Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Silver’s Beta is Irrelevant

Commodities / Gold and Silver 2011 Dec 13, 2011 - 06:07 AM GMT

By: Dr_Jeff_Lewis

Commodities

Beta is a financial term that describes an asset’s volatility relative to the S&P500 index.  In scoring individual assets against the equity markets, financiers hope to find a collection of securities that provide the best possible appreciation with the least amount of beta.  That is, financiers are compensated to make many different investments to form the perfect portfolio that, over time, goes up in the straightest line possible.


There are obviously a few short-comings with any beta figure for any non-equity investment.  First, silver is a commodity, not a company, so the comparison here isn’t very applicable.  You wouldn’t compare the relative volatility of your automobile to the stock market, even if it makes up a large part of your net worth.  There just isn’t enough basis for comparison.

Even then, we can afford to give financiers the benefit of the doubt in applying a beta measurement to commodities on this particular point.

Why Beta Shouldn’t Concern Investors

Warren Buffett puts together one of the most persuasive arguments against using volatility as a measurement of risk.  In a famous quote, he notes that a particular stock would be riskier if it were priced at $40 than it was at $50 if one were to use a beta score.  That is, a drop to $40 would imply the company’s valuation is more volatile, and thus, a riskier investment. 

Buffett’s central point is that the only applicable risk measurement is that of total loss.  If total loss is the only potential negative outcome, then obviously investors would much prefer pay $40 than $50 for the same investment.  The risk to reward is far better.

His other point is equally important: what matters most with companies or commodities is not the price that the market assigns to a particular investment, but the real, intrinsic value of an investment.  Silver has intrinsic value because it is a commodity; it’s rare, and it exists regardless of the world around it.  In this regard, silver is a safer investment than the S&P500 because it has real intrinsic value.  An ounce of silver will exist regardless of the life of the S&P500 components.

Beta’s Minor Consideration

Beta serves one purpose exceptionally well.  This purpose is to score volatility of an investment for those investors who need to consider volatility in their overall plans.

Because silver is volatile, it makes a very poor investment for the short-term.  Sure, silver prices can spike quickly, but prices can fall just as fast.  What happens between today and tomorrow is hardly affected by the real intrinsic value of silver bullion.  More accurately, silver prices move based on a risk-on, risk-off trade, which is tied to beta scores.

Investment capital that is invested for the purposes of retaining and growing purchasing power for only a few years should not be invested in metals.  The metals markets are far too volatile, and the short-term market mechanics do not allow for accurate price discovery.

However, investors who have a long-term investment horizon are empowered between the discrepancy in perceived risk and real risk.  Perceived risk from silver is great; it is highly volatile.  However, over the long-term silver has shown its tendency to revert to the mean, making it an excellent, long-term value proposition for anyone concerned about the purchasing power of their savings.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    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.


© 2005-2019 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

6 Critical Money Making Rules