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Precious Metals Investing for the Common Man
(Guest Essay by Matthew Vickers.)
Silver Stock Report
by Matthew Vickers, May 3, 2009
I made my first securities trade when I was nineteen years old, about 12 years ago. My father came across about $100,000 in inheritance, and wanted to play the market in order to avoid a future of more back-breaking, knee-shattering construction work. But, he didn't want to learn the ins and outs of the stock market. "Matt, my boy," he said to me one day, "you're nineteen now, and going to college, so if you still want a roof over your head, figure out how to make me money in the stock market, or you're out on the street." Ah, memories of childhood. So, following a visceral instinct to not be homeless, I heeded his instructions.
We didn't do great at first (he dismissed first time small losses by exclaiming that "it costs money to go to school"), but after some time, study and experience, our capital gains started to grow, and my father was able to realize part of his dream, only working about one quarter per year, and letting his accumulated wealth pay for most of his expenses. And that's how an art student found his way into the world of finance.
I'm thirty one years old now, and have gained a wide range of experience in securities and retail finance industry from Franklin Templeton, Wells Fargo, Tri Counties Bank, and Citizens Bank of Northern California, before eventually landing in the precious metals market. The first thing that I learned from my diverse experience is that companies with the same goals can radically differ in their methodology to obtain those goals. More importantly, I became increasingly confident that ALL investors should hold a significant portion of their wealth in precious metals.
However, a problem arises with my theory, because when most people think of the precious metals, their immediate reaction is to consider gold. Now, when I was nineteen years old, buying gold presented a very big problem for me -- I couldn't afford it. Now, granted, this was when gold was about 25% the value of what it is today. But even at $250 an ounce, my investment portfolio was only about $3,000 (hey, I was nineteen -- what'd you expect?). Had I invested my entire portfolio in gold, I could have bought 12 ounces. Today, those 12 ounces that cost $3,000 would be worth about $11,000. Not a bad investment, but I'd be putting all of my eggs into one basket, and no wise investor would tell you that was a good idea -- if they do, just smile and politely say that you'll consider their advice.
(Jason notes: I was literally begging, hounding, and harassing my dad to put it all into gold and silver in 1999, but he waited until about 2003 to really jump in. Had he followd my advice, he would have done much, much, much better, as Matt Notes.)
Truth be told, the average nineteen year old, full-time employed, full time student--does not have $3,000 in risk-tolerant cash to invest. What about my brother, who, at the time, had about $500 that he wanted to invest? How does he diversify his portfolio? Should he not be allowed to invest? Absolutely not. For the common man, the answer to precious metals investing is silver.
"But Matt, you fool," my readers may exclaim, "had I invested $500 in gold, I would have had a 357% return on investment over 10 years, versus a measly 249% return on investment in silver. True, that in that particular time frame, gold has outperformed silver. My answer, had you invested in ½ gold and ½ silver (one ounce of gold, and 50 ounces of silver), your 10 year return would have been 303%. That's a: pretty decent return for a safely diversified precious metals portfolio. But, there is one important factor that few people consider with silver investing--it is more fungible and divisible than the other precious metals.
Why is that important? Consider this. If my brother, the $500 investor, had to liquidate a portion of his investment, he would be forced into a 50% minimum value liquidation in gold versus a 1% minimum liquidation in silver. If, ten years later, he was staring at his now $1,516.50 investment, and had a tax bill of $500.00, he couldn't liquidate 1 Troy Oz of gold at $892.00 and buy back $492 worth of gold (unless he was buying fractional gold, which carries a higher premium). However, he could liquidate 40 ounces of silver, pay the bill, and still have the full value of his remaining 10 ounces. In addition, it is much easier for him to buy back his investment at 1 Troy Oz at a time (although he will have to pay a higher premium with sales tax restrictions on bullion purchases under $1,500 in the state of CA)--much more efficient, and requires less discipline than saving money to buy 40 ounces at once.
So, to summarize. Do I like gold? Of course, I do. I just like silver, much, much more. Why do I like it so much? Because literally ANYONE can buy it. Right now, even a kid with a weekly allowance can invest in silver. Start early. Buy it. Horde it away. Protect it, because in the future, it will protect you.
by Matt Vickers
Silver Stock Report produced by:
Jason Hommel
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