of 10% to 30% depending on how and where they market/sell it. Meanwhile, the distillery generates cash-flow to keep things ticking over.
According to The Whiskey & Wealth Club, an organisation set up to connect investors with suitable whisky investments, investors purchased record palettes of the liquid gold in September 2020. This boom at The Whiskey & Wealth Club came as it sold 111.2 palettes of a new-make premium spirit for a total investment of over £1.8 million. This was nearly a 54% rise on its August 2020 sales.
The Whiskey & Wealth Club pairs private investors up with wealth advisors as a guide to suitable investment opportunities in the whisky space. Much in the same way that a financial advisor guides a retail investor on suitable investments for their ISA or SIPP. They can then choose to buy, hold, bottle or sell their premium cask whisky as an investment vehicle that suits their personal circumstances and whims.
The investment club or broker strikes a deal with the distillery for a limited edition run at a discounted price. The investor then buys a cask outright via the club. This is then stored in a secure warehouse and insured. The investor patiently waits, and when it’s time to profit from the deal, the investor should expect to enjoy returns of up to 20%.
The cost of buying a cask varies. Factors affecting price include brand, variety of cask used, distillery location, and many more. The cheapest cask you may find could be around $2000, but they can go upwards of $10,000.
So many options can be overwhelming and that’s why an investment broker can keep you on the right track. The Whiskey & Wealth Club and HMRC approved Whisky Investment Partners are just two of many to choose from.
There are several exit strategies available to the investor. Whether opting to sell to a whisky brand, bottle under your own label, sell at auction, directly sell to a broker network or consider alternatives provided by the broker.
What is the bull case for whisky?
Whiskies are not created equal, the cheaper ones are blends, containing only 10% to 20% of malt. True malt whiskeys are a higher class and more appealing to investors. A unique brand expression, that’s not mass-produced, gives whisky its prestige and desirability. But the true value of a whisky comes from a selection of factors; age, quality, taste, brand, rarity and exclusivity all contribute to its worth.
That doesn’t mean all blends are bad, though. Jack Daniels and Johnnie Walker are blends, but retail investors can still buy exclusive bottles from these brands that hold their value.
The Whiskey & Wealth Club’s unique selling point is its access to exclusive runs from top-notch distilleries in Scotland and Ireland. An example of these exclusive runs is its release of Bunnahabhain Staoisha in September 2020.
This hailed from an esteemed Islay distillery and was limited to an undeclared number of casks. An average whisky cask has a volume of 250 litres. This produces around 385 75cl bottles. The pitch was perfectly curated and highlighted the reasons Islay whiskies in particular are set to be a very valuable commodity in the future.
When it comes to launching a new whisky, an alternative route to branding is for the company to buy mature whisky from investors, which it then brands as its own. This is one reason for the increasing popularity of cask investing as it leads both parties to cash in on the rising demand for these new and exciting brands.
Haig Club is a single grain Scotch Whisky popularised by David Beckham in partnership with Diageo (LON:DGE) and British entrepreneur Simon Fuller. Several other celebrity endorsements quickly followed Beckham’s step into the whisky arena. Conor McGregor has his own Irish Whiskey named Proper No. Twelve, after the area of Dublin he comes from.
Bob Dylan brought out a trio of whiskey blends, Metallica have their own American Bourbon named Blackened, and Matthew McConaughey also has a Bourbon called Longbranch.
In a 2020 report rare whisky surpassed classic cars on the Knight Frank luxury investments index, achieving its very own Knight Frank Rare Whisky 100 Index in the process. In the luxury investments index, whisky has risen by 564% in value during the past ten years. Another reason whisky cask investing is popular is it doesn’t incur VAT or Capital Gains Tax.
What is the bear case for whisky?
Whisky investing is taking on a life of its own and very much up there with other favoured alternative investments such as art, rare coins and fine wine. There are a number of cask investment houses now making it easier for retail investors to jump on the whisky bandwagon, but it’s important to avoid pitfalls too.
While the middlemen make the process easier, they can also cut into the profits. Nevertheless, these cask wholesalers offer discounts to limited batches and exclusive runs.
This prospering industry is not yet regulated, so it’s important to do your homework. There are trade associations that legitimate investment firms can join to protect the industry’s reputation. The Whiskey & Wealth Club works with a compliance officer to ensure that its compliance-ready for when the Financial Conduct Authority makes its mark.
Another risk is whisky going out of fashion, but as it’s so ingrained in Scottish and Irish heritage, which is spread throughout the world, that doesn’t look to be an imminent concern. Undeniably, the whisky market seems to be enjoying a boom and could well be liquid gold, but it could also come down just as quickly, so investors should exercise caution before investing in whisky.
Should I invest in whisky stock?
Investing in whisky and luxury liquor appears to be an interesting and potentially lucrative space to diversify your financial investments, but it is not without its pitfalls. As with any investment, weighing up the pros and cons and analysing stock performance can help investors determine whether buying whisky stock is a good investment for them.