Andy Simpson

The Early Bird Catches the Whisky.

In terms of the rapidly changing value of rare/old whisky, it’s fair to say I’m constantly on the lookout for snippets of intelligence which makes selecting bottles (to keep) easier and makes them more likely to show gains over the years.

Most collectors/investors know that first releases in a series of bottles traditionally outperform subsequent releases. But by how much and why? I was asked this question a while ago, so I thought it was about time to delve deep into the data, do some research and prove/disprove this concept.

I’m going to start with an index showing the value performance of some fairly iconic first releases versus their subsequent next release. The index tracks UK auction prices, covers the last two years and plots the ‘value’ of a group of bottles rather than the ‘price’. This enables a direct comparison to be made where different ‘portfolios’ of bottles cost differing amounts.

The index starts at a value of 100 and works its way from there. In effect each ‘point’ increase (or decrease) represents a one percentage point change in value either way.

The bottles used in the index are –

First Releases                                                                                    Second Releases

Port Ellen 1^st Release                                                                      Port Ellen 2^nd Release

Icons of Arran 1^st Release (Peacock)                                        Icons of Arran 2^nd Release (Rowan Tree)

Bruichladdich PC5                                                                            Bruichladdich PC6

Bruichladdich Octomore 01.1                                                      Bruichladdich Octomore 02.1

Ardbeg Very Young                                                                         Ardbeg Still Young

Brora 30 y/o 1^st Annual Release                                                 Brora 30 y/o 2^nd Annual Release

Balvenie Tun 1401 Batch 1                                                            Balvenie Tun 1401 Batch 2

The first releases finish at 223.73 points (a 123.73% increase) whereas the second releases finish at 126.87 points (a 26.87% increase). On a purely comparative basis the first releases outstrip their subsequent brethren by a ratio of 4.6 to 1.

It seems the whole concept of first releases being the ones to have is particularly strongly born out. Before I ran the numbers, I was expecting this to be the case, just not to this kind of degree.

That leads to the natural question of why first releases are so much more in demand than other releases. In my view there are a number of reasons for this –

(i)                 First releases generally (not on all occasions) consist of fewer bottles.

Distilleries will want to test out a new product unless a release schedule is planned. These are small batch releases of relatively rare whisky to start with. Take the port Ellen annual releases. We’re now eagerly waiting for this years 12^th release (put aside any issues with pricing for the purpose of this). These almost fanatically followed annual bottlings were originally meant to be a trilogy. That means we’re now on 12 of 3! The concept was proven with the early bottles, so if it ain’t broke, why fix it? On a separate point, I’m now starting to see some downward movement in values across Port Ellen official releases… has a doubling in price for the 12^th release resulted in a reduction of interest? I remain to be convinced but we’ll see.

Bruichladdich released just 6,038 bottles of Port Charlotte, PC5. PC6 saw this number all but treble with 18,000 bottles released. Inevitably demand increased for PC5.

(ii)               As time passes more collectors are entering the market.

Global broad-based interest in Scotch has, and is, resulting in an increase in the number of people starting to build collections. If I were entering the market now and decided to focus on a specific release I’d more than likely want every bottle in the set. The Icons of Arran from Arran distillery are a great example of this. Arran has garnered much interest as a collectable recently. The most recent icon (Golden Eagle) is still relatively easily available, however, the first release (Peacock) sold out years ago. This increase in demand is applying serious upward pressure on market values.

(iii)             Bottles are Continually Taken out of the Market.

This really goes without saying, however, the longer a bottle has been on general release, the fewer bottles will be left. Even old and rare examples are continually being opened and consumed. The graph below is purely for illustrative purposes (the Y axis shows the % of bottles still sealed and the X axis is time in years); however, it demonstrates the point. The more recent the release, the higher the percentage of bottles still on the market. As I say, the graph is purely for illustrative purposes and isn’t based on any research, more ‘gut feel’. I’ve supposed that the bulk of bottles are consumed in the first year of release then there’s a steady drop over time. As to what the actual percentages are, I suspect there’s no real way of knowing for sure.

There are many more factors which can affect the performance of a first release but I consider the above to be the most influential aspects.

The interesting thing is, the figures are based on a relatively short period of time and compare UK auction values. If, for arguments sake, you’d bought some of the above mentioned bottles from The Whisky Shop upon their original retail release, this is what you’d have paid –

Port Ellen 1^st Release – £95

Bruichladdich PC5 – £69.99

Bruichladdich Octomore 01.1 – £86.99

2002 Brora 30 y/o 1^st Release – £100

Ardbeg Very Young – £29.99

A grand total of £382.97 to you sir/madam! In todays market, the auction value of this small but select portfolio would be worth in the region of £1,885: An increase of over 392%.

I suspect first releases will continue to outperform subsequent releases. The challenge is finding them and ensuring they are from the ‘right’ distillery.

One of this years big releases from a personal perspective is the Diageo Brora 35 year old. Not a first release in its own right but the first time Brora has seen 35 years. Therein lies this months tip…. Keep your eye on The Whisky Shop over the next few days, a little birdie tells me news on how to order and release dates may be imminent!

What drives someone to spend £100,000 on a single bottle of whisky? We met mahesh patel to find out…

Mahesh Patel is an international businessman and one of the people who purchased a bottle of Dalmore Trinitas for £100,000. He recently staged a high-end whisky show in Las Vegas

Q: Why do you collect whisky – fun or investment?
A: I collect for enjoyment and investment, however a large
part of my collection is high-end bottles and these are for investment.

Q: Do you purchase with the heart or the head?
A: Mostly with the head.

Q: Roughly how many bottles do you have?
A: I have about 2,000 to 2,500 bottles. Most of my collection is about quality and not quantity, with many high-end bottles.

Q: Do you drink any of them and if so how do you select?
A: I have a separate drinking collection of about 400 open bottles. Yes, I have been known to take out bottles from my main collection and open them, particularly when I have multiple bottles.

Q: What are your favourites?
A: There are many, but my Macallan vintage collection, Glenfiddich 1937, old Dalmore releases such as the 50-year-old and 62-year-old, Black Bowmore releases and Springbank.

Q: What advice would you give a novice collector?
A: First and foremost you have to invest in the right distilleries to get the correct appreciation for your money; this is achievable at all levels for investment. The distilleries I would concentrate on are Macallan, Glenfiddich, Ardbeg, Bowmore, Mortlach, Dalmore, Highland
Park, Glenmorangie, Springbank and Glenfarclas, and many of the closed ones such as Port Ellen, Dallas Dhu and Kinclaith. Secondly I would concentrate on limited releases as these
have shown good appreciation in the past.

Do independent bottlers offer you more potential to make money than official bottlers? Yes and no, says Fred Laing. Dominic Roskrow reports…

Find a single cask bottling of a cask strength malt bottled from an independent source, and you’d be forgiven for assuming that its rarity would make it a great investment prospect. And, says Fred Laing of independent bottlers Douglas Laing, that may well be the case – but that’s not the only factor that comes in to play. To really get the benefit from a whisky, you need to have some emotional attachment to it.

“I have to be honest and say to you that I read all this investment stuff but feel that if you are collecting whisky you should be doing so with a view to eventually drinking it,” he says. “I think if you just come in with excess money and buy whisky, that’s not enough. You need an emotional attachment to that distillery.

“The whole nature of the independent bottler is that it is offering a whisky that is a snapshot, a moment in time. If you go for a whisky from a closed distillery which is 28 or 30 years old you are buying a piece of history, and you may choose to keep that piece of history and that might have a value down the line. But the best thing about that piece of history being collected and kept is that it leaves the opportunity for you to share that history with someone in the future.”

The whole idea of whisky investment sits a little uneasily with Fred Laing because one of the fundamental philosophies of Douglas Laing is to provide great whisky for people to taste, experience and share. The compromise is to provide whisky which may be kept and stored for investment but at prices at which people can open a bottle and enjoy it. “We understand the issue of packaging because we were one of the first people to do it, but we try and make sure that the whisky is what matters,” he says.

“We have recently released a North British grain whisky aged 50 years for £350. That is a fantastic whisky in the bottle but we also understand the symbolism of the 50 year old thing. With our Old and Rare range, we want the whisky to look good, but it’s more important that people realise that the whisky in the bottle is the very finest.”

“I think you know what I’m going to say about favourite investable whiskies,” he says.
“We had a lot of casks of Port Ellen because it was my father’s favourite whisky and he bought casks for that reason. It has tremendous value now but that’s because people like drinking it as well as keeping it.

“We have to slow down supply now because each cask we bottle goes up in value because it’s a finite resource. But we like to think that people who can afford it buy two – one to open, one
to save. and that it’s valuable because it tastes great. But for me it’s a special whisky because it reminds me of my father, the distinctive peaty smell, which reminds me of him, about a whole atmosphere.”

So what next for  whisky investment? Andy Simpson runs Whisky Highland and has the most advanced research in to whisky trends. Dominic Roskrow spoke to him

Q. What are the trends affecting whisky prices going forward in to 2012, and is this good for collectors?

What I’m seeing at the moment is a broad increase in values across all ‘collectable’ single malt Scotch. There is, however, an interesting polarisation emerging. The most sought after bottles from the most desirable distilleries are increasing rapidly, whilst the less desirable bottles are further decreasing in value; a sort of rich get richer and poor get poorer effect but with whisky bottles.

This is largely brought about by an increase in the number of ‘collectors/investors’ entering the market. New collectors/investors are (rightly so) sticking to well-known rarities from the best performing distilleries. We’re seeing rapid increases in value for the likes of Macallan, Dalmore, Brora, Port Ellen Glenfiddich and Balvenie.

“On the flip-side of the coin, some examples of decreasing values are being seen,  and many lower value bottles from the likes of Imperial and Lochside. Given time, and once the market matures a little, I’d expect to see the value of these bottles reach a natural floor then start to gradually increase.

I’m also seeing increases in value for what I term ‘defensive’ bottles; iconic relatively high value bottles where prices have remained broadly constant and the risk of losses are minimal. This includes bottles such as the Black Bowmores and the 1965/66 Springbank Local Barley.

The main risk this year is distillers start to charge what is perceived as too much in the market for their bottles. Successful bottlings such as the annual Port Ellen releases will always leave some ‘value add’ for the collector/investor. If this years Port Ellen release were to be released (in similar Quantities as last years) at £500 – £600 it would have a serious effect on increases in the secondary (auction) market.

Q. How important is taste to a collectable whisky? Could a whisky package  really become collectable if the bottle was full of cold tea?

A. The quality of the spirit is critical to the success of the bottle as an investment. There’s a reason why the best performing distilleries remain highly sought after. They produce some of the best quality spirit available to drink. There are exceptions to every rule and this is no different. Loch Dhu Black Whisky originally retailed for around £18 a bottle and now sells for £90 – £140 at auction. It is the only bottle of whisky I have ever poured down the sink! Rarity also plays a part, even the worst tasting bottles from Port Ellen will ultimately increase in value.

From a personal perspective, I never buy anything if the phrase “I’d love to drink that” doesn’t pop into my head when I’m buying it. What someone uses as an investment today could well be opened and consumed in five to 10 or 20 years.

Q. What are the trends to look for in the future? I’m thinking styles, regions, countries, ages etc?

A. Heavily peated whisky from the icons of Islay will always be sought after. There are an ever growing number of ‘peat heads’ (I’m one too!) who ensure demand is always high for good quality releases from the likes of Lagavulin, Laphroaig, Bowmore and Ardbeg (although some Ardbeg values have re-traced over the last three to six months). As ex-sherry casks have become increasingly expensive stocks are in high demand. A good example is Macallan. Their ‘Fine Oak’ series is broadly not desirable from an investors perspective, however the wholly sherry matured spirit is in even greater demand than ever.

From a perspective of the ‘regions’ of Scotch; it’s more about choosing the right distillery than broadly saying bottles from, say, Speyside are worth more than bottles from say Campbeltown. There are iconic investors distilleries in each one of the whisky regions. I pay no heed whatsoever to the region, it’s all  about the right bottle from the right distillery.

I’m also keeping a watchful eye on certain Japanese whiskies. There seems to be some early indication of good gains, particularly with single cask releases from karuizawa.

Q. Do you think Diamond Jubilee bottles will dominate?

A. Simply, no. The Diageo special bottling released for £100,000 doesn’t represent an investment, nor is it meant to. It’s a great idea to raise money for charity. In my opinion we won’t see any increases in value for that particular bottle. Whilst I’m not seeing a huge inflow of limited bottles released for the diamond jubilee, I’m sure if Macallan released something similar to their Royal Marriage bottle of last year it would perform well.

Q. What do you tell people who ask you whether whisky’s a good investment?

A.It’s like any investment. Unless you understand the market, the risk for disaster is every ounce as real as with stocks and shares. My rules for investing in Scotch are –

1 – Love whisky! If the market ever crashes at least you’ll enjoy what you have.

2 – Patience is key. I always advise a period of investment from 10 – 20 years. When I buy bottles I always look to its potential in 20 years time. Whilst there are genuine opportunities to make significant short term gains, these should be viewed as a bonus. Buying a bottle today and auctioning it tomorrow always comes with risks. Short term traders are almost akin to ‘day traders’ in the equities markets. Big risks, potentially big gains……and losses!

3 – Never invest what you can’t afford to lose. The key for any investment.

Q. Any pitfalls or potential dogs on the horizon?

A. Highland Park ‘Thor’ was eagerly anticipated by the collectors/investors market. This has not turned out to be the investment/collectable many were anticipating as there were 23,000 bottles released. Had there been more like 3,000 – 5,000 it would have been very different. Simply too many bottles and relatively expensive for a 16 year old. I’m expecting to see an increase in the volume of fake and forged bottles as whisky becomes more popular and values increase. If you’re at all suspicious of a bottle, check its provenance, speak to an expert or a collector who has a genuine bottle and if still in doubt simply stay away.

Q. As whisky investment grows, how quickly will the small investor be squeezed out or the market mature to the point that it becomes difficult to find bargains – weeks, months, years?

A. Very interesting question. I genuinely believe there’ll be constant opportunities. What I do think will happen is that very old whisky (for both new releases and previous bottlings) will see rapid price increases over the next five years. This may well place certain bottles out of the financial reach of many. In terms of the opportunities available, take the new Balvenie Warehouse 24 release ‘The Cooper’. This was a tiny initial release of 300 bottles at a cost of £65. It will be one of this year’s investment gems. The impending Macallan Easter Elchies release will be an essential bottle for many. If I were a betting man I’d also put ‘odds on’ seeing another Dalmore distillery exclusive, following the sellout success of their 2011 release. If we look to the medium/long term, when you consider how many distilleries have their bi-centenaries in the 2020s (largely thanks to the 1823 excise act), there’s plenty of scope for some pretty special releases to keep collectors/investors happy well into the future. I already have my name down on a list for a bi-centenary bottling from a distillery established in 1819. I won’t hold my breath then!

Q. Finally, what would you say that whisky is not an investment opportunity, to it has peaked, or the bubble is about to burst?

A. Firstly, I don’t see whisky as a ‘bubble’. Whisky only really started to become a ‘collectable’ in the early 1990s. The timeframe for it being an ‘investment’ is even shorter. It’s by no means a mature market, so it still has plenty of legs. Price volatility is far less of a risk than some other investments, although it can and does happen. Do I see the bubble bursting eg a catastrophic crash of the market? No. Whisky is driven by supply and demand. A catastrophic crash can be likened to the share price of HMV. A 2009 high of £1.50p has now come down to under 0.05p per share. If I put that into perspective with whisky, it would mean you could pick up a Glenfiddich Snow Phoenix from its £125 high for just £4.20, an Ardbeg Kildalton for £12.60 and a Dalmore Aurora for £93.00. …… will that happen? Not a chance! Not unless there’s a far more fundamental breakdown of the economy and society in general. Demand for bottles of ‘Investment grade Scotch’ is increasing every year. This will continue to drive whisky as an investment. There will be price fluctuations (certainly for some distilleries) and some bottles will outperform others….. Just like any other investment, alternative or otherwise.