Money for Barrels

Money for Barrels

So you'd like to invest in Whisky? Ian Buxton reports

News | 29 Feb 2008 | Issue 70 | By Ian Buxton

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It’s a good plan. After all, you know something of the subject, you enjoy the product and whisky’s prospects look exceptionally good. So what do you do?There are three routes with, as you might expect, some highways and byways to add interest and excitement.You could buy some shares in a distillery.Sadly, there are no longer any pure whisky companies quoted on the London Stock Exchange. They have long since been swallowed up by the various waves of industry consolidation that mark the ebb and flow of the whisky business.But you can buy shares in two global drinks giants, Diageo and Pernod Ricard.Both offer a widespread portfolio of different products, offering you some protection if whisky drinkers switch to rum, vodka or gin.Both have outstandingly successful whisky and other spirit brands and both are well placed for the potentially huge growth anticipated if the nascent markets of Brazil, Russia, India and China develop as hoped.Leading whisky analyst Alan Gray of Sutherlands in Edinburgh has been watching the whisky industry for more than 40 years.During the current turbulence in global stock markets he recommends caution but says: “These are basically very good companies with excellent long term prospects but don’t rush in right now. There may be buying opportunities over the next few months due to the market’s volatility.” Recently, an investment in Diageo would yield about 3.5 per cent, though it’s capital growth you’re really looking for. However, on top of regular dividends you’re entitled to attend the AGM, enjoy the hospitality and ask the chief executive impertinent questions about his salary!Those independent distillers which remain are privately held and stock is highly unlikely to be available outside the owning family or privileged employees. There are various proposed distillery start-ups, however, which will accept your money.The track record here is patchy. Though Bruichladdich was brought back into profitable production by a small group of private investors, the risks are high and the timescales long in this type of project. It is not something for widows or orphans to consider and sometimes the minimum subscription can be daunting. The average reader of Whisky Magazine will do well to avoid such schemes.The alternative might be to buy some whisky. The question of buying a single cask, with all the fun and challenges involved in this, has been discussed often in these pages but rare collectable bottles offer a potential route.Counterfeit bottles apart, one potential pitfall is the transparency of the market or, to be accurate, lack of it. A new website may help. Michel Kappen’s World Whisky Index, based in Holland, aims to provide the whisky collector and investor with a secure trading platform where authenticated bottles may be bought and sold.The site currently lists more than 3,000 bottles with a total value of close to E500,000 (approx £375,000). However, there may be some way to go to achieve transparent pricing, or perhaps some of his vendors are a trifle optimistic. Some prices checked at random against other current offers looked competitive but Ardbeg Lord of the Isles at up to £280 and the Glenmorangie Culloden edition at £695 are high. At the time of writing, this attractive bottle is available for around £265 from more than one source.But, as Michel Kappen explains: “We do not trade in whisky on our own account and individual vendors set the prices. However, we are definitely happy with progress – the index tells the consumer about the investment possibilities and we expect prices to grow. The index creates a transparent vehicle for trading exclusively in whisky.Every bid is recorded and a market value will emerge over time with clear trends. We expect to carry more than 20,000 transactions in the next three years giving a substantial basis for the data.“Importantly, the World Whisky Index will show values of unobtainable bottles, not available in retail outlets and be the authoritative price guide.” But pricing apart, collectable bottles have another problem: you can never open them to enjoy the contents without liquidating your investment. And, if you’ve bought shrewdly, that will become an ever more expensive proposition.One answer might be to invest in other whisky collectables. The market for ephemera has been transformed by global auction sites such as eBay. The greater transparency of the market and increased buyer knowledge meant that many prices dropped and once-cherished collections reduced in perceived scarcity. Counterintuitively, however, perhaps this suggests that now is the time to buy.The opposite seems to have happened with whisky books. Once largely ignored they are becoming increasingly collected and desirable. Price trends are clear, thanks to an exhaustive survey published by author Philip Morrice in Book & Magazine Collector in December 1987.At that time he priced a good copy of Alfred Barnard’s The Whisky Distilleries of the United Kingdom at £300. Last year, one of the very few copies to come on the market sold privately for £2,500. To take another example, copies of Tommy Dewar’s engaging travel journal A Ramble Round the Globe were available five years ago for £15 or £20.Today, the only example I can find is listed at £250 by a bookseller in Shrewsbury.Also highly desirable is the 1878 edition of Truths about Whisky published by the four main Dublin distillers as “an endeavour to place some check upon the practices of fraudulent traders.” Morrice suggests a price of up to £150.Expect to pay at least £750 today.Books have the great advantage of being both portable and enjoyable. With care, you can enjoy your treasured library and still make money whereas you can only gaze in frustration upon a rare bottle!But perhaps the last word is one of advice – wherever you decide to invest your hardearned cash research that market first. As Tommy Dewar once remarked: “Never invest in a going concern until you know which way it is going!”
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