The Particular Challenge of Long Term Silver Investing
Silver isn’t particularly difficult to invest in on a shorter term basis, but the further out your outlook is with silver, the more challenging this task becomes. Unlike the stock market, the silver market really doesn’t have any long term bias one way or another, even though it does move quite a bit in both directions at times.
Therefore, while one may invest in stocks over the long term without any real plan other than just to hold on to them until they need to cash them out, or until one reaches a certain age, this is not a strategy that we can rely on substantially with investing in something like silver long term.
While one may choose to time stock investments, and depending on how well one can do that, benefit more or even benefit less, timing silver investments is not optional, at least if we want to shoot for an edge, and we always need to be doing that when we are investing.
This means that we’re going to need a plan to succeed here apart from just hanging on to the silver. This is true even in the best scenarios, for instance if you bought a lot of silver 20 years ago when the price was well below $10 with a view that it may go up from here, which it did, and did nicely in fact.
It’s 2018 though and along the way we’ve seen 2 rather large corrections, the one in 2007 which saw drop by 40%, and the selloff between 2011 and 2015 where the price dipped by over 60%. This sort of volatility is going to rattle even the most stalwart buy and hold investors, and without a plan, what can happen is that we might end up exiting at the wrong time or not exiting when we clearly should have.
This is even more the case with long term silver investors, and if someone bought silver 40 years ago, at around $22 an ounce, they will be able to tell tales of some real wild rides along the way, seeing the inflation adjusted price spike as high as $114 an ounce, drop to $6 an ounce, climb again to $54 an ounce, and then drop to around where we are today, $16 an ounce.
Aside from the fact that we’ve invested in something over 40 years and lost money, these wild rides up and down would have certainly tried our patience, and if we’re still in our position after all this, we’re probably not going to sell it in reaction to anything. Very few investors have this sort of resolve though, although in this case resolve isn’t generally a good thing, not this much of it anyway.
It’s not that the 40 year time frame isn’t long enough either, as if we look at 50 years instead, we could have bought it at around the price it’s selling for now, adjusted for inflation, and spend the first 3 years being initiated to the world of silver, seeing our investment lose 50% over this time to make sure we’re not shaken out so easily.
Once again though, this time frame doesn’t provide any sort of acceptable return, in spite of the much larger risks involved in all the volatility that manifests itself over the years. Investors of course prefer larger gains with reduced risk, and long term silver investing really doesn’t provide either, and does terribly on both counts in fact.
How Silver May Be Invested in Profitably Longer Term
All of this does not mean that silver is a terrible investment longer term, and in fact when we look at its performance over the years, there are some real good opportunities out there that have presented themselves that would have worked out well even in a longer term time frame.
The real key to this is to pay attention to the market and to invest in silver after it has pulled back a lot, and especially when its price represents more value, more akin to its intrinsic value. In the early part of this century for instance, silver could have been bought quite cheaply, and the old adage of buy low sell high is of limited use with a lot of investments but with silver it is spot on.
Even if you hung on to it over these years, it’s hard to go too far wrong with buying silver this cheaply, as its value as a metal will keep it from going too far below this, so the risk is lower and the potential upside is much larger.
People who buy silver when its price is several times higher are risking seeing it drop to levels like this, which will mean huge losses if they ride it down, and the upside is also limited because while silver may spike considerably higher, it doesn’t tend to stay up there for long and this is something that is suitable for trading but not for long term investing, or any investing really.
While looking to buy at the bottom, as Warren Buffett did, is the best approach, this doesn’t necessarily mean that we need to wait for another one of these to happen, which may or may not even happen in our lifetimes.
We do need to approach long term investing in silver as being something that we’re not just going to want to do haphazardly though, and on the contrary, there are few investments that require us to be as selective with out entries when we’re shooting for the long term.
We also need to keep in mind that we may take positions of a fairly long duration on the short side as well, and with silver, there’s no real distinction between the risk that you are taking by shorting it, because it can move as hard to the downside as it can to the upside.
After falling off its peak of over $54 an ounce in 2011, after the profit takers really started jumping in, this overbought market certainly was seen as a great opportunity by some, and there was some real money to be made as the price of silver corrected over the next few years.
If we look at the charts of silver over the years, shorting after a spike has proven to be a very reliable and very profitable investment, if we can call shorting something an investment that is. We need to exercise real care with these plays, but we always should be exercising the same degree of care whenever we take a position in silver, so that part really isn’t any different, the risk side of things that is.
Whether silver is a good investment, from either the long side or even the short side, is going to depend, and at best the opportunities to profit enough from silver longer term to justify the significant additional risk involved aren’t really going to come around all that often.
People most often invest in silver rather blindly though, for instance people buying it now, in 2018, in the midst of a downtrend, but not one that presents itself in such a way that we should really want to be shorting it either.
We especially want to be sure that we’re not getting in on something too late in the game, as in seeing the price of silver give back 60% of its value already in the current trend, and wanting to short it, with support only a little lower which it very well may bounce off of.
We also do not want to buy it after a big move up, especially if we’re looking to hold on to it for several years, and chances are, several years later will see us in a very unpleasant position if we indeed manage to hang on to it once the inevitable correction happens.
Silver can indeed be a good longer term play at times, but only at certain times, and we need to be very careful in choosing these times correctly, and especially not just close our eyes and buy and hope.