Long Term Investing in Silver

Although there are situations that present themselves which may have silver making some sense as a longer term investment, for the most part long term silver investing can present a pretty treacherous landscape that one must tread carefully on in order to be in a good position to profit well enough.

What Drives People to Invest in Silver

When one chooses an investment, it is never just about the investment itself, but instead what one may achieve by putting their money in other things. We might look upon a period of time and say that something like silver has gone up in price but that’s only meaningful when we compare this performance to how other types of investments have done, stocks for instance or bonds.

A lot of investors see the future as unpredictable, and given that they really don’t devote much thought to it, it’s not hard to see how they come to this view. Actually, the view comes first, when you tell yourself that there’s not much that can be known about the future and then don’t bother trying.

While many investors have a tendency to this, essentially investing and then hoping that it works out, this is even more the case with a lot of people who invest in silver or other precious metals, where they really haven’t put a lot of thought into why they are investing in it and will be driven by some general and for the most part precritical notions.

When we look at the sales messages of those who are looking to promote the sale of silver, this gives us some good insights into the thought processes that are often involved, things like silver cannot go to zero while other investments can. This of course neglects a couple of key points, the likelihood that this will happen, and that one would have to stay in these other investments right to zero.

There are a number of other things that are cited as making silver investing attractive, which also require that one not think a whole lot about the merit of these appeals, but people often do not. There are some good reasons why silver might be a good investment at certain points in time, but the problem is that these opportunities need a good plan behind them to even aspire to take advantage of.

Analysts might make some good arguments for this at times, but this analysis tends to be quite speculative in nature, things like predicting the rise of the price of silver over the next couple of years prior to any real indication that the market is heading that way in any manner that would have any real predictive value.

Investing this way doesn’t make a lot of sense though, if one is simply relying on guessing, although many people do this. Perhaps they read an article on someone being bullish on silver and assume that this person knows a lot more about the silver market than they do, which will be true, but whether these soothsayers know so much that one can rely on these predictions without any real confirmation from the market is something else entirely.

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.

Long Term Investing in SilverIt’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.


Editor, MarketReview.com

Monica uses a balanced approach to investment analysis, ensuring that we looking at the right things and not confined to a single and limiting theory which can lead us astray.

Contact Monica: [email protected]

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