My friend asked me today if he should invest in silver bullion. I said no,was I right?
Question:
Answer:
No, Silver is shaky. "Silver Thursday" market crash of
March 27,1980: where the Hunt brothers of Texas tried to corner the silver market and subsequently failed to meet a $100 million margin call.
commodities like gold, silver and oil are usually sound investments. because they are natural resources and as such they become more rare they usually will not depreciate in value. but i would suggest that he invest only if he is prepared to take a short term loss if the price of silver should take a downward turn for awhile
As long as he doesn't treat it like the stock market, it should be fine. He should only invest when he can find a good deal. Years ago my hubby started collecting these things, got a lot of them fairly cheap and they've just about doubled in value. This was four or five years ago, I don't know what the going rate per ounce is now. But he treats it like a lottery ticket, only buys when he can afford it out of his leftover allowance and does not consider it an actual 'investment'.
No 1 should ever buy silver & not consider it an investment nor should they just buy it when can. Silver & Gold are a valid small part (5% or so) of most portfolios. If you did not know the answer you should not have told your friend anything. The Hunt debacle has nothing to do with the present - 26 yrs ago.
Vegas gave a really great answer, and he is right. If you didn't know, you shouldn't have answered your friend.
And Mickey is off base. Based on his logic, we should avoid stocks because Lay & Skilling's antics caused the failure of Enron and billions were lost. Broadcom and Long-Term Capital Management failed. Therefore, stocks are horrible because of the failures of these companies. Yes, the Hunt brothers did try to corner the silver market, but when silver prices turned against them, that's when they failed to meet a $100 million margin call. Not because they were buying silver, but because they had a huge position when prices turned against them. The same thing could happen if your were buying large numbers of shares on margin and the price turned against you. Doesn't make it a bad investment, just that you took on too much. That's what the Hunt brothers did.
So, silver has risen strongly in 3 years, therefore it is due for a tumble. That's your logic? Let me ask you something; did you recommend stocks to them? I mean, based on your logic, if you did, then you should have told him stocks were not the place to be because stocks have risen strongly in value for 18 years from 1982 to 2000. Right now, silver is trading at about $11/oz. Do you know what silver's all time high was? $50/oz. - 78% below it's all time high. Gee's most investor would jump on a stock if it was trading 78% below it's all time high.
What you fail to take into consideration is that silver (and gold) just came off of a 20 YEAR secular bear market. It dropped from $50/oz. to $4.00 and a 3 year run to $11/oz. is overvalued to you? Yet, the bubble in stocks popped in 2000 and prices are coming back to their pre-fall level and people see them as cheap. Why? They were overvalued prior to the bubble popping in 2000 and will prices almost back to their pre-bubble levels, what makes them cheaper now? None of the fundamentals have gotten better, they've gotten worse.
Markets run on long term cycles. The down run on roughly a 17-18 year cycle, 1982-2000 was an 18 year bull cycle. Precious metals run on an 18 -20 year cycle, 1980 to 2002 was a 22 year bear cycle. So, based on that data, wouldn't logic say that stocks prices should see a drop and precious metals should see a rise?
All people see is that for 20 years, precious metals prices have dropped. During the stock run up from 1982 to 2000, metals prices dropped; gold went from $850 to $250 oz. and silver from $50 to $4 oz. Yet, what they failed to realize is that from 1971 to 1980 that Dow was in the midst of a secular bear cycle that ran from about 1965 to 1982. From the years 1971 to 1980, the Dow trade in a from around 790 to 950, a gain of around 20%, (actually from 1965 to 1982 the Dow traded from a high of around 1000 to it's bottom in 1982 at 772, a loss of around 23%). Yet, between 1971 and 1980, silver was trading around $1.75 in 1971 and reached $50 in 1980, a 2,750% increase. Gold went from $35 oz. in 1971 to $850 oz. in 1980, a 2,328% increase. So, will stocks were only rising about 20% in value, gold and silver rose by over 2,000%.
But, most people forget that. The majority of people have short financial memories. Stocks boom and the only good investment is in stocks. Yet, interestingly enough, at the bottom of the bear cycle in 1982, the news media were trumpeting the demise and death of stocks and that stocks were a horrible investment. Come forward 15 years and the same news media is saying that stocks are the be-all-end-all.
All markets run through secular (long term) cycles. In 2000, the Dow was at 11,722. At the end of trading yesterday, it was at 11,555, down about 1.4%. Yet, in 2000, silver was trading at $5 and today is trading at $11.00, up 120%. The Dow is 167 points from it's all time top, just 1.4% away. Yet silver is still 78% below it's all time top. Based on that, which do you think is a better buy right now? A market that just came off a 20 year bear market and still has a long way to go before reaching it's all time high (silver) or a market that is completing a secular bull market and is a little over 1% away from it's all time high (equities)?
You make the decision as to whether what you told him was right or wrong.
More Questions & Answers...