Bubbles in Your Scotch?

Holding speculative rare whisky auctions up to the light...

On AUGUST 28th this year, an auction at Bonhams in Hong Kong set a new world record for a bottle of whisky, writes Tom Bruce-Gardyne for WhiskyInvestDirect.

Sold for HK$918,750 (some £76,750 or US$118,500 including buyer's premium) this 52 year-old single malt from Japan's Karuizawa distillery became the most expensive standard bottle (70cl) auctioned anywhere to date.

The overall record is still held by a Macallan, sold at HK$4.9 million (US$628,000) in January 2014. Although that was an oligarch-sized 6-litre decanter, these auction records make headlines and help fuel the speculative end of whisky investing.

With the Karuizawa bottle appreciating almost 500% from its release price three years ago, collectors are assessing their whisky bottles with renewed interest. Investors are being drawn to rare single malts and cult Japanese whiskies, too. Because the froth has certainly come off 'investment grade' wine, as traded through the Liv-ex exchange based in London. 

The benchmark Liv-ex index – which tracks the top 100 most sought-after wines – peaked at 365 points in mid-2011. It then crashed, finally settling at just below 250 points in March last year where it has remained ever since. Whether that was a simple market correction or a bubble that burst depends who you ask.

Similar to Liv-ex for wine prices, Rare Whisky 101 now tracks the secondary market in collectible bottles of whisky. Co-founder, analyst and broker Andy Simpson says: "Demand for rare whisky and the supply of bottles at auction are both accelerating at an extraordinary rate, and this is driving up values."  Whisky auction sales rose 35% by volume in the first half of the year compared to the same period in 2014, and were worth £4.6 million (US$7m) – a jump of 34% in 12 months.

Simpson's index tracks collectible bottles like Radio 2's 'pick of the pops'. Bowmore was "up 13 places from 18 to 5" while Balvenie "tumbled 10 places from 3 to 13", to quote a recent Rare Whisky 101 press release. It went on to claim that, had you invested in the top 100 performing bottles, your investment would have risen 8.93% in the last six months, or by 506% since 2008.

But then again, if you'd backed the last five winners of the Grand National you would have done even better. Hindsight’s a wonderful thing. 

Still, Simpson's enthusiasm is shared by Sukhinder Singh of online retailer the Whisky Exchange, who reckons the current collectibles market is barely the tip of the ice-berg. Although as veteran blogger Mark Gillespie of whiskycast.com points out, Singh does have a vested interest in saying so. Gillespie is deeply sceptical of rare whisky as an investment, and equates it to the Dutch tulip mania of the 17th century – a bubble waiting to pop.

"When you have a suspicion that something is about to blow up," he warns, "it's safer to stay away." 

Whisky writer Ian Buxton added as early as 2011 that, even if you were lucky to have bought and sold on an upward curve, the hefty buyer's and seller's premium levied by the auctioneers can often wipe out much of your gain. And in his view, speculating in rare bottles is just wrong anyway.

"[It] tears out whisky's heart and spirit, confounds its generosity and desecrates the memory, skill and craftsmanship of the people who made it."

Harsh words perhaps for wealthier investors today – still stuck like the rest of us with zero cash interest rates – now being drawn into the small world of rare, collectible bottles by record-smashing headlines.

But the lure of 500% gains in just 7 years may be hard to resist. It could prove harder still to repeat, as the example of rare wines now shows.