Was it a mistake to buy silver now?

Mining companies always like to talk about "cash cost per ounce." It always sounds better when you don't throw in the cost of exploration, development and running the business. In Kinross's case, their cash cost of production was $508 per ounce for 2010, but their total cost of production was $885. This is no knock against Kinross, they are one of the better run companies. But talking about cash cost per ounce is like calculating the cost of producing wheat and leaving out the cost of the land and equipment needed to run the farm. I would guess that the total cost of production for the average gold company that is extracting a couple of grams per tonne is at least $1000 per ounce and perhaps a little more.

 

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I've never been a fan of dollar cost averaging. Years ago I read an article with a title something like "Twenty-five Ways to Lose Money by Dollar Cost Averaging." I wish I had saved it. But if you play around with the numbers you realize that dollar cost averaging is an improvement only in one special case -- where the price is lower for a period of time than both the start AND end point. In all other cases, results will be inferior.

But keep in mind that this opinion is at odds with that of several tens of thousands of financial advisors.

 

It does also depend on how long your planning on keeping your PM. Short term could be a real gamble, unless you really get that PM at a very low cost. If your looking for 5-20+ years of investment. You will most likely come out ahead in the end. Because, keeping your PM's for that long, will most likely give you the better chance to cash in on the up trend of the metal.
No doubt. There is a lot of unanswered questions about many things in the world today. Including, future silver stocks. This uncertainty, leads people to find comfort and find a sense of control. People buy, long storage foods, firearms, and PM. Those three commoditys, are way up in the past couple of years.
If, the fire spreads. Thats when you see a heavy rush for PM. and there stocks fall fast.

 

Inferior to what?

DCA is inferior to spending one lump sum up-front -- if the average price after that purchase is higher.

DCA is inferior to spending one lump sum at the end -- if the average price before that purchase is higher.

So, if you know in advance what the price of your investment is going to do over the time you're investing, yeah, DCA is a suboptimal strategy. The catch: you almost never know what the price is going to do in advance.

Where DCA is a consistent loser is when you're selling your investment. If you draw a constant amount out of [say] a retirement account every month, you're guaranteeing that you'll sell more when the price is low and sell less when the price is high.

 

I think to do well you have to do your homework to understand where you think your investment is going. I do believe we are in a secular bull market for silver that will last for a number of years. As the market moves along I expect it to go up and down (but up and right as a secular bull does) as it moves higher. So I plot a line along the price points of the major pullbacks to see where I think the next pullback will be. This has gotten me within hand grenade range of pullback points and has saved me $'s per ounce within the timeframe in which I am ready to buy. Enjoy the current run because another pullback is on the way as the market moves higher and continue to do your homework as there are always game changing events that can take place

 

Dollar cost averaging is actually how most small investors purchase investments. Why ? they can only purchase when they have funds. They go to school ,to work, get an idea that saving is part of life. Purchasing is your job to do your own home work on. Investment clubs etc. do better than advisers . Some 60-70% in the ball park of always making money. The more heads working towards a similar goal will get better results.
Motivation is another item to consider.

 

Happy, this would not be my expectations due to the strong ties now between the stock markets and pm. Very few investors are completely unlevered in either ones. Yes there are a few individuals who actually have their stock certificates delivered, but the majority are in brokerage accounts and many have marginable accounts. With the huge amounts of silver for example that are backing market shares of say SLV, traders still can leverage it to a much larger amount and that works( as long as the price doesn't drop traumatically). But if it does, and they can't provide the difference in cash needed for the margin % ( margin calls), then their position would be sold to protect the broker.

So, if the "fire" started, and stocks started down, those that leveraged for example BAC would have to come up with cash difference. If they had no cash, they would have to either lose it or sell something else. Same with SLV stock and GLD stock, same cause, same story. And electronic trading wouldn't give them much time to decide what to do. Computer programs jump in and begin to sell. They are trying to get out first. PM has had such a high percentage gain, they would be high on many lists to dump to keep some of that paper profit as real. Most investors don't think, wow I had better buy PM stocks ( try and buy physical metals or sell them with prices dumping). Individuals think, wow, if the "fire" starts, I will buy all PM. But once they see their 401K, roths, stock based retirement plans collapsing, they will have liquidity problems with mortgages, food, unemployment, etc. Sounds grim, and a lot depends on the speed and depth, but if the stock markets fail severely, I expect PMs will also. This recent rise in PM has mainly taken place with a rising stock market

Comparison with long term charts on the relationship of stock market and PM, don't take into account the differences that have occurred in trading, ETFs, Future contracts, and leverage in the recent years. JMHO, and rambling.

Jim

 

It's an interesting way to look at it Jim. You could see a large sell off in PM after a stock market collaspe.
You could see a wild swing upwards after a sell off though, if people not vested in the stock market, get panicky and run for PM. Just a guess on my part there...

 

no way, with wide spread panic from that situation it will be every man for himself.
For me I have my stash of silver, a little gold, my escape plan, my transportation and protection.

See you on the other side.

 

You got it, I think this is the way it works for a lot of people.

Regards,

Bluesboy65

 

Here it is, down and dirty!

http://finance.yahoo.com/tech-ticker/%22the-end-of-america”-porter-stansberry-sees-the-future-...-and-it's-grim-535932.html;_ylt=AsvyEUcN1VlLwBBv231UsONk7ot4;_ylu=X3oDMTE3NnY0cGY0BHBvcwM2MQRzZWMDYXJ0aWNsZUxpc3QEc2xrA3RoZWVuZG9mYW1lcg--?tickers=^DJI,^GSPC,GDX,MOO,GLD,UUP,DBA




http://gonzalolira.blogspot.com/2011/02/inflation-hyperinflation-and-real.html

 

It's interesting to hear you say that...the 401K is based on Dollar Cost Averaging (DCA). For folks like me that don't have the time or inclination to actively manage investments, DCA works pretty well.

Take an S&P 500 Index Fund, for instance. The annualized return of the S&P 500 over ANY 25 year period since 1926 is 9.61%. If you leverage your DCA to interest rates trends, the return can be higher. Most investment fund families...such as Vanguard (low fees :thumb will automate the process for you.

I got into PMs quite by accident in 2005...well, not PMs exactly (I hate PMs), but OBW rolls of dimes, quarters, and halves from the '50's and '60's. These rolls were hoarded like crazy "back in the day" so there are a lot of them out there. They should eventually have some non-zero numismatic value in addition to their PM content...usually (I've noticed) around the 70 year mark.

A roll of Unc quarters or halves have a pure silver content of 7.236 Oz's. A roll of dimes has half that, or 3.618 Oz's. At today's silver price ($32.67), the melt value of a roll of quarters or halves is $236/roll and $118/roll for dimes. Just the other day I saw a number of quarter rolls sell on eBay for right around $222/roll...less than melt!

I have more silver than I need so I'm just sitting back...but there are some good buys still out there. I would start slow (maybe one roll/month) and see what happens. If our economy goes into a prolonged period of Japanese style "stagflation", you may see PM prices drift higher.

I think of coins and PMs as a hobby/security blanket, not an investment. The buying, storage, and selling costs eat up most any profit...assuming you even turn a profit. I would recommend folks stick with stocks and bonds as investments and use the profits to finance their coin/PM "habit". :too-cool-for:

 

I agree that if you don't have any idea what a company's stock is worth [value investing], or if you don't know how to read a chart [technical analysis], then using DCA is probably okay to try. But it would be better to learn value investing and technical analysis.

 

For many people and for 401k contributions, DCA is okay to use. And for most people, buying an S&P500 Index fund is probably better than most of the alternatives. But also consider the fact that the 9%+ return from the S&P was achieved only by a lump sum investor putting the money in at the beginning of the 25 year period and not by using DCA.

 

True...but given market fluctuations within any 25 year period, I think you'll find that DCA will produce a superior return to Buy&Hold.

 

It depends on the year. You would have to run the numbers, but if I had to put money on it, I would bet that a lump sum invested in year 1 would outperform DCA more than 50% of the time. The only thing DCA does is guarantee that your cost basis is less than the average cost. So for all time periods where the year1 price was significantly lower than the 25 year average, lump sum would probably win.

 

As stated above to yakpoo, this is generally the misperception. In fact, the longer the DCA program is in place, the lower the chance that it will beat lump sum investing. For a 25 year period, there is almost no chance.

 

Cloud, you're assuming that stocks (or stock indices) never fall; but they do...that's what makes DCA work!

OK...take your example...year #1 (1926)...

Buy&Hold: You invest $250,000 in the S&P500 index (or it's equivelent back then).
DCA: You buy $10,000 of the same index on January 1st each year for 25 years (1949).

Forget about any interest you may receive from your money while you're waiting to make your annual DCA investment...which investment do you think will have earned you the best return...while protecting your principle...over that period of time?

 

Here's another example...

You have $500 to buy shares of a stock that initially sells for $10/share. The share price at the beginning of each month over a five month period is $10, $5, $10, $20, $10.

Buy&Hold: You buy 50 shares @$10/share, sit back and collect your dividends.
DCA: You put your $500 into a MM account (collecting interest) and transfer $100 at the beginning of each month to buy the stock...

Month #1: $100 buys 10 shares @$10/share
Month #2: $100 buys 20 shares @$5/share
Month #3: $100 buys 10 shares @$10/share
Month #4: $100 buys 5 shares @$20/share
Month #5: $100 buys 10 shares @$10/share

So, if you assume any of the B&H dividends you receive are about the same as the DCA interest and dividends, we can forget about that. The final results are...

Buy & Hold: 50 shares @$10/share or $500
DCA: 55 shares @$10/share or $550

That's how DCA works! I'll admit that's a hokey example, but it makes the point.

 

DCA and dividend reinvestment programs for stocks add a level also.When stocks fall more shares are put in your account.