Gepubliceerd: 17/12/2017
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? 😉
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!
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