You can invest in anything, so of course, you can invest in whisky. I was surprised to learn recently how “easy” that is, however. And, like all things that seem easy, there’s a catch. As with all non-traditional investments, there is little regulation. And when there’s little regulation, there are a lot of risks.
For our Perfect Scam podcast, I recently interviewed an upstate New York man named Ray Stiefel who started with a modest $30,000 investment — buying a standard lot of 6 barrels — and over time, upped that investment to about $300,000. Along the way, he had lunch in London with the broker who sold him the barrels, and he even traveled to Scotland and tried to visit the barrels he owned.
But in the end, the broker was a criminal, and Ray had bought $300,000 worth of air. There never were any barrels, despite this very slick video that broker Casey Alexander had produced. You can hear all the gory details in this week’s episode of The Perfect Scam, but let me make a couple of important points here.
First of all, investing in whisky sounds like a lot of fun, and it can be. After all, liquor often increases in value with age, so it makes sense as an investment. And if you are a whisky aficionado, having some skin in the game can be exciting. Yes, you can visit the barrel you own while it’s being stored somewhere in Scotland, which is also a fun vacation idea.
Note how I keep leaning on the word fun here. If you are lucky enough to be in a place where you have some investment money you don’t really care about losing, then why not make an entertaining bet on whisky (or, if you’re in Ireland, whiskey)? I’d rather you do that than bet on cryptocurrency, for example. Also, I don’t mean to leave the impression that whiskey investments aren’t regulated at all. There are professional brokers who handle transactions with care. Buyers should get a document called a “deliver order” for each barrel they invest in — which is kind of like a car title. You can learn a lot more from the Scotch Whisky Association.
But it’s absolutely essential to understand that — as with so many industries today — investment money has flooded into liquor, and you’ll find plenty of folks who believe there’s a whiskey bubble. I’m sure you’ve noticed there’s been an explosion in distilleries, thanks in large part to the influx of investment money. That means supply is being driven — not by demand — but by a firehose of investment money. That’s a recipe for a bubble burst, as we’ve seen in industry after industry. I’m not guaranteeing this by any means, but it’s a real risk.
But more important, it’s very hard to regulate international investments, and it’s easy for criminals like Casey Alexander to jump into a market like this and commit fraud. So back to my original warning: If you love whiskey, think it’s fun to imagine visiting a barrel of liquor in Scotland, and have money you don’t care about losing, go ahead and consider investing in the stuff. Otherwise, stick to highly regulated, traditional investment markets backed by established firms and licensed brokers. And be thankful there are still regulators to watch over this stuff.
Click here to listen to this episode, or click the play button below.
Here’s a partial transcript of our story.
—————PARTIAL TRANSCRIPT—————-
[00:02:08] Ray Stiefel: I just like the lore, I like the, just the stories behind the creation of whiskey and the various techniques that are used. It’s just very interesting. That’s what really allured me into the whiskey investing side of things, is just the, the lure of the uh industry.
[00:02:28] Bob: And an ounce of whiskey is hours of stories, right?
[00:02:31] Ray Stiefel: Yes, it really is. There are something in the neighborhood of 120, 130 separate distilleries in Scotland. There’s the, the Islands, which includes Ila, which is a, a big producing area. There’s um, Speyside, there’s the Highlands, there’s the Lowlands, there’s Campbeltown, there’s five. So I think those are the five main ones. But the fact that whiskey in Scotland and Ireland takes three years to be able to be legally called whiskey, three years in a barrel before it’s called whiskey, before then it’s called new make spirits. So it’s a three-year process just to get the label of whiskey. In the United States with bourbon and Tennessee whiskey, it’s two years because of the weather and other conditions. But there’s all these little bits of trivia that I find fascinating.
[00:03:26] Bob: Ray’s not the only one. Scotland is now teeming with smaller distilleries as interesting classic small batch whiskey is experiencing a bit of a renewal.
[00:03:38] Bob: Some of the have been sort of re–, reborn with old recipes but new families, right?
[00:03:43] Ray Stiefel: True, very true. The real estate and the buildings, they’re still there. Sometimes they would go into nonuse, but yeah, I think with the increased interest in, in the whiskey these days, some of them are being renovated and put back into production.
[00:04:01] Bob: And as with all growing industries, there is an ever-present need for investors.
[00:04:08] Ray Stiefel: Well uh in simple terms, the distilleries are interested in recouping their costs, their production costs as quickly as possible, because a good whiskey might take 8, 10, 12, 15 years before it can be bottled and sold. And that’s a whole long time to be holding onto a, a liquid in a barrel that’s evaporating.
[00:04:31] Bob: But this is not like buying a stock that might pay you a dividend or something you could sell next week if you change your mind. You’re, you’re in it for the long haul, right?
[00:04:39] Ray Stiefel: Definitely, yes, yes. The uh, in the industry they call it your exit strategy. And that is the, the distilleries permission, well you own, you own the barrels. They’re stored in a bonded warehouse generally in the vicinity of the distillery, and you’re holding on, it’s, it’s yours if it’s done legitimately, it’s your property and when you want to sell it or you can have the barrel shipped to your house if you’d like to, you can even bottle it yourself, but typically what you do is you sell it either back to the distillery, and then they bottle it for you and put their label on it, or some other conglomerate can buy up barrels and use it for blended.
[00:05:27] Bob: But you, you buy a barrel and …
[00:05:29] Ray Stiefel: Yes.
[00:05:29] Bob: … I mean I suppose if you want to, you could go visit your barrel, right?
[00:05:33] Ray Stiefel: Yes, and taste it.
[00:05:35] Bob: And taste it, remarkable.
[00:05:38] Bob: So whiskey investors actually own barrels of whiskey stored in a facility somewhere, often in Scotland. And it’s possible to go visit the barrel you own, to even taste it as it’s sitting there aging. But is this a thing regular people really do?
[00:05:58] Bob: That sounds almost like a hobby for rich people to me, but first of all just roughly, how much, and I know that costs can vary, but how much could I buy a barrel of whiskey for?
[00:06:07] Ray Stiefel: I would say the average price is probably around $5000.
[00:06:15] Bob: So not an obscene amount of money, and if people take that barrel of whiskey and bottle it, I mean how many bottles comes out of a barrel of whiskey roughly?
[00:06:24] Ray Stiefel: So it’s usually bottled into what’s called a 5th, or a liter. You can buy whiskey in typically you know several different sized bottles, but I would say that the average barrel would hold maybe 250 liters, something like that.
[00:06:41] Bob: So if you get 250 bottles out of a barrel…
[00:06:44] Ray Stiefel: Yes.
[00:06:44] Bob: And it’s $50 a bottle, that’s $12,500.
[00:06:49] Ray Stiefel: Yes.
[00:06:49] Bob: And you paid $5000, and that’s in three years.
[00:06:52] Ray Stiefel: Uh no, that’s probably a little bit more because…
[00:06:56] Bob: Yeah, more like 6 or 7 years, yeah.
[00:06:57] Ray Stiefel: Yeah. It might be more. Again, the really high-quality whiskey, they might want to hang onto a little bit more because it actually, kind of like wine. I mean wines improve over age and some wines don’t. But you’re correct.
[00:07:11] Bob: So this is, but this isn’t, this isn’t just for fun, real money, people make real money doing this, right?
[00:07:16] Ray Stiefel: Yes. And some bottles can sell for hundreds of thousands of dollars you know if it’s the right bottle.
[00:07:25] Bob: That’s amazing.
[00:07:25] Ray Stiefel: Yeah.
[00:07:27] Bob: Okay, so how does a person go about buying a barrel of whiskey? Investing in whiskey.
[00:07:34] Ray Stiefel: Typically you don’t buy barrels directly from the distillery. You buy through a broker, because the distilleries don’t want to bother with all the paperwork and all of that.
Be the first to comment