I’ve been doing a lot of research in the silver market for the last several months and wanted to write a collective piece of what I have learned. This will serve mainly as a way that I can have many of my notes condensed down into a single document as well as providing what I have learned so far to those that are interested. Most of the stuff is common sense but sometimes common sense isn’t so common. As always, it is always a good idea to put in your own due diligence. Let’s get started:
Silver Stocks: 1) Check the P/E ratio (Price to Earnings Ratio) The lower the P/E ratio the more undervalued a stock is (good buy). The higher the ratio, the more overvalued a stock is (bad). Historically, fair P/E ratios have been in the 11-14 range. Bubbles start at 22 or so. That being said, you’ll be hard pressed to find ratios in the 11-14 range. From what I have noticed, a good P/E for a silver stock right now is in the 20-30 range. 2) Dividend Yield (How much a stock pays out to the shareholders per share) High dividend yields are good (undervalued) while low dividend yields are bad (overvalued). 3% or less at the peaks of bubbles and above 6% yields at the bottom of a bear market. Once again, most stocks out there are paying well under the 3% range thus tend to be overvalued based on historical data. 3) Price and Volume When trying to decide if a true rally is taking place or if a stock or commodity is truly breaking out (either up or down), look at the price and VOLUME. Volume is the indicator that will tell you how much support a given price has. After a so- called ‘breakout’ with good volume, you typically want to see another high volume day within 3-4 days of the break out. If you don’t, it may have been a fake out.
Physical Silver/Gold Acquisition: 1) Buy physical gold and silver on the dips and HOLD. (I will explain how to determine the dips in a moment) That being said, you should ALWAYS continue to make your regular CONSISTENT physical gold/silver purchases. When it comes to acquisition, consistent purchases are the only way to go. 2) Make CONSISTENT physical gold and silver purchases….it’s worth mentioning twice. A great place to do so is at Silver Saver. I currently make CONSISTENT daily purchases as well as buy the dips. Read my article about the Silver Saver program here. 3) The most active months for silver tend to be: March, May, Sept, Dec. The most active months for gold tend to be: Feb, April, June, Oct, Dec. Active simply means ‘active’. The price may go up or down, but historically these months tend to see activity to the upside. So, that leaves the other months as ‘weak’ or ‘purchasing opportunities’ in my opinion. 4) Also, watch for drops or ‘purchasing opportunities’ around the 24th or 25th of each month. The gold and silver prices historically make a pullback around this time due to options expiration. So, it is usually around this time that I ‘buy the dip’ in addition to my CONSISTENT daily purchases. (Once I have a comfortable stock pile of physical metal, I plan to switch to monthly purchases only around the 24th or 25th of the month)
Other items that I urge you to read and learn about are the use of COT reports (Commitment of Traders), the PSAR indicator, and the 50 and 200 day moving average. These indicators are just more pieces to puzzle that help to complete the picture when it comes to finding good entry and exit points. I will try to write individual posts regarding these indicators in the future.
My last two points for this write up are possibly the most important…. 1) When it comes to physical gold/silver acquisition, don’t try to time the market. Like I said, CONSISTENT purchases are the best way to acquire along with ‘buying the dips’ when you can. By not trying to time the market, you will be acquiring physical assets all the time rather than trying to time the dips and always missing out. 2) Have a plan. Write down your plan. Stick to your plan. This will help to remove emotion from the equation. With emotions out of the picture, you will be much better equipped to deal with investing your hard-earned money. For instance, when I invest in a speculative junior silver mining stock, I place a 15% stop-loss. Once that stop is triggered, I accept my 15% loss and move on to fight another day. I don’t get emotionally attached to the stock and take it as the market knew more than I did. Have discipline and stick to your plan.
Well, that’s all for now. Hopefully this helps out and points you in the right direction. I plan to write pieces like this periodically as I read, research, and learn more. If you have any tips you’d like to share please comment below.
- Silver starts to get some of the investor spotlight (theglobeandmail.com)
- Is Silver Wheaton the Perfect Stock? (fool.com)