Gabriel Matagne: Understanding the mechanics of Whisky investment

3 mn read

It might come as a surprise but rare whisky, like certain art objects or diamonds, is now an investment product that can generate eye watering returns.

The recent sale of a bottle of Macallan for 1.9 million USD has revealed the potential of a lucrative whisky market to the world. Spectacular auction sales figures for Macallan and other Premium quality brands such as YamazakiKaruizawa and Hanyu have generated a lot of interest outside the niche world of whisky specialists. Attracted by the impressive price increases, more and more investors look to join the exclusive club of whisky investors. But to be successful, they need to understand the dynamics of the various whisky markets and the different categories of investment grade whisky. Knowing how to buy the right whisky at the right time is the one million dollars question- but how to pick the winning bottle?

According to Knight Frank Luxury investment index, investment grade whiskies went up 586% over the last ten years and 11% in the last 12 months. Since the last financial crisis of 2008, investors have been looking to secure their investment portfolio by investing in tangible assets that are disconnected from the financial market. They have been investing in products known for their low volatility and relative price predictability.

One of the ideal products to serve the purpose of investment diversification is rare single cask whisky. Single cask whiskies are spirits that are from a specific cask that contains a limited number of bottles. In general, only a few hundred bottles but it can be less. In the case of the Macallan 1926 sold for 1.9 million USD only 40 bottles were drawn from the cask in 1986. Single cask whiskies are rare by definition.

The future price of the best matured single casks scotch and Japanese whisky is predictable for two reasons. The ever-increasing global demand for the best whiskies has been eroding the quantities of stock still available. The simple fact of opening a rare bottle of whisky is pressurising the price of the remaining stock. The price of whisky generally goes up until the last bottle of a single cask is opened. Based on the conjunction of these 2 factors (limited stock and hight demand), it is reasonable for investors to expect a significant return on their investment. What is more to anticipate is the staggering price some products can reach. Just A few days ago on the 21/08/2020 one bottle of 55 years old Yamazaki has been sold at auction for almost USD800K. The pre-estimate price for that item was comprised between USD74K to 100K.

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These price records at auction confirm the vitality of the whisky investment market. More than ever, the expression Investment grade whisky makes perfect sense.

It also shows that more and more people see tangible assets as a safe diversification tool. Today, in 2020, it is perfectly clear that the investment whisky market is segmenting. A price hierarchy is emerging.

That hierarchy is based on reputation of the distillery but also on the age of the whisky and of course its intrinsic quality. Any whisky that has the pedigree to be part of that elite club can, at any point in time, reach levels that will command the price it truly deserves. Today the challenge for savvy investors is to find the next super collectable item. More than ever, the search for truly exceptional and still under-priced products is on.

Finding underrated products

Like in any other market, knowledge of the product is essential. We have seen that a Macallan 1926 did achieve extraordinary results at auction. It is quite amazing to see that despite that information being in the public domain there are still many Macallan from the 1930’s available for only a few thousand euros.

This pre-WW2 products are part of the world whisky heritage and it is only a matter of time before most of these – for now still affordable bottles – get consumed. The pressure on the price of these time capsules will intensify and this should generate attractive returns on investment.

There are many rare whiskies that are aged between 35 years old and 50 years old that can be purchased for attractive prices. Securing a good buying price for exceptional products will translate in good or even excellent return on investment. Investors should focus on finding excellent value for money. They must keep future price expectation in mind for that reason they must carefully consider the current buying price. That consideration should include an analysis of the price history and an “extra-cold” assessment of current price levels.

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The success of most investors today will be based on their ability to find products that are either underrated or that have been released recently by the distillery or by the independent bottling company. The investor should target products that are at the beginning of their pricing journey toward the top. The question of value for money must be asked at every steps of the product’s journey. The risk for the investors is to purchase an overvalued product that will not be profitable for a long time. It is essential that the price of the product targeted is linked to the quality of the whisky. Low quality and high price will inevitably translate in a bad investment. For that reason, investors should avoid products that are presented as “limited edition”. Brilliant marketing does not always mean great whisky. It is generally the contrary.

The increasing importance of provenance

Future investors should consider the subject of provenance very carefully. It is important to be able to demonstrate that the product purchased for investment purposes has been purchase from a good reputable source. Keeping records of all buying transactions is recommended as it will support future claim of provenance. Finally, whisky investors should be made aware that investing in whisky is a long-term investment. The low volatility of the whisky market makes it almost impossible to generate profit rapidly. It generally takes a few months before selling a well selected whisky collection at the required profit levels. Potential investors should be aware that time is of the essence of a successful whisky investment and that time pressure will negatively affect the performance of the investment.

Whisky investment can be fun and profitable. Investing in whisky is the occasion to discover a world of refinement that rotates around the idea of quality and pleasure. Buying rare and expensive whisky is giving investors access to the glamourous life of true luxury while making significant returns provided the investment has been carefully planned.

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By

Gabriel Matagne, whisky expert from Spirits and Champagne SASU. Gabriel grew up in the wine trading district of the Chartrons, in the ancient port of Bordeaux. For hundreds of years, Bordeaux has been the heart of the fine wine trade. After years working for the wine merchant of the Corney and Barrow, the English monarchy in London, Gabriel did create his own company, Spirits and Champagne.

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Eat News is a Taiwanese digital media, analyzes current events and issues through column articles, videos, visual aid, and exclusive interviews.

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