Geplaatst: 17 December 2017
How to build a whisky portfolio?
If you have not read our previous post “Me As A Whisky Investor” , you should do that first before enjoying this post!
Building a whisky portfolio is not different from building a house🏠. We would like to build a house in which we can live comfortably for many years. A house which is sustainable against any weather☔🌪. Building a house with vulnerable material might be better for your wallet in the short term🏚. However, when it’s rainy you should get sufficient buckets ready before your floor gets wet…
Investing in general won’t bring you fast money, but it does bring sustainable money in the long term🤑. By following this rule we can build bomb proof whisky portfolios💣💥. Nowadays we don’t build houses with only using 1 kind of material. We use stone for walls, we use other materials for the roof for instance. So turning to composing whisky portfolios, we should not only buy Scotch whiskies or solely Japanese whiskies. We should not only buy single casks, but also single malts and blends. The key🔑 to let your money grow by whisky investing is to build a well diversified portfolio. As with building a house every owner can have add some personal taste to the portfolio, like a purple door instead of the usual color brown or 4 windows instead of 3 on the front. But we never see a house without a roof or only 2 walls. Similarly, the owner of a whisky portfolio can add more Japanese whiskies than another investor or adding more blend whiskies to the portfolio of course. But beware that we do not bet on only a few horses🏇🐎! Whisky investing is not that static of course in which every portfolio has to be identical. The portfolio must suit the owner, the chemistry between the owner and the portfolio must be a nice ingredient for a sustainable marriage with many memorable moments in the future👰🏻🤵🏻.
Building a whisky portfolio starts with good research📚. Based upon the research we are able to construct a vision where the whisky market will be heading for the coming 6-12 months. Looking forward beyond this time frame is not useful in our opinion since during a year many factors could affect the market. For instance in June 2015 Nikka announced to discontinue all whiskies with an age statement. This was a shock for the whole whisky market, especially for the Japanese whiskies. Everybody was suddenly hunting for Nikka whiskies, but also other Japanese whiskies received a much higher demand. Hence, prices went up dramatically since the supply became lower while the demand became higher. In addition, the prices of Scotch whiskies also rised as whisky investors also anticipated that scotch whiskies, like Macallan, will also follow this plan shortly.
As a beginning whisky investor, don’t start buying the most expensive whiskies first💸. This might be the fast and easy way to get much money into whiskies🏎. At the same time we must be aware of the fact that the more expensive a whisky is the harder it can find a new owner, thus less liquid to trade. Therefore if our portfolio only contains expensive whiskies, we have a higher chance to miss good market opportunities due to insufficient flexibility to generate free cash flow by selling the whiskies. Hence start building your whisky portfolio with affordable (but at the same time hard-to-find) whiskies.
Diversify your whisky portfolio over different countries, distilleries and kind of whiskies🇯🇵🇺🇸🇮🇳. Don’t stick your portfolio only to Japan, or Macallan or only single casks. Diversifying your portfolio provides us flexibility and less risk. Sometimes blend whiskies might be less popular than single malts, but this might change quickly in the market. Sometimes it can be rainy for days consecutively, but one day it will be sunny again🌤. And at that moment we must have an umbrella ready☂.
I repeat this over and over again🗣: Beware of fake bottles in the market!!! The traditional rule is that if a deal is too good to be true, the whisky might be a fake. But…senior fakers also know this rule and they just set their price slightly below the market to get you hooked. It is hard to distinguish a fake from a real bottle since people also might refill an empty. A proper protection would be to deal with stores and people who have a reliable reputation in the whisky world. After all the whisky market is not that big, people know each other very well.
Beware of fake whiskies!!!
And last but not least… Enjoy whisky investing, enjoy the fun of doing research, enjoy reading articles about whisky. Also a very important tip: make sure that your wife agrees with your purchases too! Buy her shoes👠 and bags👜 in advance before you make another addition to your whisky portfolio.
As you have read, we enjoy whisky investing very much! Therefore we are happy to provide advice regarding your whisky portfolio. Do you want to know more about composing a real whisky portfolio in practice? Do you want to know the latest trends? Come to our shop to have a set in our lounge. With a cup of coffee we talk and learn more about the amazing returns of whisky investments📈! It is not different from advice regarding which sweater suits you more, is it a black one or is a red one more the trend nowadays…?😉
Me as a whisky investor?!
When we talk about investing, one would not immediately think of investing in whiskies. For most people it sounds relatively new. But actually whisky investors are as common as stock market investors. Due to the current low interest rates or even negative rates, whisky investing has a (big) dot on the radar of many investors. But what is whisky investing actually?! Is it different from putting your money in the stock markets or the crypto currency markets? Well, in some ways it is different of course. But eventually “Investing” is all about letting your own money grow over time. Hence, “Investing” starts with an “I”. Did I make you sufficiently curious to grab some popcorn to continue reading? 😉
1. Discipline & Patience
First instead of talking about whether whisky investing would suit you, I’d rather like to talk about the challenges of whisky investing. First of all it requires discipline & patience. Let’s get one of the famous quotes of Warren Buffett:
So does this mean that whisky investing is not suitable for impatient people among us? I would say that whisky investing is a good class to join for impatient people to learn how to be more patient. Losing money is bad, but losing money due to impatience is even worse!
A second element to build a robust whisky portfolio also starts with a “P”: Pennies. Whisky investing does require relatively much money. It is a fairytale if we have $100 in our pockets and run to the nearest liquor store to grab some random whiskies from the shelves and call ourselves a Whisky Investor. For stock markets this approach is more applicable though. We just open a stock account tomorrow and buy the whole MSCI World index. Everybody has easy access to stock markets. A stock portfolio can be identical for two investors with a totally different amount. The positions in the portfolio could be the same, only the amount invested is different. My portfolio only contains 1 stock of Apple, while Donald Trump’s portfolio also fully contains stocks of Apple: The only difference is that he owns 1.000.000 stocks instead of 1 (by the way, this is also one of the reasons why he became president and I did not come through any headlines). For whiskies we cannot divide a bottle of $100.000 in 100.000 different pieces to provide access to 100.000 investors. In that sense whisky investing is ironically less liquid compared to stock markets though, whereas it has a much higher ABV%!
Thirdly, a very reliable network of people will help you to build a solid whisky portfolio. Any market with much money involved always attract counterfeit products. Nowadays there are many fake bottles floating around. Moreover, the fake bottles will rather grow than diminish since prices of whiskies have been rising rapidly the last couple of years. Therefore whisky investors need sufficient knowledge of the bottle and the people he is dealing with. Nobody would like to possess a whisky portfolio with only fakes while he has always thought that this portfolio would bring him faster to retirement. In addition, a reliable network in the world of whiskies provide you a better access to any bottle. Again, we grab the stock markets to make this statement more clear. We can buy every stock we want as long as we bid sufficient pennies. There is only one worldwide exchange of stocks. Hence, there will always be an investor on the exchange who sells this stock to you. The stock market is much bigger and better accessible. However, for whisky investing this part is much harder. Even though whisky investing requires relatively much money, it is not solely about bidding all the way up to obtain every bottle we want. For instance, there is no worldwide exchange on which all available bottles are listed as for stocks. We cannot put a price we are willing to pay for a bottle on an exchange where we can meet other whisky investors in order to seal a deal with. From this perspective whisky investing has more similarities with buying a painting from Picasso. First you must know who the owner of the painting is. Secondly we must know what a proper market price is. The latter cannot be known by just looking at the screen as for stock markets. To determine a proper market price for which we are not bidding far too much or that low that the seller does not take us seriously, we must conduct valuable research by again consulting reliable people in the whisky market.
The fourth element is conducting research. To bring ourselves closer to retirement or a private jet, we must know what factors determine the price of whiskies. On one hand we make this very easy. A price is just a snap shot of the balance between demand and supply. After all prices in general go up or down by supply and demand. A higher supply than demand means a lower price in the end. Vice versa, a lower supply compared to demand means a higher price. Let’s be honest: Every investor prefers to have products in his portfolio for which there is or will be a high demand and low supply, irrespective from stocks, bonds, stamps or whiskies. Some bottles only have 100 bottles ever produced. If one bottle is cracked or breaks, the supply is immediately down with 1% while the demand is still the same or even higher over time. Thus the price must go (at least 1%) up to have a new balance between demand and supply. On the other hand, there are many other underlying factors which drive the supply and demand. It is not waiting for somebody who drops a bottle on the floor or cracking one. If this would be the case, I could stop writing this and you can close down this page immediately. It is also knowing the trends of the current market. Which bottles will become HOT and which whiskies will become NOT? Questions like: “Will the prices of Japanese whiskies picking up shortly?” And we zoom in another level: “Do we prefer sherry casks in our portfolio or mizunara casks?” “What will the releases be for the coming 6 months which might influence the prices?” Looking back also provides us very valuable information. Rare Whisky 101 is a public page which publishes prices of different whisky portfolios monthly. For instance, we can see the historical performance of the Japanese Icon 100 Whiskies Index which contains 100 different Japanese iconic bottles. Most of the bottles are from the closed distilleries Karuizawa and Hanyu, but also from the famous open distillery Yamazaki.
The fifth requirement for being a whisky investor is considering the transport of a bottle. Most of the time the bottle on the wish list is not just around the corner, but in a foreign country or even overseas. Nowadays we are not allowed to take liquid in our hand carry luggage. Consequently we are forced to ship the bottles in order to enhance our whisky portfolio. Now shipping has lots of challenges, like breakage / loss / leaking etcetera. Furthermore, we cannot insure all these risks. If a bottle is broken, all involved parties (buyer, seller, courier) will try to blame each other with the aim not having to compensate the loss. The courier will blame the seller that it was not packed safely. The seller will blame the courier that he has played basketball with the parcel. Or the buyer will be blamed that he did not open properly. In the meantime the price of the specific rare whisky keep rising and the parties are still discussing with each other who is going to pay. Therefore packing a whisky does require experience and skills. One cannot pack every bottle same way as we cannot approach everybody the same way. Japan has a different culture than American people for instance.
So in sum after reading this (discouraging) post regarding the challenges about whisky investing, are you thinking why whisky investing could still be so popular with so many challenges? Well, probably whisky investing provide people advantages which significantly outperform these challenges since investing in general does contain challenges of course. Otherwise we would not call it “Investing”, but rather “Free Money”! If you would like to read about building your own customized whisky portfolio, click HERE for the next post!