The Whisky Trading Company – Dancing On The Volcano

by Oliver Klimek on March 17, 2013

Yet another time the issue of investing in whisky resurfaces. In a way this is starting to get tiresome, but I believe this news is too important to be ignored.

Last week a press release was sent to some whisky people announcing the official launch of a company with the sole purpose of investing money in whisky: The Whisky Trading Company whose website currently consists of a single landing page that points to Chancery LLP under whose umbrella the investments are bundled. The Whisky Trading Company operates as a an Enterprise Investment Scheme (EIS), so investments are eligible for a tax relief.

In the presse release it says:

“A FORMER Master Distiller has launched a new company in the UK that invests and trades in rare and premium whisky. The Whisky Trading Company, founded late last year and now being opened-up to wider investors, aims to deliver returns in excess of 15 percent per annum.

 The company has identified 3,000 bottles as part of its initial investment (some distilled before World War II) and £450,000 has already been raised to secure options on this initial stock. The investment opportunity is now being widened as it seeks to raise an additional £2-4 million to capitalise on market opportunities.

Investing in the top 10 performing whiskies from the beginning of 2008 to the end of 2012 would have seen returns of 508 percent; the top 100 returned 306 percent, the top 250 returned 225 percent; and the top 1,000 saw a return of 123 percent, as per data from UK auctions (Whisky Highland).

 With a huge market already well-established in fine wine investment, whisky as an alternative investment market is dynamically growing both at home and abroad. Whisky auction houses in the UK alone saw 14,000 bottles sold in 2012, a huge jump from just 2,000 in 2008. By 2020, this number is estimated to grow by 114 percent to 30,000 bottles. Globally 2012 saw around 75,000 bottles auctioned valued at £11 million, and this is expected to double in volume to 150,000 bottles in 2020 with values trebling to £33 million, suggesting the trend towards premiumisation will continue.”

Two things are noteworthy here. Firstly, the company has already been operating in stealth mode for a while and may possibly be responsible for some of the staggering auction prices we have seen lately. And if we put the amount of money to be invested in correlation with the total whisky auction market, we are talking about a significant portion here that could add up to 20% or more.

Of course not all whisky would be bought at auctions. But selling will have to be done there. And considering that they focus only on a susbset of bottles it is easy to predict the impact on the market this company would have with full capitalization. Even the predicted £33 million for 2020 look rather puny compared to other financial markets. The secondary whisky maket is much too small to be unaffected by their actions.

“The Whisky Trading Company was founded in October 2012 by David Robertson, formerly Rare Whisky Director at The Dalmore and prior to this Master Distiller at The Macallan, who has over 20 years in the whisky industry, and Lindon Neil, a former investment banker at RBS and Wachovia Bank. David previously secured the sale of the world’s first £100,000 bottle, a 64-year old Dalmore Trinitas, in 2010.”

This is another highly interesting passage. The key to good investment is to buy cheap and to sell expensive, that is a given. But with David Robertson we have the very person who is responsible for the high end Dalmore bottlings like Dalmore Trinitas or the Constellation Collection and others. These are some of the most expensive bottles of whisky on the market, yet Mr. Robertson has been actively promoting them as investment opportunities in various publications.

David Robertson’s Twitter and Facebook accounts still prominently link to Dalmore and he has held Dalmore tastings only very recently. So even if he may not be a formal emplyee anymore, some level of affiliation still remains. It is safe to asume that some of the expensive Dalmores will end up in the portfolio of the company. To my knowledge none of those bottles have ever been sold at auction, so this would be a high risk investment.

The Whisky Trading Company wants to give returns of over 15% per year. This is a bold statement and it has to be seen if they can live up to it.

To be able to pay out returns to their investors they have to make a profit, and to make a profit they will have to sell whisky. And they will have to do this from year one. “Investors seeking to diversify their funds into alternative assets” are unlikely to be willing to wait for 10 to 20 years until they see the fruit of their investments.

And yet Andy Simpson, owner of Whisky Highland referred to in the Press release states in an interview with Dominic Roskrow for The W Club that 10 to 20 years is the time frame to keep in mind for a successful investment in whisky:

“What do you tell people who ask you whether whisky’s a good investment?
It’s like any investment. Unless you understand the market, the risk for disaster is as real as with stocks and shares. My rules for investing in Scotch are: 1: Love whisky! If the market 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. Short-term gains should be viewed as a bonus. 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. This is the key for any investment.”

You would not want to invest in a company that pays the annual returns from the money of new investors instead from actual profit. This would be an illegal pyramid scheme. So for the first years The Whisky Trading Company will need to rely on a short-term investment strategy that is considered dangerous by someone who is definitely an expert on the subject.

{ 5 comments… read them below or add one }

Gal Granov March 17, 2013 at 8:47 am

Well i got this PR myself, but preferred to ignore it ;)

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Miguel March 17, 2013 at 11:51 am

Yep, same here…I got it, but make me complete my article about why not investing in whisky. Just published today.

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Markus Nilsson March 17, 2013 at 8:24 pm

This makes me sick..

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Steffen Bräuner March 17, 2013 at 9:38 pm

I made a good whiskyinvestment today. Found a bottle on a danish website today at 20-40% of the price of TWE/whiskyauction/KL

I tipped a friend who wanted this. A great investment. Now I don’t have to listen to him begging to get one from my stash. Gives me some peace

Steffen

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Josh Feldman March 19, 2013 at 5:26 pm

The real problem with this type of thing isn’t that it might be a bad investment, represents a conflict of interest for some of the principals or that it commodizes rare whisky (although all of these may be true). It is, as Oliver states, that the market for rare whisky is too small to absorb significant capital without this driving up prices. That’s even assuming benign intentions. Less benign would be promotion of the “pump and dump” variety. It would be easy for such a find to drive prices of certain rare whiskies into the stratosphere by establishing high auction records, and then sell into these inflated market prices in order to manufacture short term profits. We see this all the time in the numismatic markets. Not only does this tend to ruin the markets for legitimate collectors, it also adds volatility which deters legitimate investors. Needless to say, investing and collecting raise prices for drinkers of rare whisky too. However, in doing so they may be doing an unintentional service to future generations. Personally, as someone eager to try a range of pre-war whiskies myself it is an unwelcome development driving up prices…

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