Scotch whisky, as the saying goes, is an acquired taste. It might also be a good investment to acquire. Or so it seems based on indexes provided by Whisky Highland, a whisky data provider and advisor based in Sutherland in the northern Scottish Highlands. Its index of the top performing 1,000 bottles of single-malt Scotch whisky bought at auction in the U.K. since the end of 2008 had returned 107% as of this year’s third quarter. An index of the top 250 bottles returned 208% during that period. Those numbers exclude auctioneers’ commissions, which can be hefty.

Still, those kinds of returns are intoxicating, particularly in an era of roller coaster-like volatility in equities and puny yields in fixed income. Collectible whisky is generally seen as a long-term investment with suggested holding periods of 10 to 20 years. All the while, collectors must resist the temptation to unseal the bottle and take a snort. Prices for purchasing limited release bottles of whisky can range from around $100 to six figures. And sometimes a return on investment doesn’t have to take too long.

A bottle from last year’s limited edition Macallan Royal Marriage (of 1,000 bottles) cost £150. At a recent sale this past October, a bottle sold for £570 ($900). That’s a 280% gain.

And a bottle from last year’s Glenfiddich’s Foundation Reserve for the Benevolent Charity (of 500 bottles) cost £50 upon release. As of October, a bottle from that collection was valued at £260 ($413), or 420% greater.

But that’s just a wee dram compared to some higher-end rare releases.

In 2002, the Dalmore distillery in Scotland released 12 individually named bottles of rare single-malt Scotch whisky produced decades before. One of them sold at auction that year for £22,000, while another sold for £32,000 in 2005 and reportedly was consumed that night. In 2011, a Chinese businessman bought a bottle from that collection on display at a duty-free shop in Singapore’s Changi Airport for £125,000 (roughly $200,000), the highest price on record for a bottle of whisky sold at retail.

The highest price paid at auction was $460,000 for a bottle of 64-year-old single-malt scotch from Macallan that sold in 2010.

Amber Nectar
The world of whisky is vast (Bangladeshi whisky, anyone?) and aficionados can argue about taste, but rare single-malt scotch fetches top dollar among collectors.

“Malt whisky is the most collectable because of its status as the world’s premium distilled spirit,” says Stephen McGinty, whisky specialist at McTear’s, a Glasgow-based auction house. “More care, craft and time are invested in the creation of a single malt than any other product available.” He adds that some batches are released in such tiny quantities that they may become instantly valuable.

“Single malt has cachet because it’s the product of a single distillery in Scotland and it’s seen as a better source,” says David Robertson, director of rare whisky at Dalmore. “You can identify its origin, how many were produced and the cask it matured in.”

Blended whisky is a fusion of different whiskies from different distilleries. “Using fine wine as an example, blending different wines doesn’t have the same cachet as wine from a premier vineyard,” he says.

Roughly 90% of scotch that’s consumed globally is blended whisky, and about 95% of whiskies sold at auction are single malt.

McGinty notes that Irish whiskey––particularly older bottles and those from defunct distilleries––are highly valued, especially in Ireland. “Older American bourbon is also collected, prohibition bottles obviously carrying a premium,” he says. “Canadian whisky is worth next to nothing.”

The key price determinants for investment-grade scotch include a bottle’s age and rarity. Commemorative, single cask, discontinued lines, limited release or small-batch bottlings attract the main interest from investors and collectors, according to Whisky Highland.

The distillery where it’s made is also important. Whisky Highland’s indexes indicate the leading brands in the auction market in recent quarters have included Macallan, Dalmore, Balvenie, Port Ellen and Glenfiddich.

“Some distilleries have better credentials, like premier vineyards in France,” Robertson says.

And taste matters, too. “The first rule of investing is to make sure it tastes good so there will be demand from both sides of the market,” says Andy Simpson, founder of Whisky Highland. “Drinkers will want to drink it, and collectors and investors will want to buy them to keep them.”

The Scotch whisky market is benefiting from the drink’s growing popularity, particularly in emerging market countries where it’s seen as a status symbol. Scotland can make only so many batches, though. “In Scotland, we can’t produce the volume of investment-grade whisky that’s on parallel with wine,” Simpson says.

He notes that Diageo––the largest whisky producer in Scotland––has invested £1 billion in new distilleries and existing facilities to boost production. But much of that, he says, will go toward the mass consumption market. “We’ll get far more whisky that’s not suitable for investment,” he offers, “so the pool of investment-grade scotch will shrink as the older whiskies previously bottled are fewer in number and rarer.”

Scotch Bubble?
The very notion of “investment-grade scotch” can be somewhat nebulous, if not contentious. “What does investment grade really mean?” asks Joseph Hyman, whisky specialist at Bonhams auction house in New York City. “Is it super-limited edition items that sell for $10,000 at retail? Is it old collectibles?”

Whatever it means, Bonhams is a beneficiary thanks to the popular whisky auctions held at its locations in New York, Edinburgh and Hong Kong. Hyman says Bonhams sold nearly all of the stock at its October 28 whisky auction in New York. Among the highlights were two half-century-old bottles of Macallan single malt that sold for $13,090 each.

Those kinds of prices raise the ire among some of the so-called whisky blogerati who believe it infuses the greed factor into their cherished beverage and is possibly creating an investment bubble waiting to burst. Some point to past troubles in the whisky investment market, such as scams involving whisky casks and inferior whisky during the 1990s.

For sure, whisky sold at auction can fall victim to Newton’s law. According to Whisky Highland, the bottom 1,000 bottles sold at auction in the U.K. from the end of 2008 through this year’s third quarter collectively lost 28%. The bottom 250 lost nearly 49% during that period.

Simpson notes that bottle prices can take a hit at distilleries that change production strategies for limited releases or change their pricing strategies, among other things. Such was the case with Glenmorangie, whose “Last Christmas at Leith” commemorative bottle release peaked at £650 in June 2010 before it plummeted to £250 in September 2011. Its price climbed back £500 in April at the most recent sale involving that release.

Simpson divides whisky risks into two main categories: logistical and storage risks, and economic threats. In the first case, there’s always the chance for an “Oops!” moment when a valuable liquid stored in a breakable bottle accidentally falls to the ground and shatters into a gazillion pieces.

As for economics, Simpson recognizes that a growing number of bottles sold at auctions could create a supply-and-demand imbalance. Earlier this year, he estimated that the number of single, full-sealed bottles of single-malt scotch to be sold at auction in the U.K. in 2012 would be 15,270. That’s way more than the roughly 8,700 bottles sold in 2011, which is the previous high year since he began tracking the market in 2008.

And while he can foresee that a greater number of bottles sold at auction could cause a short- to medium-term retracing of values, he doesn’t believe that it hints at a bubble waiting to burst.

Nor does Hyman from Bonhams, who believes investor interest in collectible whisky should be strong for the foreseeable future, fueled in part by growing interest from emerging market countries. “Just because there’s a frenzy doesn’t mean it’s a bubble,” he says. “It’s a frothy market because there’s not a lot of product to meet demand.”

People interested in investment-grade scotch or other whiskies need to do their due diligence by reading trade publications or tapping into consultants, such as Simpson, who know how to evaluate the market. Various whisky events––there are a number of big shows in major cities in the U.S.––are another source of contacts and information.

And despite its reputation as a long-term holding, whisky isn’t an illiquid liquid investment. Bonhams and McTear’s host whisky auctions on a regular basis, and there are numerous online auction services.

Of course, it’s hard to tell how long the current strong interest in investment-grade whisky will last. And the running joke is that if your scotch investment goes south, you can always drink it. That’s funny, until it actually happens.