What Whiskey should I invest in?

So you’ve decided you want to invest in Whiskey. The next logical question is, What type of Whiskey should I buy?

I would think of the market in 5 categories:

1. Commodity Bottles — These are bottles that are being actively produced with enough supply to meet demand. You can find these in a retail store (though some you may have to go to regional or specialty stores). Usually these are priced $300/bottle or less
2. Rare Bottles — These bottles are hard to find and you mostly will only see at auction. There is a limited supply either based on distillery or special edition. They typically sell at auction from $300-$10,000.
3. Ultra Rare Bottles — These bottles may have global supply of less than 100 bottles. They are difficult to price since there may only be 1 or 2 sold at auction a year. These bottles typically sell for $10,000 to $100,000.
4. Casks — Casks are Whiskey that is still going through the aging process. We’ll dedicate a full blog later to the economics of casks, but these are aging stock that need additional financing to hold to bottling maturity. It’s too expensive for some distilleries to hold all casks to 15–20 years. You would usually find these at auction or through a broker and the typical price point is from $3,000-$25,000.
5. Rare Casks — These are hard to find or one of a kind casks. It could be from a distillery that rarely sells casks like McCallan or a discovered cask from a no longer in production distillery. I don’t have much experience with these casks so cannot provide much guidance here. Typical price point would be greater than $50,000.

NOT RECOMMENDED

So, which should you buy? In part it depends on how much you have to invest, but I personally focus on Rare Bottles and Casks. Let me explain the drawbacks of the others.

Commodity Bottles — Typically bottles of this type are too low price to offset fees for shipping and holding. Occasionally, you could strike gold in this category where a $100 bottle becomes much less available and skyrockets to $1,000, but this is very hard to predict unless you have inside information.

Ultra Rare Bottles — This category has too much unpredictability for me personally. It is possible to buy a very illiquid bottle for $25,000 and sell it soon after for $50,000. But it’s also possible it sells for $10,000. There is a limited set of buyers in this category and would not recommend unless you know preferences and price points of these buyers as there is not enough information from auction history to assess.

Ultra Rare Casks — This category is probably more predicable than with Ultra rate bottles since there are likely at least comps for the bottles that could be made from the cask which could help set an upper range. Given the price point you need a lot of capital to invest in these. Unless you are investing over $1mln overall, choosing this category may also make your portfolio very concentrated in one asset.

RECOMMENDED

1. Rare Bottles — Rare bottles have a good balance of predictability in increasing scarcity. In terms of predictability, in this category you should have a good idea on price trends from auction history (more sites are including a historical chart like this one from my favorit auction house https://www.scotchwhiskyauctions.com/). We’ll dedicate another blog to what patterns to look for and which to avoid.

In terms of scarcity its important to remember that within this category you have a mix of collectors and consumers. This means that a 5000 bottle special edition will shrink in availability each year. If demand is stable (hint: avoid demand spikes), the decreasing supply will cause the price to go up.

2. Casks — Casks also have a good set of systemic conditions working for them. Whiskey in casks is still aging from a labeling perspective — meaning if you buy a 10 year old cask of Tomintoul, and hold for 2 years, you now own a Tomintoul 12 whereas with bottles you would own a 2 year old bottle of Tomintoul 10. Almost absolutely, an older whiskey will be worth more than a younger version of the same whiskey at any given time. You can look at Pappy Van Winkle 15,20,23 prices over time and see a high correlation and always the 23 being worth the most

There is some drawbacks to casks.

1. Longer Holding Period — Casks are best sold at typically bottled ages (10,12,15,20,25,30 etc). This may require holding up to 5 years to hit the next landmark age
2. Carrying Costs — Casks will require some insurance, maintenance, reguaging, registration and storage in a bonded warehouse. I recommend working with a broker that can help manage these. I personally have had a great experience working with Cask Trade. We’ll have a follow up blog detailing the costs and experience of buying a cask — or you can get more from Cask Trade.
3. Some need to monitor and make decisions — One big difference with casks is that they are not air tight and water and alcohol evaporates (called the angel’s share). This means that you will have less bottles in your cask each year. While it’s likely not enough to wipe out your profits, it does create some drag on earnings and some risk it becomes worthless in some scenarios. Casks with ABV below 40% by law, can no longer be bottled and sold independently as Whiskey so most of the value is lost if you age too long and ABV falls below 40%.
4. More difficult to buy and less selection — There is less selection in casks and fewer auction houses and vendors selling. You can buy directly from some distilleries I have never seen it recommended for investment as you would be starting from a new unaged spirit and need to hold very long.