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August 16, 2014

Buck For The Bang!!! – Whisky Investment

I keep thinking that most of my articles about whisky are based on subjects that have been debated, argued, and contested across the fraternity. I guess for a blogger more the controversy, more the lure to add two pence!

Many of my friends and members of this club have repeatedly asked me about a subject that I have managed to steer clear of till date, but then when I see an awful lot of chatter on social media, blogs or the news; I decided to add the Indian ‘tadka’ to it.

Whisky Investment

There are two responses that I have observed with the above statement; one where the expression of the audience suggests that I have dropped my marbles with the last dram, and the other that makes the banter turn to whispers. With the Indian market graduating from the best selling ‘Glenfiddich 12’ being overtaken by ‘The GlenLivet 12’; it is certain that the majority of the sub-continent have not heard of such a thing. Whichever side of the bottle you are on, the subject is intriguing to say the least.

So what is ‘Whisky Investment’? Pretty much what it suggests; you buy a whisky bottle for a certain cost which you anticipate will appreciate in time, due to multiple reasons. Once the target price is achieved you sell the bottle after booking profits. While the reasons of the speculation towards appreciation can be downright comical such as the case of ‘Loch Dhu’ which has appreciated multifold for being the worst Single Malt whisky of recent times, to relatively logical rationale of limited editions, history of the bottle, availability, etc. It is clear that the motivation of this practice is not the actual love for tasting or consuming whisky itself, but the profits expected. Saying that I must concede that there are a few hybrid varieties of connoisseurs that lurk the market, these are ones who have become investors by chance! You start a collection for the love of the spirit but then suddenly realise that some of your bottles are getting you far more ‘buck for the bang’ rather than the ‘bang for your buck’ so you throw the bottle in!

So what is the situation in Whisky Investment? For starters let me tell you that there are firms registered which provide you ‘services’ of advice, market watch, procuring obscure whisky bottles, storing your investment in temperature/ moisture controlled vaults and selling them at the right time. No, I am not on a ramble; our good old friend ‘Google’ sho there is a ‘Whisky Index’ too for those who like stock market simulations! You now know it’s not an industry that is being run out of basements and by a few cronies. The only other comparable alternative investment is, of course, that of wine. While the wine investment has been around for some time, the Whisky Investment is perhaps in its teenage with all the awkwardness and hormones associated with it.

What is the industry saying? Distilleries are fuelling this boom by creating ‘Limited Editions,’ niche handcrafted whiskies, super aged whiskies. Dalmore Trinitas, Bowmore Black, Macallan Lilaque being purely investment tools. Marketing campaigns built around these exclusive bottles are suggestive of premiumisation and limited availability which cannot be replicated in the next 40-50 years. While the mentioned examples are top of the line in the category being written about, there is hardly a brand of Single Malt Scotch that I can think of which do not have Distillery Editions or Limited Editions. Then there is the case of a large corporation who has turned the slump of the Scotch whisky industry of the 80’s into a decisive advantage. There were more than a few distilleries which shut down during the Scotch recession of the time, some of which bit the dust much earlier. Releasing limited edition bottles from the leftover casks of these ‘Silent Stills’ is something that drives the investment trade into a tizzy. The argument is; this whisky ‘may not’ or in some cases ‘cannot’ be produced ever again. Port Ellen, Brora, Banff, Dallas Dhu are classic examples of such distilleries. Bottles from any of these distilleries are beyond the realm of the even the uncommon man! The latest release from Diego of the ‘Brora 40’ was pegged at 7000 GBP.

What are the customers saying about whisky investment?  On the surface, given the fact that they are paying much more for their poison. Vehemently they rue the very practice of buying whisky to sell or make money. This fraternity believes that consumption is the objective of whisky creation; it being a mantelpiece in a collector’s private bar is a goal not achieved. It’s pretty easy to spot one who has this conviction; they will wince at limited editions, absolutely loathe fancy packaging and are most fidgety if you place a sealed whisky bottle into their hands, their edgy behaviour is tamed only when the bottle has been opened, sipped, and verdict pronounced.

The collectors, on the other hand, challenge the traditional rhetoric; ‘it’s my money & it’s my bottle I’ll do as I please’ is the general plaque they carry around. Some serious collectors for sure like their whisky, and this love for the spirit makes them collect; perhaps not with the intention to sell but for the euphoria they experience when they stand midst their prized possessions.  Since we are on the subject of ‘Whisky Investment,’ I will focus the attention on a subset of the collectors who collect with the objective of making profits by selling their collections. Easy identifiers again: they will grin at limited editions, absolutely love fancy packaging and are most cautious if you place a sealed whisky bottle into their hands, and their curiosity behaviour is tamed only when the bottle has been researched, assessed for price and verdict pronounced.

Since I have introduced you to the two most dominant voices, the minority groups would be a breeze. People who always buy two bottles; one to drink and one to collect, people who crack open a bottle to ensure appreciation for the others in personal stock, Audience who click ‘Like’ on Facebook when someone has opened a rare or unidentified bottle! So on and so forth… The funny part is that I am yet to meet more than a handful of whisky tasters who do not possess a reasonably large private collection. While the status and constituents of the bottles in the collection may differ; fact remains that most, including yours truly would like to save a few blond curves for a special occasion. So, in a way, even the former group may actually be contributing in creating a pseudo scarcity adding space for secondary market. I have seen some of my dear friends across the globe sitting on obscene stockpiles of Port Ellen, Brora, Benriach, Karuizawa! Some make the best of it by selling, others

So now since I have given you a brief summary of this practice let me add the Indian ‘tadka’ and share my view on whisky investment.  In India with the current state and situation related to imported liquor BAD IDEA! Depressing but yes the signs are clear, Whisky Investment in India is a bad idea keeping the present circumstances and with a forecast of short term of say perhaps five years. Why? Reasons galore! Taxes, Availability, Knowledge, Storage conditions, Legal implications are just the big ones. Detailing some of these reasons

  1. Taxes: With a tax structure which ranges from 100 to 160% as import tax for scotch the price that you are going to buy the whisky makes it investment redundant. Any moves to circumvent these taxes and thinking of getting stuff from duty free stores will only give you hassles when you would want to sell.
  2. Availability & Knowledge: If you have been collecting the run of the mill productions from The GlenLivet, Glenmorangie, Laphroaig, Glenfiddich from the last 5-10 years my assessment would be to start drinking them or pray for a novice to buy them from you! I have personally seen beginners having shelves filled with distillery edition bottles from Glenfiddich, Livet, Laphroaig, Lagavulin and Dalmore along with standard editions. . Buying an already expensive bottle like the ‘Dalmore Trinitas’ and expecting it to give you steep return is a plan for which you need a good c So it is a bit of a paradox that these investment grade bottles are not going to be available in India & if they are their prices have already made them risky propositions. Knowing the pulse of the secondary market is essential for any dabbles in this space.
  3. Storage Conditions: India is a tropical country need I say more? With temperatures ranging from 20 to 50 degrees Celsius storage of bottles over a long period of time is a concern. Cork damages due to dryness, evaporation, overpowering scents of the storage area (fresh paint) and exposure to sunlight are all considerable risk factors. If you manage all of the above, there is a legal one too! One cannot store more than 4 litres of spirit in residences. If you do want to store these,, you need a special permit from the Excise board.
  4. Selling options: In the rare occasion that you have overcome all of the above there is the test of the selling of the bottle. Since whisky as an investment is a bandwagon not many in the sub-continent have hopped on; buyers are few. With investment grade bottles insurance costs would also be an expense to consider.

Other deterrents of the trade are available, but we are running out of space. So, my verdict remains that it is still very early days, and it’s going to be difficult with all the hassles.

It’s almost is a no-brainer why the sudden scarcity of aged whisky. With the spending capability of India and China growing substantially, the migration of between 10-20% year on year. So if the economic growth of these nations meets the forecasts then there is an opportunity for this trade to flourish.  This is a critical aspect that has to be essentially studied in tandem with the nuances of Whisky Investment. On the brighter side, remember: ‘Whisky is sunshine held together by water.’ So, there is always hope. Every time I glance through secondary markets and see some of the Ardbeg NAS versions selling for stellar prices I wonder why I did not start with whisky in college!

Many of the articles related to Whisky Investment that I read signed off with a statement, which I interpreted as ‘If you do manage to get your pants wet by investing in the wrong whisky; you have good company to drown yourself.’  I do find that line rather disturbing, India is a far cry away from one downing sorrows in a 3000$ Port Ellen to commensurate your financial losses. I will rather say this, like all investments this too is a matter of sentiment. Most occasions I have seen the Whisky cheering sentiment: “if consumed!”

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