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Spirits trading: A 'liquid' investment

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Jeff J Mitchell | Getty Images

Many of the bottles in Bill Thomas' personal, 4,500-bottle whiskey collection are each worth thousands. They include the old and the rare, and some new, but coveted.

He purchased a number of the bottles from auctions, private collectors and distilleries before they escalated in value, and, while he doesn't believe in hoarding them for investment purposes — he believes in drinking and selling even the rarest whiskies at his Washington, D.C., tavern, Jack Rose Dining Saloon — Thomas is steadily watching his unopened bottles appreciate in value.

While fine wine has long been traded by serious collectors and connoisseurs willing to pay tens of thousands of dollars for a desired bottle, the liquor world is now catching up as demand and interest in craft and fine spirits has skyrocketed.

Buy at the right time

While spirits trading can be a fun way for a savvy buyer to diversify his or her portfolio, it is not for the inexperienced. The practice is still rather new in the United States — the first legal spirits auction in this country since Prohibition wasn't until 2007 in New York — though bottles are also sold independently (and illegally) among collectors online and in exclusive tasting groups. This makes precise tracking performance of investment bottles difficult.

Jack Rose Dining Saloon
Source: Jack Rose Dining Saloon
Jack Rose Dining Saloon

"We did this to level the playing field with wine," says Frank Coleman, senior vice president of the Distilled Spirits Council, which lobbied for legalized auctions. "Since then, prices, particularly for old, rare or limited single malt scotches, have risen tenfold or better. Rare Japanese whiskys are also very hot right now. But, it is also true for some rare or sought-after American whiskeys, cognacs and other distilled spirits."

Case in point: Thomas bought the George T. Stagg 2015 unfiltered American whiskey for $89 when it was released just last year by the Buffalo Trade distillery but it is going for $500 at auctions and in collectors' groups now. Thomas bought Willett's Iron Fist bourbon for about $90 a bottle a few years ago. That bottle now fetches up to $5,000 in the secondary market.

More realistically, investors should be willing to wait a while — at least 10 years — to realize a healthy return on their investment and there's no predicting how much that might be, says Per Holmberg, head of wine and spirits auctions for Christie's auction house in the United States.

"Five years ago would've been a good time to start buying [rare whiskeys]," says Dr. Nick Morgan, head of whisky outreach for Diageo, one of the world's biggest whisky producers, who helped launch the company's "rare malts" collection in 1996. The collection includes bottlings from closed distilleries no longer making whisky such as the Rosebank 20.

When released it cost about $50 but now thanks to its cult status, runs about $750. "The real question is ... how do you know if a bottle is worth the speculation?" Morgan said.

"The success of your bottle will depend on the distillery, the price, the hype, the age, and the packaging. Read the label carefully: if something that claims to be a limited edition, find out how many bottles were released. Was it 30, 300, 3,000 or 30,000?" says Jonny McCormick, a whiskey writer who also tracks Whisky Advocate and Whisky magazine's auction indexes.

Coleman, Morgan and Thomas agree that bottles from closed distilleries or very rare releases (think 300 bottles for the whole world) are not likely to drop in value, but would-be investors should be leery of some "big" brands that put out "rare" items every year — sometimes thousands of bottles — that become too prevalent to be collectible.

Jack Rose Dining Saloon
Source: Jack Rose Dining Saloon
Jack Rose Dining Saloon

Christie's had its first auction offering of American whiskey in June with a small but carefully curated selection of rare bottles, including a lot from the Willett Distillery, which sold at more than double its $5,000 estimate after a bidding war occurred near the close of the sale.

Its success encouraged the auction house to include more offerings from private collectors this fall. A sale that ended Sept. 27 featured several rare spirits such as the 1968 Bowmore 25-year-old single malt (starting bid: $1,400) and a 1974 A.H. Hirsch Reserve 16-year-old bourbon (starting bid for two bottles: $2,800).

Only spend what you can afford to lose

"Investment in wine and spirits is fun," says Coleen Pantalone, a personal finance professor at the D'Amore-McKim School of Business at Northeastern University in Boston. "But it is risky. These are highly illiquid investments and they only increase, if you are right, over the long haul."

While stocks and bonds can be easily sold, selling physical investments is much harder because tastes change, she says. Consequently, putting retirement dollars in financial investments is best for most people.

Though Thomas is willing to spend a pretty penny on whiskey (he recently spent $8,000 for two bottles of a rare 33-year-old Ardbeg scotch he picked up visiting the Islay region of Scotland), he does so because he has an outlet to sell it by the ounce at his bar. "There is no $3,500 whiskey," Thomas says. "It's only worth what someone will pay for it and the market's out of control."

"Buy your wine and spirits for the pleasure of having a cellar, not because you might make a killing someday," Pantalone said.

Know your stuff

One of the biggest risks in high-priced spirits trading is that fraudulent sellers begin taking notice, Coleman said, so it's important to ensure an investment in spirits is made through a reputable seller, such as an auction house or properly licensed retailer.

Unless you are very well trained or know the provenance of a bottle, you could pay big money for something that is a fake, or has been improperly stored for an extended period of time and tastes different than intended. After several years stored this way, some of the liquid will evaporate.

"The market for rare spirits is booming, but as with any art or antique category, one should take the time to educate oneself or you could get caught in a bubble when the market turns," Coleman said.

Holberg says when evaluating bottles for sale at Christie's, he enlists the help of a glass expert to determine the true era in which a bottle was filled, and examines closely elements of the label and seal to ensure authenticity.

If you've got it, protect it

The key to keeping any liquid investment safe for the long haul is proper storage and care.

A standard homeowners policy will not provide sufficient protection for a collection because it typically only covers traditional risks related to theft, fire and water damage, says Caitlynde Brancovsky, a senior fine art and collections specialist for Chubb, a property insurer.

Instead, you'll want to buy a valuable articles policy that covers risks like forgery and fraud, accidental breakage, damage during shipping and transit, off-site storage, and cellar power outages, she says.

Spirits should be stored in in a cool, dry place. Good circulation of air is essential, Brancovsky says. Keep the bottle's condition in tip-top shape to command more value later, Holmberg said.

The bottom line: pay for a bottle only what you'd be willing to pay if you were going to drink it.