Comment - Spirits - Is Investing in Whisk(e)y as Good as They Say?

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Ian Buxton has some money burning a hole in his pocket. Some of his peers are suggesting he goes with what he knows, and spends it on drink, but not necessarily for consumption. Ian's none too sure.

Can one invest in whisk(e)y? And, if yes, should one?

There’s certainly a lot of excited chatter about this right now, perhaps a measure of the febrile times in which we live. The idea seems to be creeping into the popular prints that picking the right bottle is a worthwhile, not to say near essential, part of your financial planning. So, ever anxious to protect what is left of the Buxton pension fund (hollow laughter off) I decided to take a look.

Currently, one leading proponent of the proposal is single malt The Dalmore, part of the Whyte & Mackay stable, who issued a note to the Fourth Estate a couple of months ago, unambiguously entitled “Investing in Whisky: Liquid Gold”. Breathless hacks duly obliged with a slew of favourable articles and many mentions of The Dalmore.

The briefing note is full of statistics, citing the mouth-watering gains to be achieved from whisky investment. Apparently, and I quote, if in 2008 you had invested GBP100,000 (US$156,400) in the top 250 performing bottles, at the end of Q1 2011 your portfolio would be worth GBP190,530 - a gain of 90.53%. Better still, if by some happy chance you’d picked the top 100 you’d have GBP237,540, a gain of 137.54%.

Well, yes. And, if I had a time machine, I could back the winner of the last Grand National. What the statistics don’t tell you – I checked – is that the gains shown are before transaction costs. Given that a typical auctioneer specialising in whisky will charge the vendor 15% (plus value added tax) of the hammer price and the lucky buyer as much as 25% plus VAT, stellar rates of return are needed if you’re going to show a profit.

Let’s say you approach whisky as an alternative investment and, as such, look for a 10% net annual return. You buy a bottle for GBP1,000 and, a year later, send it to auction. A moment’s work with the calculator reveals that the hammer has to fall at GBP1,340 for you to hit that 10% target (and, remember, you won’t see your money for several weeks, further depressing the real rate of return). More depressing still is that, to reach GBP1,340, the buyer has to have decided it’s worth GBP1,742 to him after the buyer’s premium has been added and he gets to hold his trophy. 

That’s an appreciation of virtually 75% in a year. It’s a big ask, that’s all I’m saying. Or - and its only my opinion - it might take some of the gloss off figures which, curiously, seem to me to be most enthusiastically trumpeted by those with a vested interest, such as distillers with a brand to promote, retailers with stock to move or auction houses keen to drum up business. To paraphrase Mandy Rice Davies, they would, wouldn’t they?

Of course, there are other ways to sell whisky, most notably on internet auction sites. But, they are not cost-free either. And, it may be just me, but I’ve been increasingly depressed in recent weeks by the whisky in-crowd who’ve been telling me how they’ve ‘invested’ in certain key bottles – the latest Port Ellen release is a favourite – which they’re about to ‘stag’ via the web, expecting to double their money.

Let’s be honest: that’s not investment, it’s speculation. Just like the bankers and hedge fund managers, except that, if they have blatantly exploited trade contacts - as some retail staff I’ve met seem happy to do - they’d be charged with insider trading.

Whilst acknowledging that some people are making money - and good for them - here’s my big objection: if the whisky you buy is just for investment, then - since it’s never going to be opened - the bottle may as well contain cold tea.

Buying and hoarding bottles like some latter-day Ebenezer Scrooge tears out whisky’s heart and spirit, confounds its generosity and desecrates the memory, skill and craftsmanship of the people who made it. And, call me old-fashioned and romantic, but that’s just wrong.

If you love whisky, set it free. If you want an investment, buy Diageo shares.

NB: The author has bought and sold the odd bottle and generally regrets it.

Sectors: Spirits

Companies: Whyte and Mackay, Diageo

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