The mainstream media likes to slander silver investors as a monolithic bloc of contrarian kooks. The truth is actually much more interesting—silver investors are all different kinds of crazy!
But seriously, we know that the real kooks are the people who still believe in the supremacy of the dollar and the ability of the U.S. federal government to make everything all better again—it’s not happening this time, and we know it. We also know that silver provides the best opportunity to profit from the coming devaluation of the world’s fiat currencies.
But here, the similarities between silver investors end. This article explores six contemporary archetypes of silver investors and asks, “Which one are you?”
The Silver Trader seeks to make profits by gaming the short-term movements in the spot price of silver. Using everything from intricate technical analysis to “gut” hunches, he buys low and hopes to sell high—or he might even go short when the per-ounce price of silver seems to indicate that it’s “overbought.” The Silver Trader may deal in coins or bullion, but is more likely to use exchange-traded products like ETFs, shares of silver-mining companies, options, and silver futures contracts.
Thanks to constant government manipulation of the currency, the dollar-denominated price of silver is volatile—and with volatility comes opportunity for Traders. However, volatility also adds risk, and the number-one risk for silver traders is that they’re on the sidelines—or worse yet, short silver!—when the metal makes a huge move to the upside. Also, a question that Traders must ask themselves is, “What do I do with my gains?” If the Trader keeps his profits in dollars or other fiat money, they are susceptible to loss of purchasing power due to inflation.
The Silver Hedger thinks there may be short- or long-term risk of massive inflation or even government destabilization, but he isn’t so sure. He doesn’t want to cash out his entire dollar-denominated portfolio (or even a sizeable share of it) for silver, but he wants to reduce his exposure to fiat money by adding some precious metals to his holdings. In order for the Hedger to have a real hedge, he should have physical possession of silver coins or bullion, though some Hedgers may feel safe with ETFs, silver-mining stocks, or silver stored offsite.
Historically, it has been advised that long-term investors keep 6-10% of their portfolio in gold and/or silver. However, given the current macroeconomic forecast, keeping upwards of 90% of one’s assets in dollar- or other fiat-money-denominated assets is tremendously dangerous. A wiser hedge would be the reverse, with 90% (or more) of one’s wealth in hard assets and real property, with 10% seeking short-term profits in the stock market.
The Silver Collector loves silver—the look, the feel, the sound a coin makes when you drop it on a table—and he loves the history of old coins and other silver items. His interest is in numismatics, and while he certainly hopes to see a return on his investment, this is almost secondary.
Most silver investors have a little bit of “The Collector” in them, but investors who are predominantly collectors face numerous pitfalls. First and foremost is the risk that numismatic premiums will be largely eroded by a dramatic rise in the price of silver. For example, if a coin’s silver content is one ounce, and silver is priced at $17, but the coin sells for $117 due to a numismatic markup of $100, what happens when the value of silver skyrockets to $50 an ounce? Unless the move in silver is strictly in response to price inflation, then the numismatic premium will not keep pace, and The Collector would have been better of buying low-markup coins and bullion.
The Bobby McFerrin
In 1988, one-hit-wonder recording artist Bobby McFerrin released the inexplicable easy-listening sensation, “Don’t Worry, Be Happy.” Investors who fit the “Bobby McFerrin” profile believe the government and media propaganda that “everything’s gonna be all right.” Now, full-blown “Bobby McFerrin” investors are likely to avoid gold and silver altogether—after all, if there’s no cause for concern, why not stay fully invested in stocks?—but some otherwise overly optimistic souls still recognize the importance of having a little (or even a lot) of the protection that precious metals can afford… but then they go about it entirely the wrong way!
What I mean by this is that they’re overly trusting. They think the government will always be there for them; that it has their best interests at heart, and that the eggheads at the Fed and the Treasury can avert the certain disaster that looms ahead. Thus, “The Bobby McFerrin” invests in offsite silver, silver certificates, silver ETFs, and even puts silver investments in his retirement account—assuming it will be there for him when he’s ready to retire. The problem here is that none of these investments offer any real security when compared to physical coins and bullion in the possession of the owner.
The Silver Stockpiler is virtually the opposite of The Bobby McFerrin. He says, “Don’t Be Happy… Worry!” This is not to say that The Stockpiler’s fears are unfounded, but rather that he may be going about things the wrong way.
Here are some mistakes Stockpilers make:
- Investing in silver (and/or gold) at the expense of all other investments—including consumable goods and their own productivity.
- Investing in the wrong kind of silver. Under The Stockpiler’s “worst case scenario,” how marketable are 100-oz silver bars or bags of silver pellets going to be?
- Inadequately protecting one’s silver. What good is having a stockpile if it can be taken, either by the government or by common criminals? Stockpilers often have big mouths, too, which make them all the more vulnerable.
“Doomsdayer” usually has a pejorative connotation, but when a real doomsday is actually on the horizon, anyone who isn’t at least a little bit of a “Doomsdayer” is a fool. A Silver Doomsdayer is one who believes that the world’s fiat currencies are headed towards an inevitable collapse, or at least a severe devaluation, and that silver is set to explode before or when that happens. Doomsdayers may also believe that governments are at risk of falling, though individual Doomsdayers have varying opinions as to whether or not this would be good or bad.
Doomsdayers are similar to Stockpilers, except whereas Silver Stockpilers are entirely consumed with accumulating silver (with no real plan of what to do with it), Doomsdayers prepare for every conceivable scenario. Doomsdayers prefer more marketable silver coins in one-ounce (or less) denominations, and may show preference for easily recognizable issues, such as Silver Eagles. But Doomsdayers don’t put all their eggs in one basket, either: They also invest in stockpiles of consumable goods, enhancing their own productivity via tools and/or education, establishing a network of contacts for future or current “black-market” trade, and in an adequate home-defense system.
So which type of investor are you? With the exception of “The Bobby McFerrin,” there are probably elements from each archetype you should adopt in order to build the profile of “The Ultimate Silver Investor.” And, at the same time, too much of any one category could be dangerous: The Doomsdayer is perhaps a bit too conservative, and each of the other profiles are at least a little too aggressive in their own ways. The important thing is that you make yourself aware of the pros and cons of each type of silver investor, and create the custom profile that you can be comfortable with.