Drinking Whisky Makes You A Better Investor

I went on a trip to Japan for my honeymoon in 2016 . Instead of the usual Tokyo or Osaka, I decided to venture into the outskirts and arrived at a little quaint town called Hakone. Hakone is known for its Japanese hot spa (onsen) and its proximity to the beautiful Mount Fuji. Many tourists would drop by Hakone for a break after visiting Mount Fuji but hardly anyone stays behind. And because I hate crowded places, I chose to visit Hakone during the off season. This means the town was even more empty than usual.

After 5pm, Hakone basically shut down hence the usual activity was to feast on the nice Japanese dinner followed by a dip in the onsen. However, I noticed some shophouses lining the streets were still opened and I was intrigued. “Why would anyone open their shop at this hour? There are so few customers, the business must be really bad”. I decided to go for a walk after my dinner, and have a look. Indeed, the shops were mostly empty and manned with minimum staff.

With every shop passed, my interest diminished further. I was ready to head back to the nice onsen awaiting me at the hotel. Suddenly, I spotted a small alcohol store at the end of street. With the door half shut, it was getting ready to close for the night but something on the store shelf caught my eye.

It was a bottle of whisky.

Now this is no ordinary bottle of whisky. It is a 25 year old edition of Nikka’s Taketsuru blended malt whisky. Other than being an investor, I am also a whisky fan (sometimes, I think I know my whisky better than my stock investments). I knew about this whisky back in 2010 and I always wanted to collect one as there were only 120 bottles in the world!

Intrigued by the rare sight of this whisky, I decided to barge into the store and find out more. In the world of whisky, fake whisky are not uncommon hence I was very careful. I asked for the certification papers, and examined the bottle and its case very carefully. As expected of Japanese’s alcohol sellers, it is a REAL 25 year old Nikka’s Taketsuru blended malt whisky. My last step is to check the price.

As a whisky fan, I already knew the market price before asking for the sales price. It was selling for around US$1,000 when I heard about it in London. So when the salesperson showed me the price tag, I was confused.

The price tag showed $75,600 Yen.

Took me about 10 seconds before I realised it was selling for US$670! In disbelief, I kept silent for a minute and the salesperson was getting impatient as it was getting late (for Hakone, 7pm is very late!). He urged me to make a decision.

After what seemed like forever, I turned to my  wife and said,

“I am buying this for investment. I will sell it if I ever need the money, or our daughter’s wedding, whichever comes first”

Now, Why am I Telling You This Story?

Because if you can follow the principles of this story, you will make a better investor.

One: Invest WHEN Others’ Don’t

I never like to go to crowded places for holiday or anything for that matter. Not just because those places were crowded, but I knew the chances of finding good deals was very slim. I visited Hakone during off-season and I was staying at 5 star ryokan for the price of a 3 star because there were very few customers and the ryokan were on discount.

Similarly for the stock market, when many people are investing in the stock market, you can expect the prices to be high (just like the hotel prices during peak season). Therefore, I prefer to invest in companies when they are receiving much less attention and their prices are likely to be cheaper.

Two: Invest WHERE Others’ Don’t

While the previous point is about timing, WHERE you put your money also matters. Comparing popularity, more tourists knew about Tokyo compared to Hakone, hence the prices in Hakone such as food and accommodation were likely to be cheaper.

Similarly, most people know about the big famous companies such as Google, Amazon, Facebook,  these companies seldom sell at a discount. And when they are, the prices often recover to fair value very quickly. Therefore, I prefer to invest in lesser known, smaller companies where they are likely to be mispriced due to lack of analyst attention.

Three: Pay Attention to Your Surrounding

If I just walked with my head down back to the hotel after seeing the deserted shophouses, I would not have spotted the alcohol store, let alone buying the 25 year old Nikka’s Taketsuru. Finding a good investment in the stock market is the same, most of the investments are like deserted shophouses, not worth your attention but once in a while, you will find a gem in the rough.

At first glance, they may not seem like much. Nothing attracts you, nobody talks about them, the trading volume is dismal. However, if you research beyond the surface and look deeper, you will start to realise its potential and begin to wonder why no one else was paying attention to it?

The reason is often very simple, because these hidden gems don’t look like much at first glance so the other investors glance over them very quickly. So look around you, literally. Are there “hidden” companies  around you? Take a closer look, you will never know what is beneath that unattractive surface.

Four: Always Do Your Homework

And if you get lucky and found a hidden gem, you need to strike fast. But more importantly, you need to be right about it. Sometimes, more haste equals to less return.

I knew the 25 year old Nikka’s Taketsuru pretty well even before I visited Hakone. While I never dreamt of buying it there, I was prepared for it. I first heard about it in 2010 and I have done a fair amount of research on it. However, I never bought it because it was hard to get my hands on one and the online websites were selling it at a high premium. So when I encountered it in 2016, I was ready.

I knew how to verify its authenticity, I knew the market price. Heck, I even knew which credit card to pay for it to get the most air miles. However, had I not research about it beforehand, I would have missed the great opportunity even if you put the whisky right in front of me (ok maybe not but you get the point). It didn’t take me long to authenticate it and buy on the spot.

This is similar to the stock market, most people go to the stock market and buy stocks without doing their homework, which is crazy in my view! It is like going into the alcohol store to buy a US$1,000 bottle without knowing what to look out for. You are most likely to be conned, you may end up with a lousy business if you are not careful.

Five: Don’t Keep Looking at the Price

I bought the whisky for US$670 in 2016 and in early 2018, it was selling for roughly US$2,000. That’s more than 200% return in 2 years. What is the trick? My trick is “Don’t keep looking at the price“.

Before the current price of US$2,000, the price must have gone past all the prices between US$670 and US$2,000.

Imagine if a buyer came to me all the time and kept offering to buy the whisky at different prices such as US$800, US$1,000, US$1,300, US$1,600, US$1,800. What would I have done? I might have sold it earlier, believing that I have already gotten a nice profit out of it, and missing out on the long term compounding gains.

In the stock market, if you invest into a great business at a great price, all you need to do is to have patience. Let the business compound your investment for you and you will do well over the long term. This point is simple to understand but the hard to follow.

Currently, the market is undergoing a correction and many people are getting fearful. They cannot stand the sight of their portfolio turning “red”. Even though they invested in great businesses, they are affected emotionally and tempted to sell during the correction. Looking at the stock price all the time will do you no good. It will only tempt you into emotional mistakes such as buying high and selling low during a market correction.

So When Will You Sell It?

That is the most common question I get from other whisky fans. My answer remains the same as two years ago,

“I am buying this for investment. I will sell it if I ever need the money, or our daughter’s wedding, whichever comes first.”

It might be true for my stock investments too.

See you soon!

Investing Always,

Pete

Please refer to the disclaimer here