By Dave Broom

Bubble trouble

Dave gives us his take on the recent investment rumblings
Amsterdam’s Schiphol Airport is a model which all major hubs should aspire to. Relaxed, spacious, with wonderful details: plenty of places to relax, a library, the Bols Genever museum and a tiny branch of the Rijksmuseum. With an hour or so to kill on my way back from the Groningen festival I headed towards this culture zone to see what was on show. On the way I passed a duty-free store in whose window a bottle of malt encased in a glass case slowly revolved. “Price €250,000.” Lights flashed off its diamonds.

Upstairs in the museum was an exhibition of flower paintings from Holland’s 17th century ‘Golden Age’. Tulips dominated. As I looked, I thought of that revolving bottle. The earliest of the paintings were from the 1630s, when ‘Tulipmania’ was at its height and one tulip bulb could cost the same as a house.

During this first market bulb growers, seeing demand increasing, raised their prices. Then speculators arrived, driving it ever higher. The tulip ceased to be the point, making easy money was all that mattered. Bulbs weren’t traded, futures were. Investors could trade in tulip stock options. Sound familiar?

"Most of the people who are buying into this scheme have little knowledge of whisky"

The bubble popped in 1637 leaving some ruined and everyone looking somewhat foolish. Some historians have argued the bubble was inflated by people caught up in the madness of the moment. After all, what could go wrong?Everyone loved tulips, the price was guaranteed to keep rising, the good times would continue forever. That was never going to happen.

Why did the bubble burst? Reality hit. People suddenly stopped paying the ludicrously inflated prices being asked.

Who won? Those who came in early and cashed in at the right time. The rich.

Who lost? Those who were swept along in the delusion and came in late and were at the mercy of cynical operators.

There are parallels with the recent noisy chat about ‘Investment Grade Scotch’. The issue for me with IGS isn’t whether rich people wish to spend their money on whisky, they have the right to do whatever they wish with their cash, it is the lack of transparency around the topic which I’m concerned about. IGS isn’t the same as first-growth claret, as some naively suggest. That has a centuries old proven track record. Investing in whisky is a far newer phenomenon, one which is untested and which therefore is more risky.

Any responsible stockbroker will tell you that your investment might go down as well as up. Now imagine instead that the stockbroker you consulted was also in partnership with the firm whose stock he was punting. Would that be legal? Would that be moral? It happened during tulipmania. Surely the same couldn’t happen in the IGS world.

Most of the people who are buying into this scheme, rich or not, have little knowledge of whisky. They deserve to be told about it, the risk involved, the newness of the category, the possibility that they won’t receive a huge return on their investment. If I was buying stock in a company I’d want to know all of that, I’d want to know the potential risk involved. Instead, rather than being given an open assessment of the brand they’re interested in, its reputation, its performance, the state of the market, they are promised a guaranteed return.

There is a moral imperative at work here, which seems to have been willfully ignored. Invest if you wish, but don’t think that there is a guarantee that the whisky you are buying will pay for your children’s education. It might, but it might not. That’s the risk you take, but only by having the facts independently and transparently outlined should you take that decision.

At the museum, I looked closer at a still life by Jacob Marrel. The blooms were fading, insects were crawling across the petals, the flowers in their beauty also contained their death. They couldn’t last. It is the nature of things. As I left to get my plane, the whisky bottle still revolved. Its case looked more like a sarcophagus.