Dollar Destruction Averaging

Monday, Jul 1, 2013

I recently got a letter from a financial planner who derided my occasional "Buy at this dip" recommendations and suggested dollar cost averaging when investing in precious metals. I replied: "While I agree that dollar cost averaging is the right approach in most markets and for institutional investors, it is not necessarily the correct approach in the current secular bull market in silver for small investors and for those who are hedging against the dollar with small sums.  The vast majority of my readers had less than $10,000 to invest in 2005, and they work for wages.  So they haven't had much more to invest since then.  My advice is not written for money managers at CalPers who make monthly allocations, or for hedge fund managers."

It is also notable that weekly, bi-weekly, or monthly dollar cost averaging is suitable for people who hold brokerage accounts, but it is not convenient for people who want to make very discreet purchases of precious metals with cash. For privacy-conscious preppers the advantages of dollar cost averaging are outweighed by the privacy risk and/or the time required to make monthly face-to-face transactions. I recommend gradually building up a supply of cash by withdrawing some each time you visit your bank. Then wait for a dip day to make a local purchase, anonymously.

FWIW, I fairly accurately called the bottom of the silver market in early 2001. Given our government's profligate spending, I don't expect to call a silver market top for at least five years.

Anyone who has followed my advice since 2001 has made substantial profits and is now sitting on tidy stack of silver.  I bought the majority of my silver below $9 per ounce.  I started SurvivalBlog in August of 2005. My basic philosophy on investing was summed up in this September 2005 post. For the record, I still strongly believe that it is important to get your beans, bullets and Band-Aids squared first, before you even think about investing.

I consider most "chartist" technical analysis hokum.  Predicting the path that a train will take cannot be done accurately by standing at the rear window of the caboose and watching the curves in the track behind.  I invest based upon fundamentals. And here, the deepest fundamental is that our government can't print silver, but they can print (or otherwise create) all of the dollars that they want.  Presently, under Quantitative Easing, Uncle Sugar is consistently creating $85 billion per month, mostly by buying up Mortgage Backed Securities (MBS) derivatives with make believe money. This is Dollar Destruction Averaging with a mentality that is suspiciously close to that of a crack addict.  (And it is an addiction that may prove just as hard to break.) - JWR


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