Ten Rules of Silver Investing

Posted by David Morgan - Silver-Investor.com

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Rule #1 – When all else fails, there is silver.

No one likes to be a prophet of doom, but the simple truth is that silver is the world’s money of last resort. Should a severe economic collapse occur, leaving paper assets worthless, silver will be primary currency for purchase of goods and services. (Gold will be a store of major wealth, but will be priced too high for day-to-day use.) Thus, every investor should own some physical silver-and store a portion of it where it’s accessible in an emergency.

Many times we are asked what is the best form of silver to purchase. Our answer has been to consistently begin with old silver coins, known as “junk silver” in the trade. Although, we do not see a time where you would have to rely upon silver coinage for daily expenses it has proven useful in the past.

When our offices were in Los Angeles during the mid 1970’s and the first Oil Embargo took place, two private gas station owners set up pumps that would accept payment in silver coinage. We point this out simply to let our readers know that the Free Market can provide some very interesting solutions during difficult times.

Finally, it must be remember that the one financial fact that history bears out is simply all paper currencies eventually fail.


2. Start small- keep it simple.

Too many investors, upon deciding to beef up the metals portion of their portfolio, buy too much physical silver at once-and in the wrong forms.  Beginning metals investors should concentrate on pure bullion bars or coins, in smaller sizes, looking to pay a minimum premium over the actual metal value.  Avoid commemorative coins, decorative items, jewelry and other collectibles, all of which carry large premiums and have limited resale markets.

Anyone that has spent much time on our website www.silver-investor.com knows we have consistently advocated that all metals investors begin with a physical position before making any other type of precious metals investment. Certainly, mining stocks offer leverage and can at times multiply your wealth substantially it is only by starting with the sure thing, real metal that you build a foundation of wealth.


3.  Boost the buying power of your dollars with mining shares.

If you are a typical investor, you cannot expect to be an expert on silver and the silver market- but you can invest in the people who are. Once you have established a core holding of physical silver, leverage both your knowledge and your buying power by purchasing the stocks of mining companies. These shares are highly responsive to changes in silver prices, frequently producing much higher percentage returns than the metal itself.

This rule is one that many silver investors know quite well and the joys of watching your mining stock outperform the increase in bullion prices by a factor of two or three to one is exciting. However, leverage works in both directions and when the price of the precious metals fall back the mining shares fall back hard. This is normal market behavior and should be anticipated by the savvy metals investor.

Again, mining shares analysis is difficult and in the speculative area nearly impossible. Because of this fact, it is important to do your own homework carefully. Also you can subscribe to a service that provides insights into this area. We do our best to diversify and to give clear signals to area we think have merit. However, we are only human and have made errors in the past. It is the nature of investing that you cannot be 100% accurate, although for the first two years our report did have nothing but winners. Those days are over and in today’s market is it more important that ever to be careful and use proper money management.


4.  Dollar – cost average to lower your costs – and increase your discipline.

Dollar-cost averaging is an ideal way to implement Rule 2.  By making same-dollar purchases at regular time intervals, you wind up buying more metal when prices are low and less when they are high. This approach helps you develop discipline, erasing the “trader’ mentality that infects many market participants and instead fostering an “investment” philosophy. Dollar-cost averaging also eases some of the sting when prices move against you, allowing you to view the downturn as an improved buying opportunity rather than a disappointing loss.

Many beginning investors think “if only”…….

If only I had subscribed to The Morgan Report four years ago and bought the one Top Tier silver company “61 Neutron” as Charles Savoie described it, look at how much money I would have made.

It is human nature to want to be precise in all our affairs, but in the real world of competing against others for the one thing most of us think about daily— Money– a mature approach is necessary. Getting in at the exact bottom and out at the exact top is an amateurs approach. In a bull market “dollar cost averaging is a wise approach.

However we want to caution our readers that averaging down in a speculative mining company can be very dangerous. We normally do not advise doing so. However, in a top tier company or gold mutual fund this is acceptable in most cases as long as the bull market is intact.


5. Do not get a raw deal from your dealer.

Because of the specialized nature of the physical metals markets, selection of a well established dealer with a quality reputation is essential.  A good dealer will provide timely executation of your trades at fair prices with reasonable fees. Note, as well, that the lowest price is not necessarily the best price. In the past, some dealers who squeezed their price margins too low in order to attract clients were unable to make delivery, leaving those clients holding the bag.

This unfortunately is an area that prevents many people from purchasing precious metals in the first place. People are leery of dealing with someone over the phone and sending them money, and then waiting for their precious metals to show up. It is very rare that something goes wrong and almost all dealers are reputable. However, as in most aspects of life the occasional fraud does appear.

It has been our experience that most questionable dealers are fairly easy to spot by simply using common sense. Also, we must mention that fraudulent schemes normally appear near the end of the cycle which is not for another five years or so in our view.

Years ago as we were nearing the peak in gold and silver, a nation wide campaign was started in all the major newspapers in the U.S. and the Headline read “Buy Gold and Silver Below Spot”

Now, this is simply impossible and anyone with a shred of common sense would have stayed clear of such a “dealer” , but since some people seek that special deal many customers were taken to the cleaners as this company filed bankruptcy.


6. What’s yours is yours – so keep it that way.

While it is wise to keep some of your silver where you can get to it easily, it is also important to keep the bulk of your metal in a safe place- especially as you holdings increase.  However, if you establish an account with a brokerage warehouse or other public storage facility, you should make sure your holdings are kept segregated and that you can inspect them when you wish.

Anyone that has studied the Silver-Investor website knows there is far more paper silver than real silver in the world. In fact our primary premise is that the real sustained move up in silver will not occur until the market recognizes this fact. You certainly can participate in alternative precious metals investments such as pool accounts or options but remember you are dealing in the paper world and expect settlement in paper not in metal.

Fully paid Comex warehouse certificates held by you in your name do comprise real silver.


7. Silver speculation’s like cough syrup- good in small doses, but too much can make your portfolio sick.

Depending on your individual goals and our personal tolerance for risk, a small portion of the assets you commit to silver can be used for speculation, perhaps in futures contracts or options on futures. Never forget, however, that this type of trading is speculation, NOT investment.

This is probably our most important rule. However, some people are not willing to understand what speculation means. We have featured some companies in the past that simply did not perform and as a consequence some people had sick portfolios for one simple reason… They did not obey the rules of speculation. They fell in love with a certain story or region, or drill grade and put more into a particular speculation than was prudent. We cannot emphasize this enough, we all like to bet a little to win big, and this means you must keep enough money to make several bets.


8. A little information can mean a lot more dollars.

You do not need to be a student of the silver market to profit from your metals investments. However, you will greatly increase your chances of success-and the size of your potential profits-if you understand the fundamental factors that drive silver prices and pay regular attention to current supply and demand considerations.


9.  Collecting silver is an art- but not really an investment.

Owning fine silver items- including rare coins – can provide great enjoyment and personal satisfaction. Like paintings and other artworks, they are beautiful and often quite valuable-and, if you are astute at buying and selling, they can generate large profits.  In spite of this, however, always view such holdings as collectibles, NOT as investments. When you need your silver-or simply want to cash in- you do not want to have difficulty selling or be forced to forfeit a large aesthetic premium, both of which are likely with silver rarities.


10.  More than 10 percent is too much of a good thing.

No matter how good the market looks-or how worried you are about the future of civilized society-you must always remember that silver should make up only a small portion of a well-diversified portfolio. I recommend committing no more than 10 percent of the average portfolio to silver-regardless of how strong you feel about the potential of the metals markets.

Note: Under the current economic conditions, I feel 20-25% is more appropriate, than the original 10 percent per the book global-investor book of investing rules pages 301-303. At the time the book was published the economic conditions were more stable but now that the world is in a war environment the higher allocation is necessary!

The final decision is yours and yours alone.


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Mr. Morgan’s interest in silver led him to publish the “The Morgan Report”, a research report that has grown in popularity and is today seen as one of the pre-eminent reports on how you can make money investing in the natural resource sector.

The report looks at the silver and gold markets each month and also explores the commodity markets, the general stock market and is devoted to help you make money by investing in this exciting sector. An overwhelming number of the companies outlined in his model portfolio are higher than the original recommendation.

Many of Mr. Morgan’s early readers have gone on to start their own publications about silver.