Precious Metals Investing for Dummies
By Paul Mladjenovic
Wiley Publishing 2008
319 pages. $24.99
Years ago, Wiley Publishing came up with a great idea for a series of books. They called their series of books “For Dummies.” And each book provides fundamental knowledge about a popular topic. The books are written by experts who get to skip all the hoity-toity language and “industrial jargon.” In other words, the authors write solely to inform their readers. Which means the books are easy to read and get right to the point.
Precious Metals Investing for Dummies is divided into five major parts: breaking down precious metals; mining the landscape of metals; investing vehicles; investment strategies; and the part of tens.
Part one gives a brief history of precious metals. The author discusses the track records of gold, silver and other precious metals. Then he talks about bear markets and bull markets, and the circumstances that affected them in the recent past. This is followed by an explanation of the differences between investing, trading, and speculating. The author – Mladjenovic – obviously prefers speculating, but carefully cautions readers about the pitfalls of speculation.
The third chapter tells investors why they should consider including precious metals in their portfolios. The primary reason is as an inflation hedge. It’s a fairly safe place to put your money. Chapter four informs readers of the various risks associated with investing in precious metals. There are physical risks (storage), market risks, exchange risks, political risks, and fraud risks. Mladjenovic points out that the risks may be minimized by means of knowledge, discipline, patience and diversification. He also suggests no more than 10% of your money in “in any single vehicle.” Nevertheless, risk is present in any investment, precious metals or any other type.
Part two discusses the supply and demand aspects of gold, silver and other precious metals. In other words, the author talks about why investing in precious metals makes sense from a market standpoint. There are a number of different ways to invest: bullion, futures, stocks, mutual funds and ETFs. Each method is presented and analyzed.
Uranium gets its own chapter, which is unique, because most guides don’t even touch on uranium. From 1980 to 2000, uranium went down, down, down in price. Then in 2000, it began an “impressive and uninterrupted climb to $138 per pound by the spring of 2007.” Mladjenovic likes uranium because of “the imbalance between supply and demand.” And he notes that the demand increases when the price of oil goes up. In Mladjenovic’s opinion, the safest route for investors to get into uranium is “through ETFs,” of which there are two. Both are excellent, according to the author.
The next chapter considers base metals as potential investments. Copper, nickel, aluminum, zinc, lead and a host of others are discussed. As far as base metals are concerned, Mladjenovic suggests mining stocks for most investors or – perhaps – options, because the investor can choose the level of aggressiveness. He thinks futures are very risky due to their volatility.
Part three takes a look at investing vehicles, including physical ownership, paper assets, and numismatics. The author prefers bullion for both gold and silver. To that end, he provides a list of reputable bullion dealers. And although he does not disapprove of numismatics and collectible coins, he admits these vehicles require “a good understanding of the coin market.” Therefore, he advises sticking to those series “that have a large popular market since it will make” them easier to buy and sell.
Mining stocks are covered next. Mladjenovic informs readers “that the behavior of a stock in the short-term is irrational.” So investors need to be patient and “focused on the longer term.” When choosing a mining stock, Mladjenovic, along with every other investment book, declares that the management of the mining company is of paramount importance. And among mining stocks, the majors “are the safest bet.”
He then moves on to mutual funds and ETFs. He sees both pros and cons to mutual funds. But he “loves ETFs.” He lists the pros and cons to ETFs, and the pros far outweigh the cons. Yet he does state that “there is a unique risk with ETFs that specialize in the metal itself.” Do they actually have the metal itself?
A lot of time and space is devoted to futures, including trading strategies: going long, shorts and spreads. If one is inclined to play the futures market in metals, he advises long-dated options (LEAPS), primarily because they give the investor more time to “work the market.” Options, too, are discussed in detail. What options are is explained very well. Mladjenovic advises buying puts on your own stocks to minimize the risk factor. And those who play options are told to be “patient.”
Part four of the book discusses investment strategies. Strategy includes having a plan, deciding on a market, practicing with simulated trading, and choosing an outlook. How to open an account with a broker is covered, along with “some considerations about CTAs” (commodity trading advisors).
The fifth and final part of the book is called ‘The Part of Tens.’ Mladjenovic gives 10 reminders about mining stocks, which are extremely logical and helpful. Then he provides 10 rules for those investing in metals. After that there are 10 rules for metal traders, and 10 ways to limit risk. In each instance, the rules guide novice investors toward the ultimate goal – profit.
Precious Metals Investing for Dummies lives up to its title. It provides rock-solid investment advice for individuals who would like to invest in precious metals, but are smart enough to realize they know nothing about it. Mladjenovic is a wonderful writer and teacher. And he isn’t afraid to display a sense of humor, which keeps the book fun.
On the Read-O-Meter, which ranges from 1 star (poor) to 5 stars (richly rewarding), Precious Metals Investing for Dummies receives 5 stars.