Welcome to Alts Sunday Edition 👋
Hope you enjoyed last week’s issue on my journey to 300 vinyl records. Welcome to the 1,068 new subscribers who've joined since then.
That was one of my favorite issues to write, and I was delighted to see it syndicated in The Music Network.
Today, we’re looking at an asset with a long and storied history, filled with mobsters, poker games, and the high life.
That’s right — we’re puffing out an issue on fine cigars.
This is a fun one. A cigar takes 30 minutes to get through. This issue is more like 10 minutes.
Let's get hazy 💨
Cigars, gold bars, and classic cars.
People often ask us about our single favorite alternative asset. It’s becoming very hard to argue against fine wine.
Look at the numbers; it’s clear wine is in its own world.
We got to know Cult Wine Investment last month, and they’re on another level. They’re up 206% since inception (‘09) and 9.11% over the last 12 months*
These are impressive numbers. So impressive that we’re considering adding them to our ALTS 1 fund. Specifically, their smart allocation into the 2022 Bordeaux vintage.
What’s special about Bordeaux?
Bordeaux is positioned extremely well in comparison to other regions. The biggest market for these wines (China) has just reopened, so demand has jumped. And the quality is exceptionally high.
Also:
- Low supply. Recent droughts have shrunk berries and reduced volumes. 2022 production was 15% below average. There’s a quality gap, and prices are going up.
- Great, stable returns. Cult Wines’ Bordeaux selections have returned 58% since 2014. Of all fine wine, Cult Wines’ Bordeaux Index has the lowest volatility.
- Hype. There’s a ton of hype surrounding the 2022 vintage. Grape quality was so high that some wineries elected not to produce a second wine.
In a nutshell, 2022 Bordeaux is expected to be highly collectible given its uniqueness and scarcity. These are potential 100-point wines, that represent shrewd long-term investments.
Read the full report, or jump straight to Cult Wines.
*One year return. Cult Wine Investment performance on pricing data from Liv-ex as of March 31, 2023. Past performance does not guarantee future results.
The history of cigars
Before we start, let's make one thing clear: Cigars are bad for you. Like, really unhealthy. They have 12x - 25x more nicotine than cigarettes.
I first got into cigars after a 2016 trip to Cuba, where I had my first taste of Cohiba and Montecristo. I brought (smuggled?) a half-dozen back to the States, and thoroughly enjoyed my stash for about a year, until I realized they were destroying my lungs and teeth.
This path is nothing new. Humans have been consuming tobacco for more than 1,300 years. The word “cigar” is believed to come from Ancient Mayan: Sik’ar, which means "to smoke rolled tobacco leaves."
It took 800 years for the plant to make it to the West. After receiving tobacco gifts from Native Americans in 1492, Christopher Columbus was "credited" with bringing tobacco to the Europeans.
It took a while to catch on. One of the first smokers was Columbus’ crewmate, Rodrigo de Jerez. He was impressed by this new "Old World drug" and wanted to show it off. So he went back to Spain and lit one up.
The Spanish weren't having it. They were so shocked that this "devil incarnate" was producing smoke from his mouth and nose that they imprisoned him for a decade. (This was around the time of the Spanish Inquisition, where acts of heresy were frowned upon.)
Soon, the Spaniards realized it wasn’t an act of the devil, and that smoking tobacco provided an enjoyable head rush. Once they realized it got you high, it spread like wildfire.
It took a few hundred years for the habit to reach the US, but then it caught on quickly. In the late 1700s, America's first cigar factory opened in Connecticut, and smoking became popular among the wealthy.
In fact, smoking in America basically started with cigars. It wasn’t until the late 1800s that cigarettes took over as the leading tobacco product.
Smoking's decline
The US just reported its lowest-ever smoking rate among adults — just 11%.
Five years ago this was 15.5%. And back in the "Mad Men" era of the mid-1960s, 40% of the US population were heavy smokers.
The drop comes after decades of reform, advertising regulation, and of course the rise of the big smoking alternative: vaping.
But interestingly, it's not just e-cigarettes that are bucking the trend. Starting around the year 2000, cigar smoking has been on the rise. Between 2000 and 2015, rates rose 85%, and have landed at around 3.5% of the US population.
To summarize: cigarettes are down, vaping is way up, and cigars are slightly up.
It's unclear why cigars have fared better than cigarettes. Unlike vaping, they're certainly not healthier for you.
But hey, you don’t have to be a regular cigar smoker to invest in some blue chips.
Factory cigars
Cigar prices vary like crazy across countries.
You can get a factory cigar in the US for $5 - $10. Here in Australia, it’s more like $20-30. Head east to New Zealand, and you’re looking at $50+. It all depends on taxes.
Prices for factory, or "stock" cigars just rise along with inflation. In 1990, the average cost of a factory cigar was $2.93 ($6.12 adjusted for inflation), compared to $12.04 today. That's a 2x increase over three decades; nothing to write home about.
"Investing" in generic factory cigars and cigarettes is the same as buying a cheap Toyota Camry and thinking that time will turn it into a classic.
It won't. Like with so much else, fine cigars are where the money’s at.
Fine cigars
Back in the 70s and 80s, the cigar industry was getting smashed. Cigarettes reigned supreme, and cigar companies needed something new to stand out from the crowd.
So they came up with limited edition cigars (LE's)
These human-rolled deluxe cigars reignited the industry. By the mid-90s cigars began a wild sales boom that bred the modern-day luxury cigar market.
There are several types of investment-grade cigars, but Cuban cigars sit head and shoulders above the rest 🇨🇺
Cuban cigars
Cuba is the epicenter of the industry. Without Cuba, there probably wouldn’t be a luxury cigar market.
They were among the first societies to smoke rolled tobacco leaves and introduce factory-made cigars.
The biggest name in Cuban cigars is Cohiba, a fine cigar brand manufactured by the prestigious Habanos SA.
Cohibas were already pretty damn expensive thanks to the trade embargo (more on this later). But prices have recently begun to soar.
- Cigar Aficionado
When you get to Limited Edition Cohibas, prices get really wacky.
Cohiba 1966 LE 2011s had a starting retail price of $890 per box when released 12 years ago. Now, those boxes are worth $5,000. 5.6x return in 12 years, not bad.
Or how about a box of Cohiba LE 2004 Sublimes. These would have set you back a thousand dollars at release 20 years ago. Nowadays, a box of 25 sells for over $25,000.
Looking for a cigar that will appreciate in value? Any limited edition Cuban manufactured by Habanos, S.A. is your best bet.
This includes brands like:
- Cohiba
- Montecristo
- Romeo y Julieta
- Partagas
The Cuban Cigar Website has a full list of investment-grade Habanos limited edition cigars.
Why do the best cigars come from Cuba?
The simplest answer is that Cubans just really care about the craft! Cigars have been a part of their culture for centuries, and remain extremely important today.
It takes 100+ steps to properly manufacture a single Cuban. It's an art form. That extra attention to detail matters a ton.
There are agricultural elements too. Cuba’s soil is perfect for growing tobacco, thanks to its nutrient density. This gives Cuban cigars a sweet aroma that’s lovely to smell and taste. Other cigars are made from blends, but Cubans only use Cuban leaves.
How the Dominican became the cigar capital
Cuba may be where the industry started, but today the Dominican Republic rules cigar production. And you can thank the United States for that.
Most of you already know the story. In the wake of the Cuban Revolution, the US Government created an embargo in retaliation to Cuba's increased ties with the Soviets. No more cars going in, no more rum and cigars coming out.
Incredibly, most of these sanctions are still in place today, nearly 65 years later.
Naturally, the embargo made black-market Cubans prohibitively expensive. Luckily for cigar-adoring Americans, there was (and still is) a loophole. Cigars made of Cuban tobacco could still be imported, they just had to be produced in other countries.
So, manufacturing quickly spread to Nicaragua and the Dominican Republic. Today, the Dominican Republic is the world’s largest cigar manufacturer, with 44% of the world's top cigars manufactured there.
Dominicans aren’t quite as expensive as Cubans, and don’t have as many limited editions. But they’re still very high quality.
Take the La Flor Dominicana El Museo 2009 LE. These 6.75" beauties were released for $600 for a box of 20, or about $30 each. Only 2,000 boxes were released.
Today, a single El Museo cigar is worth $390. Their value has boosted 13x in 10 years.
Other prominent cigar brands from Nicaragua and the Dominican Republic include:
- Padron
- Perdomo
- Davidoff (not the luxury clothing brand!)
Premium domains are like digital luxury goods
Owning a premium domain is like owning a rare and exclusive limited edition cigar.
Now, there’s a company that collects, vets, and sells these premium domains.
They’re called Odys, and I’ve used them to buy domains in the past. (Including buygraphene.com, which I foolishly sold WAY too early, ugh.)
Odys finds the world’s best pre-loved domains full of SEO “link juice,” vets them, and puts them on their marketplace.
With limited supply and high demand, premium domains become more valuable over time, making them a smart alternative investment.
Management is easy. You can even lease the domains out for passive income!
The world's most expensive cigar
The world’s most expensive cigar is the Gurkha Royal Courtesan. Everything about this is over the top.
- The leaves are then rolled by a skilled artisan, who works blindfolded to ensure their tactile senses are heightened.
- The outer leaf they roll the cigars in? Yeah, it's made out of gold. Obviously.
- Then you have the cigar’s band, which sports a five-carat diamond stud.
And to top it all off, the cigar gets delivered to you via a personal courier.
All this for the low price of $1.36 million. Bargain!
How to invest in cigars?
Where to buy
Your average smoke shop will only sell crap cigars. Don't bother looking there.
Instead, look for luxury cigar retailers and specialist tobacconists. These guys often stock up on LE cigars when they’re released.
- Cigars Direct is a discount retailer with all sorts of rare cigars.
- Havana Cigar Exchange London has the aforementioned Cohiba LE 2004 Sublimes and LE 2016 Trinidads.
- The Cigar Store has hundreds of brands, from the cheap to the prestigious.
- Cigar Shop World is one of the more popular cigar retailers, with hundreds of different Cubans for sale.
- Firm In Cigars Australia focuses on collectible cigars, and sells the incredibly rare Dunhill Estupendos Tubos 1991 for AUD $25,000.
- The Tobacconist of Greenwich has the rare Padron 50th Anniversary ($2,300 per box).
How to choose a cigar
Fine cigars and wine may go together like peanut butter & jelly. But there's one way these markets are different: the rich databases and price trackers don’t really exist for cigars.
The best resource is also the most well-known player in the space: Cigar Aficionado.
More than a magazine, think of these guys as the Liv-ex of cigars. They were first on the scene during the 1990s cigar boom, and have remained a major player ever since.
They also do cigar reviews. Each year, the company rates that season’s top cigars from 1 to 100.
As Wyatt pointed out last month, last year's winner was the H. Upmann No. 2.
At $40 per cigar, this is "one of the best-kept secrets in the Cuban cigar world." Known as an "insider’s cigar," the H. Upmann 2 looks identical to the more common Montecristo No. 2, because they’re rolled in the same pirámide format.
What factors affect a cigar's value?
- Age. Like wine, aging cigars can actually improve the flavor. But the effect isn't as dramatic. Mostly, older cigars are more valuable because there’s simply less of 'em.
- Location. Cubans are top-of-the-line. Nicaraguan and Dominican cigars are worth your attention too. Ignore almost everything else.
- Edition. Limited-edition cigars are the way to go. Anything else is a lot riskier.
- Brand. Big names like Habanos, Padron, Davidoff and LDF are all good choices.
- Condition. Cigars in unopened boxes are worth more than open ones.
What about cigar boxes?
Cigar boxes can be just as important as the actual cigars themselves.
Intricate designs can add significant value. In fact, even empty boxes can be worth a pretty penny.
Antique boxes made with unique designs are the most sought-after. For example, this 1920 Art Deco Brass Cigar Box is worth $2,850.
But empty cigar boxes are a lot more hit-and-miss than their cigar-filled counterparts. Most are more likely to be worth $50 than $5,000.
They seem more suitable as a fun collector’s item than a legitimate long-term investment.
Humidors
Just like wine, you need to store cigars properly if you want them to keep their value.
Humidors are special boxes specifically crafted for retaining moisture. When stored in a good humidor, cigars can last for decades.
These tend to make better investments than the original boxes cigars came in. They’re innately more expensive due to the craftsmanship required. In addition, they perform an important function for cigar smokers, while also having all the benefits of a cigar box (intricate designs, scarcity, etc.)
There isn’t a big market for humidors. But they're a must-have for aficionados.
Closing thoughts
Smoking has lost its luster, and continues to fall each year. For better or worse, vaping has taken over. Yet the fine cigar market has continued to slowly tick upwards.
I think it's because cigars have a special panache that other forms of smoking don't.
Case in point: When writing this issue, Ben and I decided to get together and perform some "cigar research." We picked up a couple of Cuban Romeo y Julietas, sat down, and got to business.
Australia has some of the harshest anti-smoking laws in the world. To enjoy our cigars, we were ushered into a forgotten corner of the bar. And yet even as we were consigned to this dusty corner, people would see us smoking cigars and waltz on over.
"Cigars today boys? What’s the occasion?" was a common line. We quickly learned that there aren’t many better conversation starters than just a cigar.
Even though tobacco has been (rightfully) demonized over the past thirty years, cigars are still sort of, well, cool. They look cool, their boxes look cool, the people that smoke them are cool (JFK? Pacino? MJ? Come on!)
As an investment, there isn’t a ton of aggregate info out there. This can make it hard to pick a single winner. And smoking them certainly isn't an investment in your health.
But the limited-edition, ultra-rare, blue-chip Cubans have shown excellent returns in the past. While there are no guarantees, there's also no real reason to think this won't continue.
If you've already invested in fine wine and whiskey, consider adding a high-end box of Cubans to your collection.
Just be sure to store them in a nice humidor, and resist the temptation to smoke away all of your investment. 💨
That's a wrap. A big thanks to Ben Knight for tag-teaming this one.
What do you think? Are you a cigar aficionado? Do you have any nice old Cubans? Do you have any teeth whitening recommendations? What did we miss?
Let us know, we love hearing from readers.
Until next time,
Stefan
Disclosures
- This issue was sponsored by our friends at Cult Wine Investment and Odys.
- There are no affiliate links in this issue
- We have no fine cigars in our ALTS 1 Fund.
💡 Trivia
No winners from the emoji issue!
Most platforms have designed a generic Office Building emoji. However, Twitter's version of this emoji is an emoji version is actually supposed to represent Twitter's San Francisco headquarters.
THIS WEEK'S TRIVIA
In 1961, the CIA was instructed to use their medical services team to assassinate Fidel Castro. The operation fell apart when it became clear that Castro knew what had been planned.
Their plan was to use exploding seashells and one other secret item.
What was the other item?