Transcript
Intro
Stephan Shipe:
Welcome back to the Scholar Wealth Podcast. Today we have a listener question on inheriting a large real estate portfolio and how to think about illiquidity, ongoing management, and long-term decisions.
Then we’ll turn to a question from a neurosurgeon navigating asset protection as both income and assets and exposure rise together, and how to protect what’s been built without overcomplicating things.
We’ll close with our From the Field segment featuring Brian Higgins, master distiller at 1861 Distillery, for a conversation on what drives the value of bourbon, why age and price are often misunderstood, and how to engage with bourbon more intentionally, whether you’re drinking, collecting, or just curious.
So let’s go ahead and get started with our first question.
Question 1 – Inheriting Real Estate
Listener: I inherited a portfolio of real estate when my dad passed unexpectedly last year. It includes a primary residence in Maryland, our family’s vacation home, and two rental duplexes. Altogether, it’s worth around $7 million, which is now about half of my net worth. I’m 46 and trying to figure out whether it makes sense to hold this much illiquid real estate long-term. I have concerns about ongoing upkeep costs and management, but I also don’t want to make a rash decision and miss out on future growth. How do I decide whether to keep, sell, or restructure?
Stephan Shipe: So I think the first thing to keep in mind with this is there’s no urgency in this decision whatsoever. A common thing that I see is once an inheritance comes in, there’s this immense weight that hits and it’s, you have to make decisions. You have to understand it. Fortunately, you’re in a great position where you have some liquidity outside of the real estate. So while there are likely some ongoing holding costs here, it’s not likely breaking the bank for you to hold onto it as you make this decision.
So that’s a huge advantage. I think the first thing you have to do is separate out that you have three totally different types of properties here. I would look at the easy one first, which is the duplexes, and start looking at those as investments. And the reason I say that is you likely don’t have a lot of emotional ties to rental properties. So those are the easiest to go through first and look at this as a purely financial decision.
I would look at what the value of them is now, not only what you could sell them for. You can engage an agent to talk about that and see what similar properties are going for. But I would also look at ongoing net operating income, which essentially is how much rental income the duplexes provide, and then taking out all the ongoing costs. This would be any HOA or condo fees if those apply, maintenance, taxes, insurance, all of that, to see how much cash flow this actually throws off every single year.
And then I would mix in some of the capital expenditures you’re likely going to need in the future. In other words, there’s a big difference between duplexes where the roof was recently replaced, the HVAC is in good shape, things have been updated, and you don’t have big repairs looming, versus a situation where you’re going to have to replace HVAC units soon, you’re going to need a new roof, appliances need to be updated in the next few years, things like that. All of that needs to be taken into account so you’re comparing apples to apples.
Then look at it like an outside investor. After seeing all of that, would you go today and buy those duplexes? And if the answer is no, for whatever reason, because you don’t want to invest in real estate, because they’re going to need work, because they’re not local and it’s going to be a pain, whatever it is, then that’s reason enough not to have them in your portfolio. Just because they were given to you through an inheritance doesn’t mean you have to keep them. It also doesn’t automatically mean they’re good investments.
You see this happen with houses all the time. Somebody says, well, we have our house, we’re going to move to another house and we’re going to keep our old house as a rental property. Just because you already own it doesn’t mean it’s a good rental property. Would you have bought that house as a rental before? And the answer normally is no. That’s not a rental house. So we have that same scenario here.
So duplexes are first. They have hopefully no emotional attachment. We evaluate them as a pure real estate investment opportunity. And if you’re not interested in investing in real estate, then we take them out of the portfolio and I would go ahead and list them and start creating some liquidity. Especially because, with the inheritance, there’s likely a step-up in basis, so you may not have embedded gains to worry about.
Now the next two are the ones where you could have emotional ties, which is the primary residence and the vacation home.
For the primary residence, for the reason I just said, the odds of that home being a solid investment property are likely low. Normally there’s more money put into a primary residence than there would be into a rental property. In other words, if you’re replacing appliances, renovating a kitchen, replacing carpets, all of that, the quality and cost of those upgrades in a primary residence is usually very different than what you’d put into a rental. The type of carpet you put in a rental house isn’t the same type of carpet you put in your own home. And if your dad was in that situation too, it likely means you’re not going to get the same return on those upgrades if you try to treat that primary residence like an investment property.
So if we assume it’s probably not going to be a great rental, then the question becomes personal connection. Do you want to hold it? You likely have the assets, especially if you sell the duplexes, where you could maintain holding costs. You’re young, you’re in your prime earning years, so I don’t see it being a problem if you decide to hold it. But the question is, what are you holding it for? You’d be holding it more like a sunk cost. It’s there, you’re paying the money to keep it, and you’re holding it until you decide what you want to do with it later on. That can be fine, but I’d still balance that against whether the value of that home could be put to better use in your portfolio or in other investments.
The interesting one of the three is the vacation home. Because a lot of people, when they inherit a primary residence, what we don’t usually hear is, I inherited my parents’ home and I’m going to move in. But vacation homes have a different spin. When someone says, we inherited my parents’ vacation home, it often turns into, now that’s our vacation home, because it’s in a location you already go to, maybe you’ve been going there throughout your life, and it’s a place you and your family actually use.
So the vacation home is more of a hybrid decision. I would evaluate whether you want a vacation home there. If the answer is yes, then you could consider keeping it. And if you want to rent it out sometimes to offset costs, you can always do that. But huge red flag would be making rental income the only way the vacation home works. I’d want to make sure you can hold it with your own personal finances without relying on rental income to pay for it.
And the reason I’d emphasize that it has to be a place you actually want it to be is because if you want a vacation home somewhere else, you can always sell this one and go buy a vacation home in a different location. It doesn’t have to be, I inherited a vacation home and now I’m locked into that location. You can still inherit the value of a vacation home and put that value somewhere else that you and your family would enjoy more.
So overall, I’d go through these in a pecking order: duplexes first, then the primary residence, then the vacation home. But given your asset base and the fact that you can create some liquidity here, especially by selling the duplexes, I wouldn’t be too worried about holding this a little bit longer while you make a thoughtful decision and take all these factors into account.
Question 2 – Physician Asset Protection
Listener:
I’m a neurosurgeon, and at this point, I have around $9 to $10 million across investments, retirement accounts, and ownership of my practice. I’m becoming more aware that my earning power and my exposure are increasing at the same time. I carry solid malpractice insurance, but a lot of my assets are still held personally in my taxable accounts. How do I balance protecting what I’ve built without over-complicating things or locking myself into limited flexibility?
Stephan Shipe:
So a couple of big things are standing out immediately. The first is that included in that $9 to $10 million is ownership in the practice. That worries me a little bit, because depending on how much of that $9 to $10 million is wrapped up in an illiquid asset like the practice, I’m a little hesitant to go say, well, let’s go lock up a bunch of these other assets in even more illiquid structures.
You don’t want to end up in a situation where you have a huge liquidity crunch, you’re making good money, but you can’t actually spend anything because you don’t have accessible assets. You’re sitting there with $10 million on paper, but you can’t touch it. That’s a real concern.
So when we’re talking about adding protection, we want to think about protection in layers. Everyone immediately thinks about malpractice insurance, and that’s obviously completely necessary. But it’s not sufficient on its own, because there are other types of risks we’re trying to hedge against.
Malpractice insurance is absolutely critical from a professional liability perspective. But from a personal liability standpoint, you’d likely want to add an umbrella policy on top of this. That umbrella coverage helps protect you from things like an auto accident, someone getting hurt on your property, defamation claims, or other personal liability risks that exceed standard insurance limits.
So making sure your insurance coverage is solid for the areas where you’re most exposed — cars, homes, any other properties — is step one. You already have malpractice coverage. Adding umbrella coverage for personal liability is where I would start, before getting overly complex, which sounds like your concern as well.
It’s really easy to get into a situation where assets are going up, income is going up, and exposure is going up, and you start thinking, “There’s more here to lose.” Then you start seeing irrevocable trusts and more complex protection strategies. You hear things like, “I can take $5 million, put it into an irrevocable trust, and now it’s protected.”
And that does offer protection, especially if it’s done correctly and at the right time. But the reason it offers protection is because it’s no longer yours.
You’re moving $5 million out of your personal balance sheet. You might sleep better at night because it’s not in your name anymore, but you also don’t have that $5 million anymore. You can’t have your cake and eat it too.
Now, people will say, “Well, I’ll still have some control. I’ll structure it this way, add these provisions, get income this way, benefit my kids this way.” And that’s fine. There are endless ways to structure trusts. But every time you add flexibility, access, or control, you’re also reducing the level of protection that trust provides.
The more hooks you add — ways to get money out, ways to influence distributions — the more exposure you’re reintroducing. So this becomes a balancing act.
That’s why I’d really encourage you to step back and ask, how much liquidity do you actually need, not just now, but long-term? Before you start locking assets away and adding complexity, you need to be confident you don’t need that money.
You’re already doing a lot of things right. Malpractice insurance is in place, which is likely required in your profession anyway. Adding umbrella coverage for personal liability is a logical next step. After that, do a real evaluation of where your exposure actually is.
Only then does it make sense to start thinking about trusts or more advanced asset protection strategies, once you’ve clearly defined how much liquidity you personally need.
And age matters here too. There’s a big difference between having $9 to $10 million at age 60, where this is largely your retirement nest egg and much of it may be tied up in selling the practice, versus being 40 with $9 to $10 million and still in strong earning years.
If you’re younger, you may have more flexibility to move assets off your balance sheet over time, whether that’s to kids or into trusts, without creating personal risk. If you’re closer to retirement, you have to be much more cautious.
So there are good options here on the protection side. I’d just encourage you to think about this holistically, rather than jumping straight to complexity simply because your income and assets are growing.
From the Field – Brian Higgins, 1861 Distillery
Stephan Shipe:
So next, we’re going to turn to our From the Field segment and hear from someone who works with tangible assets every day.
Today we’re joined by Brian Higgins, the master distiller at 1861 Distillery in Georgia. Brian works hands-on across the full bourbon-making process and regularly engages with collectors and serious drinkers about what actually drives quality and enjoyment. Brian, welcome to the Scholar Wealth Podcast. To start, give us a little bit of your background and how you got into this business.
Brian Higgins:
All right, well thank you so much for inviting me and allowing me to be on your show this morning. I’m a retired Air Force officer. I kind of took a hobby and turned it into a job. I’ve always used my hands my entire life growing up, so this was just kind of a natural fit to take something I enjoyed doing on a small scale and increase the size of it.
Once you start creating these spirits, everything we use is 100% from nature, from the grain, the water, the yeast, the barrels. Every aspect of what we do is nature-driven. So it’s fun to take something that’s grown in the ground or harvested, take it through the entire process, and make this wonderful spirit we call bourbon today.
Stephan Shipe:
When you talk about that, you look at something that’s naturally sourced, and you have all these different flavors and profiles that come out of it. What actually drives quality then? When you look at one bottle versus another, what things do you see overemphasized, and what things actually matter from a distiller’s perspective?
Brian Higgins:
Quality in a bourbon is really defined long before the label is ever printed. Often before the barrel is even filled. It starts with sourcing the right grains and coming up with a grain bill that creates balance and makes sense.
The water is probably one of the most key ingredients. Almost every distillery brags about their water source. Then everything from the mashing process matters. Are you running it at the right temperatures? Are you overheating the grains? Are you taking the time?
Everything we do is steeped in tradition. After mashing, are you adding a lot of yeast and trying to push fermentation through in two or three days, or are you letting it naturally take its process over five to seven days?
After that, are you stripping the liquid off the grains and distilling that, or are you distilling on the grains? There are a lot of aspects, all the way up to barrel selection and char levels. Even the wood itself matters. Is it kiln-dried, or is it air-dried for two to three, maybe even four years before the barrel is made?
There are hundreds of things that go into making a quality bourbon. And when you find that right balance, when you get it right, you know it. You know you’ve made a good bourbon when a customer picks up your whiskey or bourbon for the first time and you see that smile come across their face. That’s when you know you’ve done your job correctly.
Stephan Shipe:
That is the distiller’s answer right there. As an amateur in this field, how do I get any of that from looking at a bottle on the shelf? If you’re telling me this all sounds great and I hear everything you said, I know all that work happens before the label. Once the label is on, what should I be looking for?
How can I, as an amateur bourbon drinker, make a better decision? Deon is over here trying to convince me I should throw 5% of my portfolio into bourbon as a commodity. What does that actually look like? How do I pick a bottle?
Brian Higgins:
You used the word amateur, but I wouldn’t say anybody’s really an amateur. You like what you like. But if you’re walking into a store for the first time and don’t know where to start, the first thing I tell people is to get educated on reading the label.
Did that bottle you picked up actually get manufactured by that distillery? It’s surprising to me how many distilleries today don’t make their own spirits. They source them from other distilleries, bottle them, label them, and call them their own. And don’t get me wrong, some of those are good.
But if you want something that’s truly handcrafted, you need to look for “distilled and bottled by” on the label, with that distillery’s name on it. That tells you they had control of the entire process, from sourcing the grains all the way to putting the label on the bottle.
It’s also nice to know who makes it, what the passion is behind it, what the story is, and where it came from. And once you see that “distilled and bottled by,” you can call the distillery or walk in and ask questions. Ninety-nine percent of the time, they’re happy to sit down and talk with you about it. So I always say, start with the “distilled and bottled by” labels.
Deon Strickland:
I was going to ask, when I buy a bottle, is it sometimes the case that a company buys the mash bill, puts it in their own barrels, and ages it themselves? And other times they buy the barrel already aged and just bottle it? And then there are distilleries like yourself that take it all the way through the value chain. Is that accurate?
Brian Higgins:
Yes, you’re hitting the nail right on the head. You have distilleries that source fully finished bourbon from another vendor and just buy the barrel. They may blend a few barrels together and label it as their own.
You’ve got others that buy finished spirit and then finish aging it themselves. And then you’ve got the distilleries that create it from start to finish.
Deon Strickland:
And there’s no easy way for me to tell that, right? If I’m standing in my local store, especially with a big bourbon aisle, how do I know which ones are crafted the way you’re describing and which ones are just putting their own spin on something sourced elsewhere?
Brian Higgins:
And that’s where learning how to read the label is key to figuring that out. You’ll see terms like “bottled at,” “bottled by,” or “produced by,” and it will have that distillery’s name on it.
What you really want to see is “distilled and bottled by” that distillery. “Produced by” does not mean that they literally distilled it there. It can mean it was produced at another location and bottled there. The TTB rules and regulations around bottling can be tough to navigate and hard to determine what you’re really getting.
That’s why if it says “distilled and bottled by,” you are always 100% getting it from that distillery. It can be a challenge until you’ve done it a few times. It’s actually fun to walk into liquor stores and see how creative some brands get trying to skirt around that language.
I’ve seen bottles that say “bottled by” with the brand name on it, but they don’t say where it was distilled. Then, if you look really closely, there’s a tiny line you can barely read that says “DSP-IN,” followed by a number. That tells me it was distilled at that DSP location in Indiana, not down here in the South at all.
“Distilled” is the key. That’s the magic word you’re looking for on the bottle.
Stephan Shipe:
So if I’m standing in a big aisle of bourbon and trying to pick bottles to add to a collection or even start one, are there any good rules of thumb besides reading every single label?
What I normally hear is to just go for the highest-priced bottle. People look for age, too. If something is an 18-year bottle, that must be better than the 12-year bottle next to it. And if it’s more expensive, maybe that’s the one to add to a collection. Is there any truth to that, or is that completely wrong?
Brian Higgins:
That’s what the secondary market really wants you to believe, that price precedes value and value precedes what’s inside the bottle. That it’s going to be an excellent product simply because it’s expensive.
You can’t confuse price with worth. The secondary market lives off hype, scarcity, and speculation. It shifts attention from the liquid to the label. Marketing does an amazing job of telling you that you need to buy this product.
Stephan Shipe:
So are there any undervalued bottles out there right now that you’d look at and say this is a good value-to-cost ratio for a collector, something that might appreciate over the next five or ten years?
Brian Higgins:
That’s like asking me which stock is going to go up today. I wish I knew.
But one way to think about it is this. For the most part, the big brand names are easy to find. There are usually hundreds of bottles sitting on shelves in large liquor stores. You can pick one up and see if it just says “distilled by.”
When you’re comparing something like a 12-year bottle versus an 18-year bottle, they’re going to taste completely different. That doesn’t mean the older one is necessarily better or should be valued higher. Yes, with additional aging, you lose more product to evaporation, so there are fewer bottles. But that doesn’t automatically mean it tastes better than a six-, eight-, or ten-year bourbon.
Then you get into barrel size. Did they age it in a traditional 53-gallon barrel, where you’re typically looking at six to eight years to get a good bourbon? Or are you dealing with a smaller-scale distillery like us, where we age in five-, ten-, or thirty-gallon barrels?
With smaller barrels, the surface-to-volume ratio is very different. You have more wood in contact with the spirit. For us, a five-gallon barrel ages out in about eight to nine months. A ten-gallon barrel ages out in about 18 to 19 months. Arguably, you’re getting more flavor and more color because of that higher wood-to-spirit ratio.
Tradition says you use a 53-gallon barrel and wait. And that works. But we’ve won a lot of awards, and we’ve had large distilleries look closely at our small-barrel program. It doesn’t make sense for them cost-wise, because a five-gallon barrel costs about half as much as a 53-gallon barrel, and they operate on scale and time.
But I would argue strongly that smaller barrels can provide more flavor, more mouthfeel, and more value when it comes to what you actually sit down and enjoy. It’s a tricky game. There are a lot of questions and a lot of really fun answers.
Stephan Shipe:
So if someone were starting to build a collection and wanted to allocate a percentage of their portfolio to bourbon investing, and they wanted to start building that collection, give us one 1861 bottle they should be looking at first. Then give us three or four others that you think would be good options for someone building out a collection.
In other words, if you walked into Deon’s bourbon cellar and looked at the wall and said, “That’s a good bottle right there. That’s pretty awesome that you have that one,” what would that look like?
Brian Higgins:
Yeah, absolutely. When you talk about collecting, there are really two different versions of it, at least to me. You’ve got collecting, which is about the curation of it, and then you’ve got the investing side of it.
Collectors are motivated by rarity and craftsmanship. Investors are looking at it from the standpoint of, if I pay $250 for this bottle now, is it going to be worth $500 next year or a couple of years down the road? Collectors will often buy multiple bottles because they want to consume one or two and keep the others. Investors, a lot of times, never open the bottles.
From our perspective at 1861 Distillery, our two standard bourbons have won just about every award we’ve ever sent them to. But what I really like are what we call our honey barrel picks.
We’ll take down several barrels, and if one barrel stands above and beyond the rest, even though it’s all the same spirit going into that run, that’s the one we pull as a single barrel. Each barrel is made up of about 30 to 33 staves, and each stave can come from a different oak tree. Some of those trees may be 30 years old, some may be 130 years old. One might be grown in sandy soil, another up on a mountaintop.
Every once in a while, you get that one barrel that just stands out, and that’s what we bottle as our single barrels. We don’t even filter them. They go through a simple strainer to pull out the charcoal and then straight into the bottle. It’s as close as you can get to sitting down with me, pulling the bung, and sampling the barrel.
So I would say any of our single barrel picks are great from a collecting standpoint or even an investment standpoint. We label the batch and the bottle number on the bottle, and from batch to batch they’re going to taste different, kind of like wine does from year to year. Sometimes we may go months without pulling a single barrel, so they’re relatively rare.
Outside of 1861, I don’t want to name specific brands, but I would look for companies doing one-offs. Things that are hard to find, special releases, or unique barrel picks.
For example, coming up next year we have something we’re calling America 250. It’s a whiskey made from a red, white, and blue corn grain bill, created specifically to celebrate the 250th anniversary of the United States. Similar to the bicentennial coins from the 200-year anniversary, this is a one-time release. We’re only making a small amount, and once they’re gone, that’s it. There’s not another 250 after that.
We also do something a little different than most distilleries. A lot of distilleries will let you come in and do a barrel pick. They’ll show you around, pull samples, and you pick a barrel. We take that a step further with a program we call Barrel Privé.
This is geared toward people who want a bourbon experience you can’t get anywhere else in the world. It’s exclusive to that individual or company. You can’t walk into a liquor store or another distillery and buy it.
We work directly with the individual to understand their flavor profile. I develop grain bills specifically for them. If they want to, they can come in and help grind the grains, go through the mashing process, the distillation process, and even design the label.
Stephan Shipe:
You’re making Deon’s summer plans.
Deon Strickland:
I’m thinking about an SFA barrel. That’s what I’m thinking about.
Brian Higgins:
And it’s fun because we’ve had, I mean, we’ve had a plantation that just said, “Brian, make me a bourbon I want to serve to our exclusive guests when they come in for these quail hunts.” And then we’ve had individuals that may want to come in and be involved in the entire process.
They’re there from start to finish. They get to come in and sample their barrels throughout the process. And it’s fun to see because they take such ownership in the process and such ownership in that barrel. I mean, when they walk out of the barrel room, they turn around and look back at the barrel like they’re leaving a kid behind or something. It becomes that personal to them.
What’s fun is they end up with about 100 bottles at the end. Like I said, they can design their own label or we’ll help them, but we make sure it meets all the TTB requirements. Then it gets bottled. They can literally stand right beside me and help put labels on.
And when it’s said and done, they own that grain bill. I actually sign it, put it in a frame, and I will not make that recipe again without their permission.
And that makes it fun because almost, I think it’s around 98% of the bourbons in the United States are made with corn, malted barley, and either wheat or rye. We use a lot more than that.
You can’t see it down here on the floor, but there are some barrels we just filled on Monday that are getting ready to go back on the shelf, and they’ve got seven grains in them. And we’ve used as many as, well, we’ll talk about that whiskey, but it’s got 20-something different grains in it. It’s its own unique animal. It was a fun experiment.
We use a lot more than just your traditional three grains, and we find that you get more mouthfeel out of it. You get more of a tasting experience because you’re getting more than just corn, wheat, malted barley, or rye.
That’s why I can make hundreds of grain bills, and I really can scale them to what that person is looking for taste-wise. So that Barrel Privé program is a fun program. It lets me be creative, and it lets the end user get hand-in-hand with us. They can come in, get dusty and dirty, help put the label on, or they can say, “Hey, just make me a bourbon that nobody else in the world has.”
Deon Strickland:
My question is, when you pull that and call it a single barrel, I’ve always wondered something. A lot of times when I go to the store and get a single barrel, it has a higher proof, right? Not always, but that’s what I generally see when I’m choosing. Why is that? I don’t know enough to know that. I see the single barrel and it’s running at, say, 125 proof versus 90 or 100 for a standard bourbon. Why is that?
Brian Higgins:
It’s kind of a standard because that barrel kind of stands on its own. Its flavor profile is just better than everybody around it. They want to leave all that there. They don’t want to dilute that flavor down. They want to leave it straight out of the barrel.
Now theirs is probably going to get filtered. I don’t know if they’re cold chilling them or not, stripping the fat molecules out of it or not. But yeah, that barrel just stands on its own, and they want to leave it at that higher proof.
They’re giving you essentially the spirit right out of that barrel.
Deon Strickland:
The other thing that I’ve always found fascinating about the bourbon market is, you know, Stephan and I, as economists, would look at it and say price should be the thing that, you know, price should adjust so that demand and supply sort of equilibrate, right? That’s the classic story.
And I’ve noticed in the bourbon market that doesn’t appear to happen. I mean, bourbons that I want that I think should cost a lot more because the supply is completely constrained, the prices don’t move to that, at least at retail. Are they doing that just to build this notion of scarcity so that I want it even more knowing that I’m going to have a hard time finding it?
Brian Higgins:
Yeah, the secondary market is great at measuring demand, but they’re not so good at measuring quality. Sometimes it comes down to a lot of aspects.
They can build in an artificial scarcity to drive that price up. If you walk into a liquor store and you’re used to seeing a whole shelf full of a company’s bottles, and you walk in and there are only two, you’re going to be like, “My gosh, I better go ahead and get this one or both of these because they’re almost gone.” So they can build in that artificial scarcity.
But there are times when there’s a real lull in production. Maybe COVID slowed them down for six months or a couple of years, and it took them a while to get everything back up and running again. So they may actually have real scarcity built into it. Marketing really drives a lot of that pricing.
Something gets, as we call it, hot in the industry. Tito’s was very hot for a while and it just skyrocketed, went through the roof in the vodka market. We’ve had the same thing happen in the bourbon industry where large bourbon groups will jump onto one product and say, “Man, it’s the hot item.” It goes from $29 a bottle to $109 a bottle.
Marketing and the secondary market will pull back on how many of those are put on the shelf to drive that scarcity so they can make that extra profit, because they’re probably still paying close to that original price rate. So they’re able to mark it up and make all that extra revenue.
There’s always the hype, the scarcity, and the speculation. So yeah, to answer your question, a lot of that can be driven by the secondary market and making things appear scarce on the back end.
However, the big five manufacturers last week said they’re sitting on a lake of bourbon that they cannot sell right now. So that artificial scarcity may be coming back to haunt them a little bit, because when they had the opportunity to get it out on the shelves, they didn’t take it. So it’s kind of an accordion effect across the board.
Deon Strickland:
So if they’re sitting on a lake of bourbon, the classic story from an investing standpoint would be, if they have to distribute that bourbon out, now would be the time to buy it and put it away in the hopes that over time that lake dissipates and you’ve bought low and sell high. Or since they can adjust production, you can’t really do that.
Stephan Shipe:
Well, I think the other option would be, could they go sell that to other types of distillers or other bottlers, bottle it under a different name, sell it at a lower price, so it doesn’t affect the scarcity of their bottles, and they’re still able to make somewhat of a profit on that.
Deon Strickland:
So it means investing in this market is really hard, right? Because they can move supply around and it’s not like—
Stephan Shipe:
Well, it’s not commoditized.
Deon Strickland:
Copper is copper is copper is copper.
And that’s not true for bourbon here. So you just made the story a lot harder for me to understand, to be perfectly honest.
Brian Higgins:
And there’s a lot of things they can do with that excess bourbon. You keyed on several of them there. It’s easy to bring back an old label that hasn’t been seen in the marketplace for years, take one of the spirits they’ve already got, age it for an extra six months, call it that new label, push it out, and make it a new hot item.
Or they slow down production. Instead of being a six-year-old bourbon, they leave it in the barrels for seven years, eight years, nine years, ten years. And then every year they add on a couple dollars more and make it a more exclusive, longer age statement on that label.
So there are a lot of things they can do. There are a lot of outlets. I would say right now, when we went through COVID, more alcohol was being consumed than at any time that I know of since I’ve been alive. But now, in the last really two to three years, you’ve got a different generation of people coming up behind us, and you’ve got different mindsets on alcohol.
We’re finding that people don’t have that extra four, five, six hundred dollars in their back pocket at the end of the month anymore due to the inflation that we suffered through over the last several years. So what we find now is people are taking taste and quality over quantity.
People are reaching out and going, “Hey, if I’m only going to buy this one bottle and I’m going to sit here and hold on to it for a little while,” they’re willing to pay a little bit extra to buy that bottle because they know they’re not going to drink it all in one night. They’re going to get one cocktail out of it, or one drink maybe once a week or once a month. They really savor that bottle.
So these different mindsets that we’re working with right now are really about quality more than quantity.
Stephan Shipe:
You mentioned the cost of this going up. Have you experienced quite a bit of inflation on input costs into your bourbons over the past few years from inflation?
Brian Higgins:
We experienced a good little price increase during COVID.
Me being a logistician in the Air Force, I could kind of see it coming. So I reached out and ordered surplus yeast, surplus bottles. I had everything kind of here. So it really didn’t affect us much.
But a lot of our friends that owned distilleries really struggled through it. They would literally run out of bottles, or they had to stop production altogether.
To answer your question, it really hasn’t affected us much. If anything, we’ve lowered the price on a few of our bottles. We haven’t raised our prices since we opened four years ago.
Stephan Shipe:
Interesting. That’s great.
And as we wrap up, anything that you want to add? This has been a very educational conversation. I have to rethink my thoughts around this. Anything else that you’d like to add for listeners when they’re thinking about bourbon in general or collecting?
Brian Higgins:
I’d say bourbon in general, bourbon is bourbon is bourbon.
If you find a couple labels that you really enjoy, share them with your friends. One of our little trademark things is called “history in a bottle.” When you buy that expensive bottle and you open it for special occasions, take a sharpie or pen and write on that bottle who you shared it with and the date.
Six months from now, two years from now, five years from now, when that bottle is empty, you’ve got a little piece of history sitting there. You’ve got a talking point in your bourbon collection.
We always say it takes a lot of work to produce a bottle of bourbon, so enjoy it. Whether that’s in a cocktail, whether it’s neat, with an ice cube, however you enjoy it, just sit down and enjoy it.
From the investing standpoint, have fun with it. The risk is worth the reward. Find the one-offs. Find the barrel privés. Find your single barrels. Find something you know you’re going to enjoy and just have fun with it.
Stephan Shipe:
I love it.
Deon Strickland:
You know, one thing I love about it is people who have everything, I tend to give them bourbon as gifts. Because it’s one of those things they can’t easily replicate.
They can go buy any kind of coat or article of clothing. But if I give somebody a rare-ish bourbon that they can’t just walk out and buy, they know I thought about it. It’s personal.
I love your idea of writing on the bottle who you shared it with. I learned a lot today. Thank you.
Stephan Shipe:
This was great.
Brian Higgins:
And I won’t take credit for all that. Freddie Johnson from Buffalo Trace shared that idea with me.
Long story short, he had opened a bottle from the distillery and shared it with his dad. That was the last drink they ever had together before he passed away. He said that was something he had started doing, and I thought that was such a great idea. So we’ve started doing the same thing here.
Stephan Shipe:
Yeah, that’s great. That’s really good.
I know what I’m getting for Christmas now from Deon. Once he bottles all of his bottles, I’ll get the Strickland special.
Deon Strickland:
The Strickland pick.
Stephan Shipe:
There you go. The Strickland pick.
Well, thank you very much, Brian. Appreciate you coming on. Learned a lot. Have a great rest of your day.
Brian Higgins:
Absolutely. Look forward to talking again.
Outro
Stephan Shipe: And that’s our show. Thanks for listening and we’ll see you next week!
Disclaimer: The information provided in this podcast is for general informational and educational purposes only, and is not intended to constitute financial, investment, or other professional advice. The opinions expressed are those of the hosts and guests and do not necessarily reflect the views of any affiliated organizations. Investing in financial markets involves risk, including the potential loss of principal. Past performance is not indicative of future results. Before making any investment decisions, you should consult with a qualified financial advisor who can assess your individual financial situation, objectives, and risk tolerance.