Is Investing In Whiskey, The Way To Wealth?
Sriram Balasubramanian (Sriram Balu)
Head of Sales & Strategy - Maritime | Building "ONE" | Building "Prime ETF"
Welcome to this edition of our LinkedIn newsletter, where we dive into the intriguing world of whiskey investment.
Before we begin, a quick disclaimer:
I don’t claim to know everything and mistakes are possible. Although I've made efforts to ensure the accuracy of the data presented here, please consider this content for informational and entertainment purposes only. As always, consult with your financial advisor before making investment decisions.
Scotch Whisky (or) Whiskey?
Did you know that 53 bottles of Scotch whisky are exported every second?
But what exactly is Scotch whisky?
Scotch whisky is one of the world’s most famous alcoholic beverages consumed by several countries on all inhabited continents. It is generally produced at a single distillery using only malted barley as the grain — a type that is famously known as single malt.
Rules in the UK dictate that a whisky can be called Scotch only if it has been produced and bottled in Scotland.
Some of the world’s most famous Scotch producers are Glenmorangie, Johnnie Walker, The Glenlivet, The Sassenach and Ardbeg.
It is noteworthy that the spelling “whisky” is associated with Scotch whisky only and any other type that is influenced by it.
The other spelling, “whiskey,” is associated with Irish whiskey and the whiskeys produced in the US, where Irish immigrants brought the knowledge of distilling.
India's Growing Appetite for Scotch
India has recently become the world’s largest consumer of Scotch whisky by volume, surpassing France. This surge in demand underscores the global appeal and potential investment opportunity in Scotch.
Top 10 Markets (Source:SWA)
The largest export destinations for Scotch Whisky (defined by value) in 2022 (vs 2021) were:
The largest export destinations for Scotch Whisky (defined by volume, 70cl bottles equivalent) in 2022 were:
Whiskey vs. the S&P 500
Historically, rare whiskey bottles have shown remarkable appreciation, outperforming the S&P 500.
For instance, since 2013, rare whiskey has increased by 280% in value compared to the S&P 500’s 158%
This stark difference highlights whiskey's potential as a lucrative alternative investment.
How to Invest in Whiskey
There are several ways to invest in whiskey:
Cask or Bottles?
Many high net worth individuals opt for investing in whiskey casks rather than individual bottles. I know a few friends who collect rare whiskey bottles and store them at home—though I often wonder how they resist the temptation to open them!
Investing in casks offers several advantages.
First, the flavor and value of whiskey in casks improve over time, unlike bottled whiskey, which does not develop further once bottled. This limitation restricts the potential returns of bottled whiskey.
Second, purchasing whole casks is generally more cost-effective than buying individual bottles. Casks offer bulk pricing and lower per liter storage costs.
Additionally, owning a cask provides complete control—you can decide to sell, sample, or ship your whiskey whenever you choose.
On the other hand, the advantage of investing in individual bottles is the lower initial investment and the convenience of having them in your home, though this can also be seen as a drawback.
Angel's Share:
Let's delve into the concept of the "Angel's share"— not to be confused with angel investing!
When you store whiskey in casks at a distillery or bonded warehouse for aging, several changes occur:
This evaporation rate is known as the angel's share, and it typically amounts to about 2% of the remaining volume each year.
Several factors influence the future value of your whiskey cask:
From my experience, to achieve favourable returns, a typical holding period of five years or more is advisable for whiskey cask investments.
Liquor Stocks/ETFs:
The WSKY ETF, which focused on whiskey and spirits, is no longer trading. As an alternative, investors might consider ETFs specializing in luxury goods or consumer staples. Here are some companies in the liquor and spirits sector worth considering:
Please conduct thorough research and consider the risks before investing in these or any other stocks.
Whisky or Wine Investing Platforms:
I am not currently using any of these platforms, nor do I receive compensation for recommending them.
领英推荐
I'm sharing this information purely for informational purposes.
Please consider the risks carefully before investing through these platforms.
Many brokers and online platforms that have sold casks in the past have subsequently shut down, leaving investors with significant losses.
It's crucial to exercise the utmost caution when dealing with unfamiliar platforms or salespeople whom you do not know well.
My Experience and Advice:
Full Disclosure: In the past, I've owned both whiskey casks and rare whiskey bottles and have exited these investments. Currently, as I write this newsletter, I do not hold any positions in either casks or bottles.
From personal experience, investing in whiskey casks and bottles has been profitable. However, this type of investment may not be suitable for everyone. It's ideal for those who can handle potential losses without significant financial impact. Smaller investors might find that the risks outweigh the benefits, particularly if they don't have substantial capital. The illiquid nature of these investments and the complexity involved in managing them can also be daunting.
Moreover, diversifying too extensively can complicate asset management and make it challenging for heirs to access these assets if something unforeseen happens to the investor.
Initially, my investment motivation was partly the prestige associated with such assets. However, upon reflection, I realized this wasn't aligned with my financial goals, prompting me to divest and reallocate funds to my core portfolio.
Investing in whiskey can be a worthwhile endeavor for diversification, particularly if your portfolio exceeds $1 million. However, it's crucial to approach this investment with a clear understanding of the risks and a well-thought-out strategy.
Numerous sale records have been broken at auctions since COVID-19, with collectors sometimes shelling out millions for a single bottle.
In November 2023 for example, a bottle of The Macallan Valerio Adami 60 Year Old (of which only 40 bottles were produced) sold for $2.7 million at a Sotheby’s auction.
Before bidding commenced, Sotheby’s had given the bottle a high estimate of $1.5M
Let's Do The MATH!
Based on my analysis using data from Visual Capitalist, here's my conclusion which might be surprising to some:
If you're considering allocating 5% of your net worth to whiskey casks or bottles, it's essential to consider the size of your portfolio and the returns over the last decade.
For instance, whiskey investments yielded a return of 280% over 10 years,
while the S&P 500 returned 158% in the same period.
From simulations across portfolio sizes ranging from $50,000 to $10 million, I've found that investing in whiskey might be worthwhile for diversification if your portfolio exceeds $1 million.
For smaller portfolios, the total dollar return over 10 years might not justify the risks involved.
Given the unpredictable nature of future returns, and the need for careful risk assessment, my advice, particularly to salaried individuals who are managing their budgets tightly, is that whiskey investment might not be the best choice. It's crucial to evaluate your financial capacity and the potential risks before diving into such alternative asset classes.
$50K Portfolio:
$100K Portfolio:
$250K Portfolio:
$500K Portfolio:
$1 Million Portfolio:
$5 Million Portfolio:
$10 Million Portfolio:
The views expressed here are based on the data I've examined and are purely my own.
Note on Expense Ratios
Please note that the expense ratios for the S&P 500 index fund (VOO at 0.03%) and the typical charges for wine, cask, and whiskey investment platforms (around 2.5%) have not been included in the analysis.
Please consider that there may be room for adjustments.
The significance of financial gains, ranging from a few thousand to several thousand dollars, can vary greatly depending on an individual's financial situation.
I hope you found this analysis helpful and entertaining!
Share your thoughts and let’s discuss further the potential of whiskey as an investment.
Acknowledgments
Portions of the content in this newsletter have been informed by resources from websites such as VINOVEST, Visual Capitalist, and the Scotch Whisky Association (SWA). Their detailed insights and data have contributed to the depth of information presented here.