Silver in a bubble?

Looks like silver had modest gains for decades and then shot up in 2010 and 2011.

I have drank the cool aid and am slowly accumatating a stack with the insurance/ hedge against inflation mindset. bought my first 2 ounces at $40. Glad I didn't go all in that first day!

now for the questions!

do you think this is a bubble?

what will the exit signs look like?

I have no problem holding LONG term, but I would hate to still be on board if this coaster dips into the teens again. Silver is so volatile it will be hard to read a normal dip from a bubble pop will it not?

There will always be bears and bulls not matter what the situation, and everything is so fear driven in this economy that I don't know if trying to read charts are safe. (actually I don't even know that you read charts the same way for bullion as you would for a regular stock?

Just trying to live and learn while paying as little "stupid tax" as possible. thank you for your thoughts!

 

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If we fast forward 10-20 years and ask the question how far would silver go in trade for wheat, or cotton? I wouldn't be able to answer. On the other hand if you asked me how far silver would go against the dollar, I would say pretty far. You mentioned a hedge against inflation in your post. Unless some miracle technology comes out in the near future, is there anyway we can possibly get ourselves out of the debt we are in without attempting to spend our way out? To me this equates to high inflation. JMHO. There are many others on this forum who know the ins and outs of the metals market much better than I.

 

You read the charts for metals the same you should for any commodity...you find the reasons behind what drives the market for what you're looking at. Is it fear? Is it industry? Is it consumer demand? It requires some homework, but more importantly, when dealing with gold and silver, it's understanding the fragile human psyche. And that last bit is why I think it's never wise to predict the future of metals on the market. Of course, you can always ask someone who's made a fortune investing in these, if there was one.
Guy

 

Well.......I got in at $6. Got out at $20.

But that's just me. Have some pretty coins left over and some rounds.

Good luck.
Silver has properties that will make it useful as long as electrons flow.

 

*Humbly bows to Ron Paul

 

Actually to my understanding, Ron Paul skips the metals and has invested in actual mining companies. He is a big advocate that pushes for the gold standard over paper currency. But being an established doctor helps as well, they make good money from what I hear. Most of the middle class nowadays can't even afford an ounce of gold on their current salaries, at least without making some sacrifices and perhaps buying just an ounce of it a month.

 

Investing in the mining companies has problems, and if Mr. Paul does indeed invest in PM mining companies on their own I personally am now very shaky concerning his ability to be President.

The "problem" is PM mining companies are counter cyclical, and have a negative beta. This fact alone makes them highly desirable in someone planning a portfolio of stocks. Lots of people have gotten rich forming PM mining companies, fewer have gotten rich running them. Because of this their P/E ratio is too high, relatively. If you wish to invest in them solely for their returns then you have to overcome this price malady first before it can become profitable. An example in bad PM times the share price is still too high for the return because of negative beta. The price of the share does not fall enough to make it a good buy if you are betting on PM price appreciation. When PM market is good they can doo better, but you have started off your investment at too high a starting price, therefor the return is muted. Couple this with the fact the industry has a long track record of sqaundering profits in good times instead of returning them to investors, and you have an extremely difficult industry to invest in well.

If none of this is understood by Mr. Paul and he blindly invests in PM miners thinking he will gain excessive returns, its troubling. Look at PM stock prices during this latest PM bull market.

just my opinion.

Chris

 

I don't think there is any sign of a bubble in silver prices. The price rise is [for the most part] just keeping up with production costs and supply/demand fundamentals. It seems unlikey that silver will stay under $20 for very long. If you hold long term, it is almost inevitable that it will be a roller coaster ride, so it might be a good idea to plan now for what you will do if the price quickly doubles or quickly halves so you don't have to make the plan and decision under emotional stress.

 

Cloud, you can cover your eyes since I know you hate this recommendation, but I would recommend dollar cost averaging into silver. IF you have no clue as to what prices will do going forward, and IF you only have so much per month to buy silver with, I think its your best strategy. Put aside say $80 a month. If that buys you 1, 2, 3, or 4 ounces, whatever it buys that month buy that amount.

Cloud hates this for a few reasons, and I understand, but most people do not KNOW what silver will do from month to month, and only have $xxx per month to invest. Most small investors are ruled by emotions, and tend to stock up in high markets and lose interest in low ones. Model77, if you fit this model, but know you wish a long term stockpile of silver, I honestly believe this will serve you best to build it. If silver drops and you have $1000 extra, I don't have a problem with you buying then, like I said most small investors do not have the willpower to buy when prices go down, exactly when they should be. They like to buy when prices are skyrocketing.

Just my opinion.

Chris

 

According to this LA Times article, it mentions his investing into mining companies. Particularly: "He's got personal investments that are bearish and conservative. He has money in gold mining companies such as Barrick Gold, Vista Gold, Kinross Gold, and Apollo Gold Corps."

http://latimesblogs.latimes.com/washington/2008/05/ronpaulgold.html

So I'd say with that in mind, Ron Paul probably isn't hoarding any gold or other precious metals at home waiting on his investment to increase.

 

You are correct that I don't like dollar cost averaging. There are times when silver should not be bought at all, and instead the stash should be trimmed. DCA has no provision for selling. In fact, it only outperforms lump sum investing in one special case -- where the price is lower than the starting price for a substantial period of time. In all other cases DCA doesn't work very well despite its following. Anyone can prove this to themselves on a spreadsheet.

 

Oh my. Edited, political posts are not allowed. Just curious.

 

We have gone over this you and I, I will just say its probably not optimal mathematically, but seems closer to optimal by giving a structure to otherwise unstructured investing, for creating positions for long term holding.

The details of the math is too boring to go over again, and is entirely based upon assumptions of opprtunity costs of the money and also assumes the investor has unlimited sums on hand for investing, something that for most people is untrue.

If you wish to show me a better system, both mathematically and psychologically, for a non-professional investor to long term create a position when they have no real basis for predicting future price movements, I would love to look at it.

Chris

 

You can google a system called Twinvest, which is designed to match the DCA formula with less risk. Also look at Synchrovest, which is a formula that will outperform DCA in most cases. I'm not necessarily endorsing either, but it demonstrates that with a tiny bit more work, almost anyone can do better than DCA. Both are inventions of Robert Lichello who invented several outstanding investment formulas. I consider him one of the best investment writers that nobody ever heard of.

 

I see the sense in what both you and medoraman are saying. My dry powder barrel is very small. I don't walk out of my LCS with more than 2-3 ounces at a time. I suppliment this with coin roll searching. (gotta love free silver!)

I think I lean to DCA because I am a chicken! If I sit on the sidelines while the price is climbing there may be a new lower resistence built and I missed the boat! Or if I go all in b/c the price is dropping...but it keeps dropping instead of recovering I could loose my shirt! I'm sure with more money and more experience I will adjust my strategy.

I also have some mutual funds which at this point I think I consider more high risk than the silver!!

I'm suprised to hear it said that Silver is not in a bubble. would you say the same for gold? I feel almost everythign is bubbled right now. housing bubble still deflating. national debt bubble next to go, followed by the dollar, and lastly pm's will sink again after the dust settles and economy starts to grow again.

thank you everyone for you comments!

 

I will look those up!

 

Answer = No, and there won't be any miracles. The economy is heading exactly where the math says every fiat system will go. How it manifests itself however is anyone's guess. There are too many variables to predict. IMO, the $ will be the last to go because the USA has the biggest guns and when the other currencies collapse most people won't be buying gold and silver. They will be looking to get their hands on USD. What happens to anything in this scenario? Nobody knows, and investment strategies based on the past can't be counted on.

IMO, gold will protect some of your wealth in this mess. I'm not so sure about silver as I don't think there is any true price discovery related to the metal.

 

You may want to look at this. Don't be put off by the title [which is terrible]. There is a lot in this book that is of use to the average investor with no interest in becomming a full time or professional, and it is very easy to read. And read the comments. Lichello has his detractors, and unfortunately he isn't alive to address their issues, so everyone has to decide for themselves. The book was originally written for the markets of the 1970s, but is also valid today.

http://www.amazon.com/How-Make-Stoc...=sr_1_1?s=books&ie=UTF8&qid=1322517836&sr=1-1

 

Amazon comments are a fun read. What I notice is all the comments on making lots of money by the methods in this book ran from 1999 to around 2008 or so when they simply stopped. LOL. During the period leading up to the bubble, it was found that a chimpanzee picking stocks often did better than most of these guys selling books and for that matter stock advisors. (Why write a book for investors when you can make far more by simply following the strategy?)

IMO, none of these schemes and similar such are $ cost averaging are investment strategies. They are investment methodologies for a strategy that has already been decided upon. i.e. A party has already decided their strategy will be to buy X because of Y. (everyone says stocks are a good way to get rich without work) and these methodologies are touted as a substitute for doing the required homework on whether the investment makes sense or not.

 

RonPaul investing genius