Whisky - Demon drink becomes sound financial investment

by Matt H. Kennedy, Gizmag

If you could resist drinking it, you may just find that hanging on to a few bottles of fine single malt could not only make a sound investment but one which is more interesting than boring old stocks and far more reliable than wine. At Bonhams in Edinburgh, their second ever dedicated whisky auction has not only shown that there's a strong market for rare whisky, (with 95% of all lots sold) but that the big boys of the auction world are taking it seriously.

Much like wine, whisky has been collected by enthusiasts for generations, but only recently has there been sufficient movement in the marketplace - and therefore financial incentive - for major auction houses to hold regular sales of rare whiskies. There are many reasons why this might be happening now, but developments in the industry during the 20th century combined with a better informed and more prosperous marketplace are as good a reason as any.

During the 20th century, many distillers embraced modern marketing methods and produced broader ranges, as well as more limited bottlings for the wealthy end of the market. In addition to this, distillers who had previously sold the bulk of their product to companies making blended whisky decided to promote their own single malts more aggressively. This has created a surge in the variety of limited and/or rare bottlings but it's not the only reason.

Another contributing factor is the sad closure of many well regarded distilleries. These closures have had the same affect upon the surviving bottles as the death of an artist has upon the value of their art. Ardbeg, from Islay, (and one of my favorites) was mothballed in 1981 but was lucky enough to reopen when Glenmorangie bought the distillery in 1997 and relaunched the brand - initially with stock that was left over from before the closure. The nearby much loved Port Ellen distillery - like too many others - wasn't so lucky.

Highlights of Bonhams most recent sale (March 4th, 2009) include:

• Glenfarclas Anniversary (Speyside) £1,170 (USD$1,700)
• Laphroaig 40 year old (Islay) £1,055 (USD$1,535)
• Port Ellen Maltings, 21 year old (I slay) £1,500 (USD$2,170)
• Rare Highla nd Park, 12 year old (Orkney) £1,860 (USD$2,690 )
• Jameson’s Old Irish, Bonded 18 85 (Dublin) £815 (USD$1,180)

Three reasons why investments in whisky is sweeter than in wine:

Storage: While both wine and whisky require careful storage, wine is incredibly sensitive to movement, temperature and humidity - and don't think for a minute that just because someone owns three cases of Château Haut-Brion that it means they've kept it well. I've seen some terrible crimes against fine wine committed by people with more money than sense. With whisky all you need to do is keep it in a cool, dark place as this prevents fading of the whisky and the label. This of course is only important if you're investing rather than drinking. Oh and never store whisky on its side. The high alcohol can affect the cork, which in any case will stay moist due to the vapor in the bottle.

Always drinkable: Unlike wine, whisky never has a 'best to drink by' date. It never 'falls apart', uses up its fruit and acidity and never turns to vinegar. Basically, wine is a time-bomb. Or as Alan McMillan of Friarwood fine wine merchants in Edinburgh puts it, "Evolution of wine in-bottle is desirable, and therefore decline is ultimately inevitable."

So as long as your whisky's kept intact, it should taste the same in fifty years as it would today. And while some will buy a bottle of wine purely because of its history - knowing that the contents have long ago turned to a brown, silty, unpalatable soup - the whisky investor can always decide to 'cash in' on their investment and drink up when the mood takes them - or if the market flops.

Aging: This is a common point of confusion, especially for people who are used to wine. How can a 1936 Mortlach be only 50 years old? Easy. Unlike wine, once whisky leaves the barrel and takes up residence in the bottle, its aging process ceases and it enters a kind of suspended animation - as long as it's not opened. Contrary to popular opinion, whisky starts to oxidize (like wine does but slower) as soon as it's opened. The more air in the bottle, the sooner it'll be nothing more than whisky-scented slop.

Comment from The Whisky Investor
As mentioned in my blog entry yesterday, I expect some nice bargains (at least for whisky investors) to hit the market later this year. This is due to the lower GBP vs. EUR and CHF, lower production costs and generally a supply increase due to the capacity expansion of major whisky distilleries desperately seeking cash flows to cover the interest and other fixed expenses of their investment.

Slainte, Ralph