never sell your bullion to a dealer for under spot!

Math!

You bought 100 ounces at $35 (total value of $3,500). Silver is now at $20 an ounce, your initial purchase is now worth $2,000 for a loss of $1,500. You now buy 200 ounces for an additional expense of $4,000 and a total cost for 300 ounces of $7,500. But those 300 ounces are worth $6,000 at $20 an ounce and you still have the exact same $1,500 loss.

Logic!

That $1,500 is gone. Spending more money and acquiring more silver will not help recover that money. The question becomes, is silver a good buy at $20? If so the correct action is to keep the silver you already bought and maybe buy more. If silver at $20 is not a good buy then the correct decision is to sell what you have and don't buy more. The fact that you have already lost the money should not factor into your decision to purchase silver today, that is the sunk cost fallacy.

 

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You beat me to it Beef, but I would characterize it as the sunk cost realization, not fallacy. The money was already lost when the market went from $35 to $20, nothing else you do today can ever change that fact.

Maybe Scfy is confusing this with dollar cost averaging of purchases? This is where if you buy at $35 and it goes down, you can lower your basis by buying more at $20 to lower your average. This only works for long term holding, and even then you LOST the $15 per ounce on the first purchases. THe point of dollar cost averaging is to force people to buy when its lower. Many people unfortunately if an investment goes down turn away from the market and ignore it. This is a bad approach.

 

Maybe your right Medoraman, I think that may be where I am going with this, in that case I am wrong and accept what your saying beef. I still thing what Medora is saying is a good idea to make up for the loss, its a longer term solution to recover your losses and actually make out better down the road.

 

This is common and smart business practice. You don't want your competitors offering 25-cents more than you and claiming you're short-changing your customers.

 

I was thinking the same, that Scfy is thinking about dollar cost averaging.

 

I agree DCA is a good idea. I sure as heck hope people who were here trumpeting about their $35 purchases, (or even their $25 purchases ), are still here and paying attention to pm. If you like it at $25 then $20 is a great deal, right? I know it sucks buying higher and it goes down. Everyone hates that. Heck, I bought a stock a month ago at $44 and it promptly dropped to $40. What did I do? I bought another lot at $40. Long term holders who aren't afraid to buy on dips are those IMHO who will come out better in the long run. Way too many people refuse to look at an investment that has lost money for them unfortunately.

 

It sounded similar, except his comments were directed at what behavior dealers should engage in, not collectors/investors should do IMHO.

 

Agree as well, which is exactly why I have sold every piece of silver I have found or been given. I thought silver was a bad buy at $18 an ounce and an even worse one at $40 Feel free to remind me to back the truck up at if it hit's $7

 

Unfortunately I have started buying at $18. By my metrics I believe its a pretty good price. I do not see it dropping that low, but if it does I will suck it up and buy even more.

Otoh I only buy coins I like, so I get enjoyment out of them either way. Holding bullion only for bullion sake I feel is missing out on half yoru potential return. "Collect" it.

 

you must be unaware of a thing called DOLLAR COST AVERAGING...in fact, you have done it yourself, unless every purchase you have made was miraculously purchased at the same price and/or you are a noooob who has made one purchase and now is the newest guru on our forum...

 

The only thing that will help is if spot moves up. You can DCA all you want from a starting point of $35, but unless spot moves up you'll never get it low enough...and that's a fact.

I believe buying to get your DCA down will help, but without spot rising, you're sunk. So it really comes down to your belief that spot will rise to the point that it will be above your DCA, and if it doesn't, you've just compounded your issue.

 

I tried wading through the three pages, so I may be off base, but here's my take on what you're looking for with your original post:

In reference to the dealer, it's called "Capitalism". Me, I sit in an ambulance all day. That how I make my living. This dealer, he buys and sells precious metals all day. That's how he makes his living. He buys from you at a little below the current spot price (not spot at the time you bought it), then sells it to me at a little above spot. He doesn't generally sit on it until the price goes up. My guess is since the price of silver has dropped he has no problem moving inventory. He keeps the difference, which is split between rent, utilities, taxes, and salaries, with the leftovers putting a little jingle in his pocket. The large money is in his doing this on a large scale, not by one or two ounces at a time.

There are other venues. You could try it yourself, selling for spot and paying eBay fees (like the dealer's expenses, it's the cost of doing business), risking a non-paying bidder, or wasting your time with cancelled transactions, especially if spot drops further. You could place an ad on Craig's List, where you may have a pleasant transaction, or the buyer may not show (wasting time and gas), or worse yet, show up with his buddies. It's a safe bet the dealer will honor his price, and not pull a weapon or club you over the head. It's not such a sure thing using the other options I mentioned. So you can take the safe bet, with the lower odds, and it's generally a guaranteed winner. Take the longer odds (selling yourself), and if you win you win bigger, but the odds of losing it all also increase.

 

True, I was assuming the fact long term pm should rise with inflation, so long term the expected price should always be up. I use dca more for discipline, forcing myself to buy fewer ounces when up, and more when down. Human nature tends to lead to bad financial decisions.

 

Fixed that for ya!

 

You are wrong about what dollar cost averaging is, and you should drop the patronizing tone.

DCA - The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high.

I do not dollar cost average any of my investments as I do not put the same dollar value into any investment on a routine basis. What SCFY was suggesting was not dollar cost averaging either as he was talking about buying equal quantities of silver in his example, not purchasing a fixed dollar amount.

SCFY was talking about something similar, however he was referencing what dealers should do to run their business, not what prudent investors should do. As a business strategy what he was suggesting was stupid, plain and simple.

 

Beef, you seem to put me and the word stupid in the same category alot, but yet when someone questions your though process, there can be no wrong in what you say... Funny how that works.

 

Just to clarify real quick on the orignal title of this topic, I understand dealers need to buy at the lowest possible number under spot to make a real profit. The point of this topic was more about the fact that there are a lot of dealers offering way under spot to the effect of $3 or more under, and then when you ask them about spot or even close to spot, they talk to you like your a idiot for wanting more for your product. There are set margins on a lot of the bullion out there and many people not just dealers try to take a advantage of you, especially if they think they can. So my respect for some people who do this business is limited.

 

Don't take it personally, again I did not call you stupid.

As to your other point, I am open to people questioning me, like if my decision to not dollar cost average is a good one. But when people, like rysherms make unfounded claims about me and misrepresent the facts you can bet your behind that I will say something.

Let's quick run through the accusations rysherms makes. I know what DCA is, you were not talking about DCA, no I do not DCA my own investments, I am not a noob, and I have never claimed to be a guru. Those statements were not merely questioning me, see the difference

 

I do,

I do understand, so you don't think DCA is a good thing then is what I am picking up then? In the long term I would think if the spot price bounces back, you could make out pretty well...?