In Jim Cook's Archive


It’s hard to make money investing.  A lot of people turn the job over to someone else.  In the last few years most kinds of investments have shown poor results.  Money managers have come up empty.  Investors have losses, especially in stocks.  One thing mainstream money managers have little or no interest in is silver.  Frankly, I think that’s a good thing.  Silver is a contrary opinion asset.   Only a small minority have investigated silver and fewer still own it.  Investment lore places great emphasis on owning an asset that isn’t widely held or is of little interest to the public.

These days more people are beginning to hear about silver.  No matter how well silver does in the next few years most of those who invest in it will only make a small amount of money or even lose money.  Yes, silver can double and redouble and most investors will make very little, while others will actually lose.

How will they lose?  They will buy on margin.  For example, an investor buys silver on margin at $25.   It goes to $30.  They buy more.  They’ve only put 10% or 15% down.  Now silver corrects sharply (as it often does) down to $24.  They’ve got to come up with another 15%.  It goes to $20.  They get a margin call for another 15%.  They don’t want to put in more so the broker sells them out.  All their money is lost.

How will some investors manage to make only a small amount in spite of a big gain in silver? They don’t want to own physical silver and take it into their possession.  They buy an exchange traded fund (ETF).  They get shares in a brokerage account.  They’re used to trading stocks.  They buy silver at $20.  It goes to $40.  They see a double.  A broker tells them to take the profits.  They hold – silver drops to $35.  They sell and take the small profit.  Most people don’t have the patience to hold long term. An ETF is too simple to sell or trade.  Pick up the phone, dial your broker and in minutes you’re out of it.  You will probably never hold an ETF as long as you will hold silver coins and bars.  Once you have silver in your physical possession you experience a deep-seated psychological satisfaction.   It makes your bars and coins difficult to part with.  Furthermore, you have to mail them back to the seller which takes time.  We are talking about the possibility of multiplying your wealth by a sizeable factor.  The big mistake will be selling too soon.

Other worries exist with ETFs.  A concentrated supply of silver increases the chances of government confiscation in an emergency.  Silver is critical for national defense and the shortage Ted Butler predicts could cause governments to replenish their non-existent supply at investors’ expense. The silver ETFs all store their silver overseas which doesn’t help.  Some newsletters argue that ETFs don’t really need to have actual physical silver.  Others claim it’s sold short.  If silver prices get as hectic as Ted Butler suggests a lot of monkeyshines will be uncovered in pool accounts, storage programs and perhaps even in ETFs.  In that event physical silver could bring a big premium over any kind of paper silver.
I call buying silver that you take into your possession the humble approach.  If you have too much pride it makes you think you can trade in and out and win big.  It’s conceit to think you can outsmart the big New York banks who take the other side of your margin trade.  Arrogance and impatience causes you to sell too soon.  With the humble approach you buy physical silver coins and bars and hold them for the long term.  You don’t worry about daily or weekly price fluctuations.  You buy, hold and have faith in your decision.

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