How to invest in whisky

Global markets are crashing, and the investment market is a difficult place to navigate. As we drink more in this time of lockdown, why not invest in something we are drinking? Colin Hampden-White gives us the lowdown on how to invest in whisky...

Investing in whisky

There are two principle ways to invest in whisky: one is to invest in bottles. These can be old or new bottles, and the brand or distillery of bottle is important. Then come casks of whisky. In the case of casks, the distillery from which the whisky comes is of lesser importance. A good return, between 10% - 15%, can be made from whisky casks from almost any distillery, as the blended whisky market always needs them.

Investing in bottles of whisky

The challenge with bottles is that it’s difficult to invest serious money as you need an awful lot of them to make it worth investing at all. Finding the right bottles, at auction or new releases, takes time and expertise and even then, a return is not guaranteed and you really need to know your shallots from your onions.

Investing in whisky casks

Casks are a different prospect. As blenders will always need whisky, there is a stronger market for casks. Scotch whisky casks are a simple asset, held in bond in Scotland and no duty is levied whilst it stays in bond. As whisky is considered a depreciating asset, there is no capital gains payable on its sale. So how does one buy the right casks? Diversity is the key to good investment portfolio. Casks can be bought freshly-filled to well-aged. A cask at zero age is called a ‘new fill cask’. The liquid is called ‘new make spirit’ and will legally become whisky after three years and a day. Casks can also be bought at any age beyond. The casks become more expensive as they gain maturity and the rate of return grows exponentially the older it gets.

Another consideration is the type of oak the whisky is stored in. Whisky can be stored in what is known as a first fill a refill or a rejuvenated cask. Think of the cask like a tea bag: the first fill is like an unused tea bag which gives out lots of flavour. The refill is a lightly-dunked tea bag; it takes longer for it to impart flavour to the whisky. Whisky in a first fill cask may be very good for a return on a young whisky, say up to twelve years old. When buying an older cask, a refill will be much better. An old, first fill cask may make the whisky taste too woody.

There are blended whiskies that like to have a good percentage of rejuvenated casks. These are much-used casks whose surface wood has little flavour left, so a couple of millimetres are shaved off the inside to expose active wood, ready for reuse. They have a different flavour profile, impart flavour at a similar rate to a first fill cask, so blenders can use the whisky earlier and they are less expensive.

Lastly there are two types of oak cask: European oak and American oak, providing the whisky with different flavours. American oak gives vanilla, coconut and sweeter flavours whilst European oak gives spicy and nutty flavours. European oak casks are much rarer in the industry and are more sought after. They are more expensive, but can give a great rate of return. Around 90% of the Scotch market uses American oak casks and 90% of Scotch sold around the world is blended whisky. So whisky from a European oak cask (ex-Sherry for example) is a sound bet. If the whisky is sold to an independent bottler rather than for blending, and perhaps further maturing before bottling, then a first fill European oak cask would be more desirable.

How do you find whisky casks to buy?

In general terms, the best investment would be a range of casks including new make and aged casks in a mixture of American and European oak. If you’re buying a very old cask or wanting a longer term investment, I would suggest a re-fill cask. So how and where do you find and buy casks? You can’t just rock up to a distillery and pop a cask in the boot. Whisky brokers only deal with the industry, however there are companies who can buy from brokers and do deal with private investors. Of course, you can find brokers on the internet. But for reliability of service and quality of product, you might look at Cask Trade Ltd. I have been in the whisky industry for many years and have consulted to them since their start, and they understand the market well. Cask Trade don’t broker other peoples casks, they sell their own stock, so you know when you buy a cask it exists and won’t be bought from under your feet having been sold by another broker.

So settle down one evening with a dram that’s old enough to vote and contemplate owning more than just a bottle or two. Here are some specialist recommendations:

Auction: whisky.auction

Cask sales: Cask Trade Ltd

A few suggestions which would make good bottles to buy now:

Glenmorangie, A tale of Cake

Limited release from this distinguished distillery. A tale of Cake has been finished in Tokaji Casks giving it a sweet sponge cake flavour mixed with the traditional flavours of orange, vanilla and orchard fruits, one expects from Glenmorangie.

ABV: 46%
Size: UK 700ml USA 750ml
Buy it now: UK: £89.95 USA: $109.99

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Auchroisk 25 

A limited release from Diageo of this little seen distillery is a good bet. This release was from 2016 and therefore should be selling out pretty soon. Once sold out the auction prices will start to rise.

ABV: 51.2%
Size: UK 700ml USA 750ml
Buy it now: UK: £380.10 USA: $589.99

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Balbalir 1990 AND 1983

Balblair stopped producing vintage bottles two years ago in favour of aged statements like 12, 15 and 18. Already sold out at retail in the the UK, these vintage Balblair’s would be a good buy for someone in the USA, or at auction.

ABV: 46%
Size: UK 700ml USA 750ml
Buy it now: UK: Sold out USA: $259.99

ABV: 46%
Size: UK 700ml USA 750ml
Buy it now: UK: Sold out USA: $499.99

Like this? Try: Move over Macallan: it’s Tamdu time! or Johnnie Walker from £60 to £100K or Rare and independent whisky bottling

What is Peated Whisky?

Peated whisky: because what’s the point of drinking whisky if it hasn’t been heavily flavoured by thousands of years of decaying organic matter?

I mean sure, when you put it like that maybe you can understand why peat tends to split whisky drinkers into two distinct camps. Some compare it to licking an ambulance brake pedal, and some compare it to licking an ambulance brake pedal and are genuinely excited by the idea. Regardless of whether this appeals, if you want to learn more about whisky, you need to learn a little about peat, because this mysterious substance has the amazing ability to impart rich and unique flavours into your glass.

So how does peating whisky work?

Dried peat has been used as fuel in Scotland for hundreds of years. Peat bogs are naturally occurring ‘carbon sinks’ i.e. areas that accumulate and store carbon-containing chemical compounds for an indefinite period. In fact, peat is so good at this, that it is the most efficient form of carbon sink on the planet and dried peat will produce more energy than coal when burnt. As well as this, peat is unique to bogs, mires and moorland – the sort of areas that appear in quite high frequency in, shall we say, the damper areas of Scotland, such as the north-west Highlands and the islands of Islay and Jura.

Thanks to these excellent energy rates, peat has therefore been used in the whisky making process for hundreds of years, and the primary way that peat’s distinctive flavour characteristics make their way into your dram is through its use as a fuel source in the malting process.

At this stage in production, the germinating process which has been started by soaking and turning the barley needs to be stopped, and this is done by the application of heat. Traditionally this was provided by a peat-fired kiln which caused the malted barley to absorb a significant quantity of peat smoke (depending on the drying time and the distiller’s preference). Perhaps surprisingly, this flavour is so strong, so persistent and so recognisable that it survives the entire distillation process, making its way through the mash tun, washbacks, stills and warehouse to remain detectable in your glass of whisky.

Is Islay the only place for peated whisky? And where is peat used?

Now, when people talk about peated whisky they generally think of Islay malts, but the use of peat isn’t limited to Islay now, and certainly wasn’t in the past. A number of factors means that peated whisky is still mainly linked to the islands and western highlands however. This is partly because these are the areas where peat preponderates, but also because many Lowland and Speyside distilleries took the opportunity to switch to firing their kilns with coke (a processed form of coal) when access to the railways made this a viable and cheaper option. As a result, for many years, the perception has been that if you want a peated whisky you need to head to Islay.

So what does peat bring to whisky?

Peat is whisky terroir

In a very literal sense, peat is terroir (take that, wine!). As a result, different peat will impart different flavours, and different distilleries will use peat for different length of time when drying their malt. If you want to get technical, the concentration of peat in whisky can be measured by PPM (phenol parts per million). Phenols are the class of compounds in peat smoke which are retained by the malted barley and their prevalence therefore has a big impact on taste. On Islay, whisky can range from 1-2ppm up to 54ppm. What does this mean? In terms of tasting notes, a peated whisky is likely to give you sulphur, smoked meats, iodine, rich bonfire smoke.  If this sounds good to you, perhaps you should explore some Islay whiskies?

Where to start your peat odyssey

Why not start at Lagavulin?

The oldest distillery on Islay can trace its (unofficial and highly illegal) history back to a collection of small bothy distilleries in Lagganmhoullin dating from 1742. These were brought together into a legitimate business in 1816, which means that the brand has been producing highly-regarded peated single malt whisky for at least two hundred years now.

The old settlement of Lagganmhoullin is now a small town on the Lagavulin bay where the distillery is positioned - open to the wild weather of the north Atlantic, which gives the spirit a lot of its coastal aromas of seaweed and smoked fish.  This coastal spot also provides a distribution route with the distillery owning its own Clyde puffer up until 1956, meaning barley could be brought in by sea and finished spirit sent back down to Glasgow with just a slight detour around the Mull of Kintyre.

Both the peat and water are locally sourced, as they always have been - the Illeachs wouldn’t have it any other way – and the two intertwine on their slow descent to the distillery from Lochan Sholum, inland and 200m above sea level. From here the water flows two and a half miles to the distillery, soaking up moss and peat, but don’t get confused.  At this point the peat contributes only colour and a slight tang to the water – as it takes on the same shade as the finished whisky – the smoky flavour comes almost exclusively from the kiln.

Lagavulin no longer malts its own barley – the floor maltings closed in 1974, but they procure their own specific recipe from the Port Ellen maltings. It is dried over peat for a high proportion of the total drying time giving a final phenol count of around 37ppm.

After the excitement of distillation, the spirit rests in the coastal warehouses, seawater pooling on the earthen floors and breathes steadily for 8, 12 or 16 years before bottling. Maturation allows the spirit to soak up the atmosphere of this unique setting and takes just a slight edge off the wild smoky flavour of all that centuries old organic matter. Yum.

Try these classic whiskies from Lagavulin

Lagavulin 16 Year Old, 43% ABV, around £49 for 70cl – Long-time standard bearer of the range, dominated by Lapsang Souchong, hints of pipe tobacco, smoked fish and iodine.  A classic Islay single malt.

Lagavulin 8 Year Old, 48% ABV, around £52 for 70cl - Originally a limited-edition to mark the distillery’s bicentenary in 2016, but now part of the core range this expression is all woodsmoke, tobacco and pepper.

Lagavulin Distillers Edition, 43% ABV, around £74 for 70cl - Double matured in Pedro Ximenez casks, this is a mellow Lagavulin with flavours of seaweed, Christmas cake and sea salt.

Want to see The Three Drinkers cutting peat at Laguvalin in the sunshine? Watch The Three Drinkers do Scotch Whisky, now streaming on Amazon Prime!