Cigars: The perfect buy-and-hold investment

A hand-rolled Havana, whether set alight or set aside, can play many roles. Winston Churchill once had to stub out a cigar to rush to an emergency meeting during World War II. The half-finished piece was sold at an auction in 2010 for £4,500.

According to stats provided by U.K.-based Paul Fraser Collectibles, boxes of mid-1980s Davidoff Dom Perignon cigars, originally bought for less than £300, are now fetching around £6,000.

Those with a taste for rare smoke usually start their collections with sought-after Cuban brands, says Joe Taylor of Paul Fraser Collectibles. “Stay with the brands you recognize; those with established reputations for quality, such as Cuban Davidoff, Dunhill and Cohiba,” he says. “These brands, if stored properly and unused, have a good chance of rising in value due to their consumable nature.”

Hassle factor

• Expensive, finicky storage (ideal humidity level is 70%, and temperature should not exceed 25 degrees Celsius)
• Costly accessories (cutters, lighters, etc.)
• Difficult to insure
• Temptation to consume the investment
• Anti-tobacco movement is making them uncool

The U.S. made Cuban cigar imports illegal in 1962. Pre-embargo cigars, however, can be bought and sold in the U.S. They’re rare, making them a sound investment in that market.

And the best cigars increase in value for two reasons—they grow rarer as collectors smoke their specimens and taste improves over time, says Colin Ganley, director of the Austrian-based Cigar Journal.

“Due to regular price increases of new production, increases in taxes and a growing interest in cigars, the value of Cuban cigars continues to rise,” says Ganley. “The highest performing cigars are limited editions of various types.”

They include Montecristos, Cohibas, Romeo y Julietas and Partagas.

For instance, cigars from the first run of Cohiba Behike, released in 2006, can cost $470 each, while a Gurkha Black Dragon from its first production run, also introduced in 2006, can set you back $1,150.

World’s most expensive cigars

600-year-old Mayan cigars: worth an estimated $200,000

Corojo #5 El Gigante: $200,000

The Black Dragon (by Gurkha): $115,000 a box, or $1,150 apiece

Her Majesty’s Reserve (by Gurkha): $15,000 a box, or $750 each

Cohiba Behike: $450 a pop

“Good investable cigars start as low as $200 per box,” says Ganley. “Those with higher returns start at prices from $500 to $2,000, [and some of] these are special production cigars.”

Then there are demanding post-purchase preservation requirements to consider. Perhaps the biggest risk is that they can dry out within two weeks, and become worthless rolls of leaves.

“Cigars must be stored in ideal conditions in order to be re-sold,” says Ganley. “Some retailers will store cigars for an investor, but most store their cigars privately. Constant conditions around 65 degrees Fahrenheit and 65% relative humidity with no direct sunlight are ideal.”

Common storage options include humidors, humidity- and temperature-controlled boxes, and rooms that keep cigars fresh and away from insects.

Growing interest

The market for collectible cigars is young, and largely supported by those investing in wine and similar commodities. Shifting wealth patterns also are changing the collecting game. Taylor notes some of the world’s largest cigar auctions now take place in Hong Kong.

“China’s newly established middle class is exploring [unconventional] ways to spend money,” he says.

“This is a promising time for those looking to invest in cigars, as the amount of interest is likely to increase in the coming years.”

Vikram Barhat is a Toronto-based financial writer.