Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Silver Plays a Small but Vital Role in Every Portfolio

Commodities / Gold & Silver 2019 Apr 23, 2019 - 06:38 PM GMT

By: Jared_Dillian

Commodities

Portfolio strategies like Modern Portfolio Theory and others tend to assume that market returns follow a normal distribution.

Not really.

Certain securities have high kurtosis. That is where out-of-the ordinary returns (larger or smaller) occur more frequently than the normal distribution predicts.

Of course, nobody who is stable and balanced puts 100% of their assets into something which has the possibility of extreme returns.

But risk 90 cents for the possibility of making 10 bucks? All day long.


That’s why here I’ll talk about investing in… silver.

Silver’s Role in the Portfolio

Nobody actually “invests” in silver. I am a silver investor and I wouldn’t say that I “invest” in it. I keep it around for when something crazy happens.

Here is a chart of silver going back a long time so you can see what I mean:

 

You can see “Silver Thursday” in March 1980, the result of Bunker Hunt attempting to corner the silver market. And you can see the freak-out in 2011.

So you might come to the conclusion that an asset that goes bananas every once in a while could be a good asset to hold.

Especially in light of what is going on in the world at the same time:

 

I recently talked about the 35/55/3/3/4 portfolio: 35 percent stocks, 55 percent bonds, 3 percent commodities, 3 percent gold, and 4 percent REITs (Real Estate Investment Trusts).

That portfolio gives you almost the return of the 80 percent stocks/20 percent bonds portfolio with about half the risk.

I think if you threw 1 percent silver in there, the risk characteristics get even better.

Sadly, people get a little carried away with silver, like they did a few years back. They start ordering monster boxes of coins and getting them delivered to their front door by very unhappy FedEx guys.

Silver Might Be Worth a Lot One Day

Industrial use of silver went way down after the demise of film photography. Investment demand has also pretty much dwindled to nothing. The fundamental picture is not great.

Still, you never know. Strange things can and do happen with precious metals. Palladium has gone nuts, and platinum is a fraction of what it once was.

And as I said earlier, market returns don’t follow a normal distribution. Extremely positive (and negative) returns happen much more often than a normal distribution expects them to. 

Silver looks relatively cheap. It’s about where it was in 2010, when the breakout occurred. It has done the round trip.

But that’s not why I own it, because of some subjective opinion of cheapness. We want to own it for what it does to your portfolio.

Some people like to trade silver in the futures market, which seems insane to me. Silver is notoriously difficult to trade in the short-term. It has earned the reputation of being the “rich man’s casino.” Pass.

Nobody should be trying to scalp a couple of percent out of a silver ETF. You buy it and hold it and wait for it to go 5x or 10x. And then—you actually have to sell it.

Silver miners are also a possibility. Since the bear market, many miners have become small cap stocks that are not very liquid. But they possess the same kind of periodic moonshot potential (kurtosis) that spot silver does.

But you have to be careful with miners. Do your homework.

Free Report: 5 Key ETF Trading Strategies Every Investor Should Know About

From Jared Dillian, former head of ETF trading at Lehman Brothers and renowned contrarian analyst, comes this exclusive special report. If you’re invested in ETFs, or thinking about taking the plunge into the investment vehicle everyone’s talking about, then this report is a clever—and necessary—first step. Get it now.

By Jared Dillian

© 2019 Copyright Jared Dillian - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in