Many investors are moving away from the traditional investments of things like stocks and bonds and looking at alternative investments. These tend to be tangible assets that are selected because they tend not only to hold their value but also to appreciate over time, such as cask whisky.
While there is no such thing as a guaranteed return in the world of alternative investments, with the right strategy and partners, investors can build diverse, robust portfolios. The key is knowing how to manage risk, and that’s what we’re going to be focusing on today.
Transparency is key
Sticking with the example of cask whisky, it’s clear that anyone could, in principle, advertise opportunities to invest, so how do you select the right one? One of the issues with these types of alternative investments is that there are a number of scams that exploit the passion of prospective investors. This is why a transparent, two-way relationship between the investor and the team offering the cask whisky opportunity is absolutely key.
“One of the key questions that would-be investors shouldn’t be afraid to ask any company they’re looking to invest with is ‘Can I meet you? Can I spend some time with you and get to know who you are?’” - Alphie Valentine, Co-founder of Hackstons, specialists who provide opportunities for whisky investment and consumption through their Knightsbridge retail experience. This serves as a great example of the importance of performing due diligence when selecting investments, starting with getting to know the provider.
Verification is essential
Hackstons provide every cask whisky investor with a Delivery Order, considered the ultimate proof of ownership, that clearly states the ownership, location, and contents of every cask that has been purchased. This is proof that the investor owns what has been advertised and can be used as a key part of establishing provenance. The Delivery Order can then be combined with earlier records of the cask, such as where it was distilled and who has owned it previously, so that the true value can be ascertained.
The verification process can also involve personal visits to see how the casks are stored and learning more about the distillery that produced them. If you find that such information is not available or forthcoming, this should be an immediate red flag that all may not be as advertised.
Real-world data is needed
While there is no such thing as a guaranteed return on a cask whisky investment, you can manage your risk exposure by asking for any information on casks from distilleries that have performed well historically. The general rule of thumb is that cask whisky appreciates over time as scarcity drives value and the whisky matures. Looking at real-world data for similar casks that cover the timeframes you’re looking to hold your investment for can be a good indicator of how your cask’s value may perform.
A cask whisky provider who is vague about any of the key details may either be running a scam or be less experienced than you realised. In which case, finding a team that has a wealth of experience that they can demonstrate with information backed by data will reduce your risk exposure.
Liquidity needs to be considered
It’s important to note that a cask whisky investment will be much more of a journey than investing in stocks, shares, or commodities. While traditional investments can be well-suited to high-volume trading due to volatility, the cask whisky market tends to be more stable and steady. When an increase in value occurs, it tends to build gradually over a period of years, meaning instant access to highly liquid profits isn’t something investors should generally associate with this market.
You can think of cask whisky investment more as a passion project, and certainly a long-term hold, that allows you to diversify a wider investment portfolio by adding a tangible asset that you perhaps have a deeper interest in. Many investors relish the chance to learn about the history and to feel a connection with the artisan side of the industry, as well as to potentially make a return over the longer term.
Build an exit strategy early
Regardless of how long you want to hold your investment, having an exit strategy in mind from the beginning is essential. Cask whisky investors will generally look to bottle the whisky or resell or auction off the cask, depending on which one they feel will offer the better return at the time of the exit.
Over time, you can learn more about the industry and finesse your exit strategy. Taking a look at Hackstons on YouTube can provide insights into how the industry works and the culture of cask whisky. This could help you gain a greater appreciation of the asset you are looking to invest in. Hackstons also works with their clients to find which strategy works best for them when looking to exit their investment.
Keep your passion in check
Last but not least, it’s important to remember that although you’re passionate about cask whisky, you’re still investing with the goal of making a return. Keeping your passion in check with a pragmatic, measured approach built on due diligence and attention to detail will help you manage risk while enjoying the journey. A solid first step is identifying a reputable company, such as Hackstons, to begin exploring how cask whisky might benefit your investment goals.
