Win with COVER & Emperor Asset Management


Enjoy the pleasure of a fine whisky – not for the taste but for the value

To say that COVID-19 has caused volatility in the world’s stock markets would be stating the obvious. In fact, in the early days of the pandemic – such as in mid-March last year – the Dow Jones Industrial Average experienced its second-worst day in the 124 years it has been in existence.

And yet now, even though the pandemic is still raging in many regions of the world, markets have done well in many places. But the volatility cannot be attributed to the pandemic alone – after all, in South Africa, hordes of investors have taken their money elsewhere in recent years because of the failure of the Johannesburg Stock Exchange to deliver the sort of results that any investor is striving for.

“Ultimately, the long-held belief that investing in solid stocks for the long-term is bound to provide a good return is being challenged,” comments Elad Smadja, CEO of Taurus Capital, a South African investment firm with a focus on less conventional types of investments. “Many people are fed up with the uncertainty of returns offered by conventional forms of investment because they are so affected by the volatility in the markets.

“Those most spooked by what has been going on often resort to converting investments into cash but, while one’s capital may remain secure, there aren’t real returns to be made. In addition, when an investor exits a stock market investment because of the fear associated with the uncertainty of the markets, they are bound to end up losing in the long run because they are inevitably selling out just when the stocks are at their lowest value. We therefore need to look for other ways to invest.”

Some investors are looking at forms of investment in which whatever happens in the stock markets is not going to influence the value or performance of their investment. While often high-risk in nature, these sorts of investments may offer more certainty during unsettled times.

Smadja, for instance, offers those with at least R1-million available for investment the opportunity to invest in a litigation fund. “Litigation funding is fairly well-known in some other countries but it’s relatively new to South Africa,” he explains. “It can be a high-risk investment because there is always the chance that the case will not be successful. But, when the investment is done via a firm that specialises in this work, such as we do at Taurus Capital, the risk is lower because we conduct a thorough assessment before a particular case is chosen for funding and so we are quite confident about the chance of success of the cases we invest in.”

The return on this sort of investment can be significant, as Smadja shows with the example of a recent litigation case involving a multinational corporation. In this instance, investors walked away with 8.5 times the amount they had originally put into the investment, as many as four years previously.

Other investment assets not affected by the sort of issues that impact the value of shares are known as passion investments. These are items that one may really like or enjoy, such as fine whisky and wine, classic motor cars, designer handbags, and so on.

In South Africa, Spirit Vault Collective is a firm offering investment opportunities in some of the rarest and finest whiskies available. According to Neil Paterson, co-owner of the firm, “Whisky has no direct price correlation to stock or bonds. It is a physical asset and the value of the asset is determined by the desirability of the brand, its quality and its scarcity.”

Paterson talks about two types of investors in whisky: those who have a strong love for a particular brand of the drink and who may well end up enjoying a glass of their investment at some point, and those who see the investment opportunity above all else and would never consider consuming the product. “The second type is the real investor – someone attracted by the prospect of a healthy return when the particular bottles go on auction at some point,” he explains.

As regards the potential return of this investment, Paterson advises that returns are calculated on the price paid per bottle and what the sale price would be in a global auction. A good example of the possible return is that of the Hanyu Joker. The investor in this instance realised a return of almost 35% over a period of 6.5 years, and this rare brand continues to sell for incredibly high prices.

As for the stability in the value of this sort of asset, Paterson shows that,  “The average basket of whiskies sold on auction last year during the COVID-19 stock market crash increased in value, whereas stocks decreased dramatically before regaining their value. Although the year-end results were similar to those of the S&P 500, the basket of whiskies was far less volatile. And so people would not have bailed out of their investment in whisky in the way terrified investors were getting rid of their shares.”

Alternative investments are not for every Tom, Dick and Harry. Because they come with risk, require substantial investment amounts, and may be pricey in terms of the fees for the specialist advisors involved, they are niche investments. But, with growing scepticism about traditional investment options, these options are likely to become increasingly attractive to the South African with a fair amount of cash to diversify their portfolio in a long term investment.

Related posts

Momentum Investments - Economies at a glance July 2021


How did the markets perform in Q2 2021?


The real impact of the crisis on SA’s economy


Investors can expect better returns from emerging markets - and SA - over next decade