Whisky is for drinking. But can it be a solid investment instead?
The first thing we think about whisky, is that it is for drinking – but…can it be a solid alternative investment vehicle instead?
With rising affluence, could some of the wealth be pouring into this vertical – traditionally viewed as an old’s man drink or a party drink, as evidenced by a shifting paradigm towards whisky as an asset class?
History says yes. Below is a chart of the Rare Whisky Icon 100 Index:
The Rare Whisky Icon 100 Index rose from 100 points in 29 Dec 2008 to 593.63 in 28 Jan 2019. That’s a 493.63% gain or an average annual return of 19.3% for the last 11 years!
Similarly, another index which tracks Karuizawa, a moth-balled Japanese distillery which has risen to fame over the past few years, has also leaped by 453.7% over the last 5+ years.
Whilst it could be argued that the financial markets were having a good run and people had arguably more budget to buy and consume alcohol, the performance of Karuizawa prices still proved resilient, improving by 27.34% in the past 6 months, despite the turbulent financial markets which saw assets drop significantly due to events such as the US-China trade war, Italy’s debt and Brexit among others.
I got to interview a whisky expert, James Phang, who founded a local whisky enthusiast group Singapore Liquid Gold Club on Facebook.
Recently, he also founded Singapore’s very first online whisky auction site, Liquid Gold Auctioneer.
How did you develop the passion for whisky?
James Phang: When I first graduated from university and started my first management consulting job in 2013, I was looking out for opportunities where there were information asymmetries to exploit in my spare time.
Back then, I was getting into luxury watches as a hobby, and went so far as to be a resident contributor of watch reviews and new watch releases for www.wristreview.com which was based in the UK.
It was then that I realised that trading luxury watches could make me some side income, so I began hunting online watch forums and Carousell to sniff out bargain deals.
After 2 years in the game, I realised that the market was getting over-saturated, with many more dealers monitoring these forums and snapping up any bargains. It was also impossible to become a recognised player in the market unless one had really deep pockets and a lot of holding power, which of course I didn’t have since I had only just joined the work force.
So, I began exploring to see if there were other similar areas with less competition. This was sometime in mid – 2015, and some of my close friends from the luxury watch community had just opened my eyes to world of whisky, sharing some of their prized bottles such as Hanyu “Cards” series, Karuizawa Single Casks, and old Macallan bottlings to a newbie such as myself. I was shocked by their generosity.
I remembered thinking to myself … I loved how distinct and complex the tastes were, and it was a far cry from the bad hangovers I had from ordering whisky at the bars and clubs during my younger days. The fact that whisky can be shared among friends over dinner or in an intimate setting, and double as a touch point for networking and meeting new people added to the draw. It was no longer who had the most expensive or rarest watch in the room, but rather, what everyone could potentially bring to share on the table, to collectively enjoy and explore the different whisky offerings out there.
Thank you for setting up the Singapore Liquid Gold Club which was how I came to you. What drove you to start this Facebook Group?
I begun searching for places where I could potentially acquire bottles from, and I realized that I could only get a very limited selection within Singapore, and that prices were generally much higher that those sold overseas. There was no active secondary market back then, no gatherings for like-minded people to get together for drinks, and a general lack of whisky selection at good prices.
There was no local online forum which traded whisky, save from some ad-hoc alcohol clearance sales on hardwarezone or other craigslist which came by occasionally. So I thought to myself, why not set up a simple Facebook page to grow the whisky community and give people a platform to trade bottles, share samples and also arrange gatherings for people to network?
The community page was also by no means designed to undercut bars and retail shops in Singapore, but offered an alternative avenue to share the limited edition releases, independent bottlings and bottles intended for other international markets. This had a positive feedback loop which then expanded the drinkers’ horizon to become more savvy and appreciative of the local whisky scene in Singapore, and the number of whisky bars has also since then exploded from just a handful to bars in 2013 to more than 30 bars currently. Brands and F&B businesses could activate the database through partnerships with the FB page, and I’d help to promote their events as well, without charging anything to the businesses. I had no intentions to monetize this database from the start, and I have stayed true to that belief until today.
Through the networks built over time, I’ve become friends with people in the whisky trade distribution, bars, retail shops as well as private collectors around the world, which also end up becoming my clients whom I help with to source for bottles. November 2018 marks the 3rd year anniversary of Singapore Liquid Gold Club, and we’ve come a long way to become the largest whisky community more than 2,500 strong, many of whom are passionate in sharing their knowledge and love for whisky appreciation.
What is the investment case for whisky?
While most investors view whisky in the same category as art and jewelry as alternative assets, it is not really a like-for-like comparison. The most obvious difference is that once a bottle is opened and drunk, it is gone for good. While on the other hand, art and jewelry are often traded in the secondary markets as pre-owned goods. This actually points towards increasing scarcity of whisky over time, as more and more bottles are drunk, the lesser there are in circulation and therefore more valuable for someone who actually wants to procure a bottle to replace the one he had (or missed out in the past). Depending on the type and rarity of the whisky involved, often times we could see an immediate appreciation of 30% – 50% in value upon release, sometimes much higher, primarily due to its exclusivity and appreciation potential.
A recent example is the “Macallan Genesis” with a GBP 475 launch price, appearing at auction within the next month with the closing bid of GBP 3,000 excluding auction commissions and taxes.
Another use-case would be limited releases and complimentary trade gifts from brand owners to trade partners. A Yamazaki 18 50ml miniature would go for GBP 800 on auctions, truly baffling most people given that someone could buy a full 700ml bottle for just HALF the price…but there are collectors out there who would be willing to pay the premium for such items which are not readily available in the open market.
That said, there are also examples which need to take the good ole’ route of waiting, such as the Macallan Edition 1, which I recall paying SGD$185 a few years ago, and now regularly trading in excess of SGD$1400-1800.
This is a very good example of whisky becoming an increasing scarcity. Back when it was released as a NAS (non-aged statement) whisky, people did not pay much attention to it as they were still looking out for aged statements (bottles with age indications on them such as 12 years or 18 years), and those who bought these bottles drank them for casual occasions without thinking twice. With over 84,000 bottles in circulation, most stock has been diminished over time, and as people realised that the Macallan edition series formed part of a collection (currently at 4th edition, with the 5th edition coming soon), many people are rushing to find a bottle of Edition 1 to complete their collection, hence driving up demand and therefore the price of the bottle.
Picking another illustration, for the Hanyu Card series back in 2011-2012, bars in Japan were flogging cases and no one wanted them, when the bottles were priced at the equivalent of SGD 400-600 on average. Bar owners threw bundle deals in, offering free bottles if people took more but no one batted an eye, but alas…fast forward to today, each bottle goes for SGD$5000 easily, with many bottles hitting the 5 figure mark and a full 54 Hanyu card collection goes for at least USD 500,000. Talk about hindsight…Hindsight is always 20/20
Of course, it would be unfair to paint a rosy picture that everything is a sure winner – there are also plenty of bottles which also hardly appreciate over time or actually lose money over time – perhaps due to a lack of demand for that particular brand or people do not see appreciation potential in those.
For example, most people might think that if a whisky is discontinued/ distillery has closed down, it is worthwhile to invest in them… after all, we cannot find them anymore, right? Well, yes and no. Certain high profile distilleries like Hanyu, Karuizawa, Brora and Port Ellen which produced excellent whisky, closed down due to strategic business decisions to the dismay of many whisky collectors. But there is also good reason why some distilleries closed down, simply because the liquid was not as good.
Therefore, buying blindly could result in serious losses, in the sense that you could be overpaying for something that has limited upside potential or you might even have trouble finding another person to buy off you, and you probably wouldn’t enjoy drinking it yourself.
How can I invest in whisky?
There are many different strategies to whisky investing – but I always recommend that people who wish to start investing in whiskies have some level of interest in appreciating whisky – or at least begin to learn about whisky appreciation.
This makes an investor savvier and more capable in curating his own whisky portfolio, knowing what to pick and what to forgo based on his or her taste preferences and collecting philosophy.
I have friends who focus their collection on a single distillery (typically Macallan, Dalmore, Chichibu), specific regions (e.g. Japanese whisky, Islay whisky), closed distilleries (e.g. Port Ellen, Brora, Rosebank) or “old style” whiskies from the 1960s and 1970s.
There are also some who “drink as they invest” as well, they buy what they love and usually buy spares, and when they realise certain bottles have appreciated a fair bit, they could trade or sell their spares off to purchase new bottles to add to their collection again.
As far as independent bottling and single cask bottling goes, there is so much variation in price and taste that sometimes, the price of a particular bottle can jump by 25% or more when a famous whisky reviewer rates it above 90 points (e.g. Serge Valentin).
Some independent bottlers which are well-known for selecting good casks include Samaroli, Signatory Vintage and Gordon & Macphail, but no one is a 100% sharp shooter, and taste preferences and budgets would vary from person to person as well.
As many of these bottles are single casks, it is almost impossible to replicate the same standards of one whisky and the next as well, therefore something that could spend the same amount of time, in the same type of barrel side by side, could taste quite different, and the prices could reflect accordingly over time. Hence, we often say that whisky is more an art than a science.
However, most people have a healthy mix of everything, as you can tell when someone grows along his whisky journey, he or she moves beyond regions, types of taste profiles and also backwards in time to taste across different eras.
A good rule of thumb for myself is to have about 15-20% of my collection open, to drink myself or to share with friends (sometimes people get convinced only after they try), while 80% of my collection is set aside for various purposes (to open for an occasion in the future, to replace an existing opened bottle, or to sell when the time is right).
At a much higher level, usually reserved for people with strong whisky knowledge and deeper pockets, they can also start looking at private casks, either by trading entire casks after holding them for a period in time, or bottling them under their own labels and then selling at a premium. This would require a good nose/palate to be able to discern what potential a new-make liquid could become, and when is a suitable time to bottle it or re-cask it in another barrel for more flavors, and of course, the channels to actually sell these bottles since they would typically be holding at least 180-300 bottles of the same liquid, sometimes even more depending on the cask type.
There is never a guarantee that a bottle of whisky can make you a consistent return of x% in a year. Some bottles could make you 30% returns in a month, some bottles perhaps 20-30% over 2-3 years and some to hold long term over the years before it is the right time to sell.
Furthermore, knowing something is a sure-win is not enough, if you don’t have the access to acquire it. Many limited releases come by allocation at RRP, and secondary market prices could already be a lot higher. By virtue of the limited stock allocation, it becomes a challenge to source and allocate these bottles to clients as well.
One way is to adopt a portfolio balancing strategy and diversify your risk across different types of whisky.
I typically help clients build up their whisky portfolio based on their taste preferences, budgets and time horizon – with a good mix which allows them to cash out in the short, medium and long term.
Typically, these clients can choose to sell off the whiskies as and when they deem fit, depending on how much profit they want before cashing out, or approach me again to help them to sell off their whiskies too, either via my private channels or using the new whisky auction platform Liquid Gold Auctioneer I have started with friends, which aims to reach out to the Asian markets beyond Singapore.
Most importantly, whisky “investors” to term it loosely, are typically both collectors and drinkers themselves, since if they are unable to sell a particular bottle, they can always enjoy it with friends in a gathering or a special occasion. That said, if you open your bottle, it’s still an investment (in yourself). You don’t suffer paper losses like a traditional financial asset, you get to enjoy it in your belly.
What are the key things you look out for when you invest in whisky?
Below is kind of a checklist which are basically questions I ask myself when I evaluate a bottle for investment:
- Is the bottle part of a series in a collection? (e.g. typically the first editions are worth the most)
- How rare is the bottle? (e.g. how many in circulation/ how easy is it to acquire a bottle )
- only for certain markets?
- only available at the distilleries?
- only available at certain whisky festivals?
- only by allocation?
- only by ballots?
- only available if purchased as a bundle (with other whiskies)?
- Is it discontinued/ going to be discontinued soon?
- Is it from one of the well-known distilleries which has a cult following?
- Is it released for a particular festival which is traditionally highly sought after? (e.g. Feis Ile)
- Is the cask selected by someone famous in the whisky industry?
- Is the whisky reviewed (and scored highly) by someone famous in the whisky industry? (e.g. Whiskyfun, whiskynotes.de)
- Does the liquid taste good personally? (can I try it at a bar beforehand?)
- What is my investment time horizon? Can I afford to hold this for the long term – or will I use it for a quick turnaround?
- What is the capital outlay required?
- How do I want to diversify my portfolio? What percentage of the portfolio should go into fast turnarounds, and how much for long – term holding? (My personal take is always 80/20, 80% as investment, 20% for consumption)
- What risk am I willing to take? Am I fine with the idea that if I am unable to sell some of the whisky I had purchased, I can open them to drink it myself or with friends?
Why did you start Liquid Gold Auctioneer?
Liquid Gold Auctioneer is modelled after the best practices of various online whisky auction houses in UK which include Scotchwhiskyauction.com, whiskyauctioneer.com, whiskyhammer, justwhisky.com and whisky-online-auctions.com.
As the first Asian dedicated whisky auction house, LGA aims to consolidate the segmented whisky markets across Asia and give Asian sellers a channel to sell domestic releases via consignment with us.
Traditionally, these sellers face a great amount of inertia in selling their bottles in these UK auction sites, having to pay higher shipping and 20% VAT just for the bottles to arrive in the UK, even before selling their bottles. This would mean that a lot less Asian releases would surface in the UK auctions, and mainly circulated within their domestic markets.
We are also offering Asian buyers an alternative with a much friendlier time zone to adhere to. Traditionally, the UK auctions end at 7pm GMT, which translates to 3am SG time.
Due to the structure of these auctions having an anti-snipe system which we also have in place, there are short extensions during the closing window if last minute bids come in, and sometimes the time extensions could go for another 2 to 3 hours depending on the number of bottles bidded in the last minute as the window extends.
Currently, we are setting our monthly auction to end at 8pm SG time, and with a 3 hour extension (in the most optimistic scenario), 11pm is still much more palatable versus staying up in the middle of the night to monitor the bids.
Comparing ourselves to the closest competitors in Asia such as Bonhams and Christies which have a luxury whisky vertical, we can argue that our reach is much bigger since we have eyeballs internationally over a course of 7 days for people to place their bids, and our commission rates are much more competitive. While Bonhams and Christies typically charge 20%-25% commission on both the seller and buyer side, we only charge 8% seller commission and 10% buyer commission respectively, with a nominal listing fee of $3 and reserve price of $5.
Putting together the greatest legends on the international platform who have published multiple whisky books over the decades on scotch and Japanese whiskies, we managed to put together an expert panel encompassing Emmanuel Dron, Charles MacLean and Stefan van Eycken, something unprecedented in the whisky industry.
All the auction houses have “in-house” experts, and our experts have openly called out on several fakes spotted in these auction houses over time, which perhaps raises some questions of their depth of expertise.
By building up this team of experts, we aim to send out a clear message that we are committed to the best of our ability in authenticating the bottles to ensure their genuineness.
PS: We sincerely thank James for taking his time to generously share his knowledge on a burgeoning and exciting alternative investment with us. Remember to check out the Jame’s new venture, an Asia centric whisky auction site, Liquid Gold Auctioneer.
You can also join the Facebook Group for the latest deals from other whisky lovers in Singapore! Head to Singapore Liquid Gold Club
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.