How we value whisky bottles
Unlike heavily traded highly liquid stocks or bonds where the market price is easily determined at any point in time, whisky is a far more relaxed affair. Some bottles will move on auction multiple times a month making valuations fairly straight forward. Certain bottles however, will not be on auction for years, possibly decades. The general rule of thumb with illiquid assets in the alternative investment space is they fetch a premium over highly liquid assets. This rule can also be applied to whisky through a far simpler lens with the following example:
A bottle of Ardbeg 17 year old, which is sought after but generally available on auction, will rarely fetch a greater price than what it went for on the previous auction. It has grown at a rate of +3.25% a year for the last four years, not terrible but hardly earth shattering. The reason being as soon as it reaches its recent market value point the bidding will slow as each bidder knows they can simply wait for next week and pay a price closer to or under market value.
This is simple economic supply and demand, as the bottles get consumed and are less available the price will start to rise at a greater velocity. Now take the Kinclaith Duncan Taylor 1969. It has only been available on auction twice in two years that we are aware of (on the 15th of May 2018 at £850 then again on the 5th of October 2020 at £1550), which equates to a return of +87% over three years. The last recorded price of a bottle, especially the rare and unusual, is simply a line in the sand waiting to be washed away.
For our valuation purposes at SVC we look at major physical auction houses around the globe, namely Bonhams, Christie’s and Sotheby’s. As well as five online whisky auctions based in the UK, including scotchwhiskyauctions.com, whiskyauctioneer.com, just-whisky.co.uk, whiskyhammer.com and whisky.auction. Once we have our set of data points we check for any outliers.
Unlike a stock or bond, a bottle of whisky could be slightly different from the previous bottle that was sold. We look at bottle size (700ml or 750ml), the condition of the label, the level of the liquid in the bottle, and whether the original packaging is included or not. On average a bottle will fetch 10-15% less if the packaging is in poor condition or not available. Another major factor is the fill-level – how was the bottle stored and/or does the bottle have a faulty/loose cork allowing the whisky to evaporate over time, and how long has this been left to happen?
There are also possible upsides to the valuation. What if the bottle was a limited release? For example a Glenury Royal 50 year old (1 of 498 bottles), and we happened to own the first bottle in the series. Bottle number 1 fetched more than 40% of any previous Glenury Royal 50 year old sold on auction.
After checking the outliers and ensuring that we are matching the quality and condition of the same bottle that accurately represents what we have in our portfolio, we are then able to move to the final step of the valuation process. We then simply apply the average price of the bottles sold in the month across all the auction houses mentioned earlier, which will provide us with the average market rate for that bottle in that particular month.
Our investment approach at SVC is supported by this rigorous pricing and valuation process undertaken by the team on a monthly basis for everyone whisky in our portfolio, and at every auction. No detail is left unchecked, and it assures that our investors are not only getting the best bottles at the best prices, but that their investment portfolios are always accurately valued.
Feel free to reach out to us if you have any deeper questions on how we conduct our valuations.