By Dr. Jeffrey Lewis
The prices for commodities can change quickly and wildly, and in many cases, investors can hold commodities for years without any realization of profits.
The wild cyclicality is what has kept many out of the commodities markets, and it is the reason why so many value investors choose to ignore commodities as a broad investment alternative. In respectful disagreement, making the case for a value investment in silver is a cakewalk at worst.
Securities and Commodities
Stocks and commodities are nothing alike, except when they are. The world's most popular and most highly regarded value investors (many of whom don't have a favorable opinion of commodities) have laid down investment traits that, contrary to their viewpoints on silver, make it a very attractive value investment.
Among the basic tenets of value investing are that companies are boring and operate in boring industries. Ideally, value investing companies are those that many people take objection to, and that very few investors own.
Rumors are excellent, even preferred, and it would be best if the investment were in a low-growth industry. It has to be a product that people will keep buying indefinitely, and under the best case scenario, the company is buying itself back through share purchases.
Compare the above commonly adopted value-investing tenets to silver.
Silver is not only boring, but mining silver is a pretty dull exercise. Most investors still take objection to silver, and few, despite the recent surge, own physical metals. There isn't a single industry with more rumors than metals production, and in fact, several organizations are dedicated to uncovering such hidden evidence of backroom deals and price manipulation.
People will continue to buy silver indefinitely, as it is in every electronic known to man, as well as prized for its beauty. While silver ounces cannot buy back other silver ounces, it is safe to say that the supply of silver is being depleted, just as shares of stock are depleted in buybacks.
Silver is the ultimate value investment because it always has intrinsic value, even if it has no intrinsic price. And where even the most unlevered companies can go belly up when the markets turn, silver can't go to zero, nor can it disappear. Where executives, auditors, and others have violated the public's trust in making their companies appear more valuable, all evidence in the silver market points to lies intended to make silver less valuable.
Commodity Similarities and Differences
Silver's commodity cousins are what keep it in check. While the world can produce a near infinite amount of corn, wheat, sugar, etc., all the silver (and gold...don't forget about gold!) is already on earth. No more can be produced, and eventually, the only silver that will be left is that which we can economically recover.
The take home here is that silver is a value play. The metal virtually defines what the world "intrinsic" really means, both in and out of the financial world. Very few own it, everyone uses it, and it is very, very limited in supply. Whether it goes to $5,000 or $25,000 per ounce isn't important. Understanding that it will not lose value in the long-term is what is important.