Whisky has appeared in the last few years as an alternative asset classes promising high returns and diversification. I will tell you why I would advise against investing in whisky.
- Lack of Transparency in the Market
- Lack of Expertise on the part of most Investors
- Whisky is not an Investment, but a Speculation
- Little Liquidity
- Opportunity Cost
Alternative investments have become very popular over the last decade. An alternative investment is almost anything other than stocks and bonds.
Thus, the most popular alternative investments are usually real estate, private equity, hedge funds, commodities, and cryptocurrencies. But more niche investments have also grown in popularity, such as art and whisky.
Investing in whisky can be done online, opening an account with a platform that facilitates and promotes these types of investments.
The pitch about investing in whisky is about its historical price performance, which may continue in the future, and the diversification it can add to a traditional investment portfolio. Some websites like Whisky Stats focus on analyzing the prices of different types of whiskies.
However, I would like to give you a few reasons for why I believe investing in whisky is not a good idea for most investors. If you want to invest your money, there are usually superior alternatives:
Lack of Transparency in the Market
The main cause for concern when it comes to investing in whisky is that this is an opaque market. In other words, it is difficult for most people to figure out what a certain type of whisky is worth.
If we invest in stocks, bonds, gold, or cryptocurrencies, it is very easy for us to know what the prices of our assets are. These markets are open almost daily, or even 24/7, and we can look at real market prices at any time.
Conversely, that is not the case when it comes to whisky. It is difficult to know where whisky prices are coming from, and whether those prices are real or indicative. This puts most investors at a disadvantage relative to the people in the know. A position we never want to be in.
Lack of Expertise on the part of most Investors
The second reason why we should be cautious before considering investing in whisky is that most investors do not really know anything about it.
The difference in knowledge between average investors and market professionals is immense in the world of whisky. And as Warren Buffett often says: do not invest in things you do not understand.
Whisky is not an Investment, but a Speculation
Let us be clear about something: I am not against speculating. Everyone can do whatever they want with their money. And, contrary to popular belief, I think speculators are for the most part positive for both financial markets and society at large.
But it is important to remember that speculators take significant risks and may end up losing money.
When we buy something with the only intention of selling it for a higher price in the future, we are speculating. We are not really interested in owning that asset. We see it as a good bet with which we can make money. Nothing wrong with that as long as we are aware of the risks involved.
When we buy stocks, real estate and even bonds, we are acquiring productive assets that can generate cash flow for us.
The money we invest in a company, a real estate property or a bond, serves to finance an economic activity. Obviously, such investments can also go up in price. And many investors speculate with them. But they are productive assets with the potential to generate profits and cash flow.
In the case of non-productive assets such as gold, silver, or cryptocurrencies, which can also be used to speculate, they are mostly savings vehicles. Gold and silver have been used as money for thousands of years, far longer than US Dollars or Euros, and cryptocurrencies represent an alternative form of money.
Consequently, while we may want the price of these assets to go up, owning them has a utility. It is similar to having cash in the bank.
In the case of investing in whisky, we are talking about another non-productive asset that will not generate any cash flow for us. It is not an alternative form of money. And, if we have invested in it through an online platform, we cannot even drink it.
The only possible way to make money once we have invested in whisky is hoping that someone else will come later and buy that whisky from us at a higher price.
Personally, I do not like investments that are only speculations and do not offer any utility to its owners.
Liquidity is the ability we have to buy and sell an asset easily, quickly and at a price that is close to the fair market value. Liquidity is especially important in times of turmoil in the financial markets.
The assets with the most liquidity tend to be stocks, currencies, and gold. Everyone can see at what price these assets are trading, and easily buy or sell them.
In the case of whisky, liquidity is more reduced. And this problem can be compounded in times of financial stress. This is because if everything is collapsing in price, it may simply be impossible to sell our whisky. If no one wants to buy it, we will be stuck with it.
Finally, every time we are about to invest in something, we should ask ourselves what alternative investments are available to us. Are we really making the best decision possible?
Investment decisions should always be made in the context of our overall investment portfolio, it is not just about buying the assets that have the most upside potential without considering the risks involved.
For this reason, if you are attracted to the idea of investing in whisky, simply ask yourself if whisky is likely to be a superior asset for your portfolio than any stock, ETF, precious metal, cryptocurrency or even cash.
The opportunity cost argument is in my opinion the most powerful in making people realize that investing in whisky is not for everyone.
If you liked my analysis, I encourage you to subscribe to my newsletter:
And if you want to learn about another asset classes within the alternative asset space, check out the following section: