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Silver, Rethinking “Buy on the Dips”

Commodities / Gold and Silver 2011 Mar 03, 2011 - 03:43 AM GMT

By: Dr_Jeff_Lewis

Commodities Perhaps no more do we hear this common phrase “buy on the dips” than in raging bull markets.  Investors who have long sought to price themselves into strong markets have used this phrase to justify their patience.  However, truthfully, “buying on the dips” isn’t at all rational.

Consider for one moment what buying on the dips means; it means to ease into a particular investment with several smaller investments intended for only times when the market had dipped or made a very small decline against a general bull market.

What makes this strategy so attractive is that investors can buy into the market at its lowest point routinely, and thus lower their average cost per unit as far as is reasonable, given their individual timeline.  But does it make sense?

If we are to assume for a moment that silver has nowhere to go but up in the long-term, why is it that investors want to buy at…say, $30 per ounce instead of $33 per ounce?  Certainly, the desire to save $3 is appreciated, especially in this scenario when $3 represents a 10% change in price, but how does that reason against the fact that in an uptrend, all investments made earlier on the timeframe are at lower values than those made later?

Days vs. Decades

The desire to “buy on the dips” almost runs counter-intuitive to a long-term investment process.  Why does a dollar matter today, if we expect a rise of several dollars in the future?  And given that such a strategy is dependent on relative values, are we sure that investors are actually making more money by waiting?

Investors waiting to buy on the dips in August would have sat out of the markets from $18 to nearly $30 before buying the dip at $25 in January.  While $25 may be a dip relative to the $30 valuations around the first of the year, it is not, in any way, a dip relative to the $18 August price level.  

Patience in long-term investments rewards only those who are holding assets, not those waiting to buy them—and by the very definition, those waiting patiently to buy a dip are not holding the assets they could.  Rather, they again are waiting to buy the assets they believe will rise in value.

Perhaps most backwards is that a “dip” in price usually lasts or is made available for only a few days, at which point the price continues to fall and thus creates a more sizable crater than a dip, or the price rises higher, following a very generic trend toward the top of the chart. 

Silver did not become a #1 investment overnight, nor will it rise to $100 in an hour unless something catastrophic happens.  With that understood, the best dips to buy are the dips that are here right now.  Silver at $33, regardless of its relative maximum value, is very much a bargain to what silver will cost ten years from now.  And to that end, waiting for small percentage declines in what is expected to be the biggest commodity bull run in history not only doesn’t make sense, but it is inherently illogical.

Forget the dips.  Compared to future prices, every price now is a “dip.” By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of and

    Copyright © 2011 Dr. Jeff Lewis- 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.

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