Is investing in Whiskey risky?

When I talk to people about investing in Whiskey, the most common concern is whether or not it is too high risk. While you certainly can lose money investing in Whiskey, overall I view the downside risk as lower than the stock market, but comprised of different types of risk that most investors are not used to dealing with.

Let’s first take a look at how you can lose money investing in Whiskey:

1. Asset Depreciation Risk— This is what most people think about with stocks. You buy a stock today at $100 and it’s trading at $50 next month. For the most part, I view depreciation risk as lower than stock markets. For example, if you have a favorite Whiskey that you buy at the store for $100, how often have you seen it being sold the next month for $50…almost never. There are a few common exceptions to this: Hyped new releases, ultra rare bottles ($10k+) which sell infrequently and bottles where supply suddenly increases (the distillery starts making more). We’ll dive more into those in another blog but they are either easily avoidable or extremely infrequent.
2. Counterfeit Risk — If you google Counterfeit Whiskey you’ll find tons of articles convincing you that many expensive bottles are counterfeit. There is some truth to this, and it’s a real problem in the ecosystem but for the most part one thats avoidable for the individual investor by buying from major auction houses. While I don’t believe that many auction houses guarantee authenticity they do inspect bottles, and if you are reselling at the same auction house later, it’s very unlikely that it does undetected when you are a buyer and sniffed out when you are a seller. I have not personally encountered a counterfeit in hundreds of rare bottle purchases. I would not buy a rare bottle from a retail store that does not specialize in rare bottles — i think this is the top way people end up with counterfeits.
3. Counterparty Risk — This is another type of risk that stock market investors are not used to. Counterparty risk is the chance that the auction house or cask dealer that you work with does not deliver your bottle or cask. It’s very difficult to get away with repeated fraud in sales transactions now, so my primary area of concern is whether some of these businesses will be around at the end of my holding period. This is especially present when buying casks where I use a small vendor (Cask Trade) and expect very long holding periods (2–5yrs+). If they do go out of business it may be very difficult or expensive to track down and sell my casks from warehouses in the UK.
4. Transaction Costs — This isn’t a “risk” per se, but it is a common way to lose money if you don’t manage properly, especially if you are buying bottles under $1000 where moving the bottles can be a significant percentage of the price.

The costs to be aware of are:

1. Buyers Premium — Auction Houses will charge you 10–15% premium on top of the listed price at hammer price at sale.
2. Storage costs — Usually around 3% of cost if you store at auction. You can store more cheaply at a bulk storage facility but that requires moving the whiskey which…
3. Transport Costs — This is typically $60-$100 shipping plus around 3% of cost if you insure the shipment (recommended). If you are local to the UK you can probably move from auction house to storage yourself and have a more effective option.

You can’t avoid these costs but you can minimize how much you move purchase bottles by holding in long term storage at the auction house and avoiding transit. These transaction costs are especially important if you plan on “flipping” whiskey where you sell within a month — you would need to have at least a 15% gain to cover your transaction costs and in my mind only viable if you are able to sell at a retail markup (which likely requires additional licensing).

So is investing in Whiskey high risk? For the most part no — if you minimize the risks above with smart choices, you will see 10–30% annual gains on many bottles (and casks) which will offset the initial transaction and holding costs. Additionally, the higher value bottles minimize any fixed transit costs like shipping (but not value linked costs like storage and insurance).

Coming Soon: What type of Whiskey should I invest in?