Tag Archives: seeking-alpha

Have Silver Prices Reached A Bottom? ETFs In Focus

There is no doubt that silver has taken cues from the recent free fall in gold prices amid concerns of an interest rate hike by the Fed in their December meeting. A rising interest rate environment lowers the appeal for zero-yielding precious metals like silver. Spot silver prices were recovering for most of October but started dropping from the end of the month following the Fed’s hawkish meeting and stellar jobs report. After enjoying a short-term spike in the wake of the gruesome Paris terror attack last Friday, spot silver prices fell again to its three-month low this week and are currently down more than 9% year to date and below the one-year high by 22%. Therefore, it remains a matter of debate whether silver prices are really crashing or have already reached their bottom. There are a number of factors which indicate that silver prices will indeed rebound and that too even strongly. First, although there is a strong chance of an interest rate rise, the most recent Federal Open Market Committee (“FOMC”) meeting hinted that the hike will be soft. This has led to a pullback in the U.S. dollar and again brightened the prospect of precious metals as an investment asset. Second, recent growth forecasts suggested that the global economic slowdown is more pronounced than expected. Recently, the Organization for Economic Co-operation and Development (“OECD”) cut its 2015 global growth forecast to 2.9% from 3% expected earlier. The sluggish growth will largely be due to China, which is projected to grow by 6.8% in 2015, its lowest in 25 years. Precious metals like gold and silver are considered as an excellent economic hedge during a prolonged period of economic downturn, as investors prefer them over riskier assets such as stocks. The present slide in silver prices also presents a good buying opportunity. Finally, since silver is used in a number of key industrial applications, China’s economic slowdown is expected to hurt its demand. However, the white metal is expected to draw leverage from its use as the best metallic conductor in solar panels. About 3 million ounces of silver are required to generate one gigawatt of electricity from solar energy. Increasing government efforts to curb carbon dioxide emissions are boosting the demand for solar panels across the world. Most of the demand is likely to come from China, which is expected to become the world’s largest installer of solar panels this year. Despite the white metal hitting a three-year low price this week, silver mining ETFs rebounded in the last five days (as of November 19, 2015). Investors should closely monitor the movement of these ETFs as the rally is expected to continue in the coming days. Global X Silver Miners ETF (NYSEARCA: SIL ) This ETF follows the price and yield performance of the Solactive Global Silver Miners Index, measuring the performance of the silver mining industry. The fund holds 25 stocks in its basket. Industrias Penoles Cp, Silver Wheaton Corp. (NYSE: SLW ) and Tahoe Resources Inc. (NYSE: TAHO ) are the top three holdings in the fund with allocations of 11.59%, 11.17% and 11.08%, respectively. The top 10 holdings account for 74.24% of the fund’s assets. The ETF is also highly focused on Canadian firms with a 57.96% share, followed by U.S. (12.34%) and Mexico (11.15%). SIL has gathered about $131 million in assets and trades in an average volume of roughly 78,000 shares per day. It charges 65 bps in fees from investors per year. The product lost 29.7% so far this year but was up 4.4% in the past five days. iShares MSCI Global Silver Miners (NYSEARCA: SLVP ) This ETF tracks the price and yield performance of the MSCI ACWI Select Silver Miners Investable Market Index, which provides exposure to companies primarily engaged in the business of silver mining in both developed and emerging markets. The fund holds 30 stocks in its basket. Canadian firms dominate the fund’s portfolio with a 59.49% share, followed by U.K. (13.52%) and the U.S. (9.58%). Silver Wheaton, Fresnillo Plc ( OTCPK:FNLPF ) and Industrias Peñoles occupy the top three positions in the basket with shares of 23.52%, 10.93% and 7.54%, respectively. The top 10 holdings comprise 71.4% of the fund. Notably, the fund also offers some exposure to the broader precious metals and minerals sector (29.72%) and gold (9.23%), apart from silver (60.84%). The product has amassed over $12 million in its asset base and trades in a paltry volume of around 17,000 shares a day. It charges investors 39 bps in fees per year. The fund shed 32.1% in the year-to-date timeframe but returned 2.9% in the last five days. Original Post Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

The Recent Insider Selling Tells You Zip. Insider Buying Says Much More

In the ongoing debate about whether stocks are cheap or too expensive, the bears got some assurance from news that insider selling is on the rise. Investors often watch what insiders do because insiders are supposed to be better informed about their companies than the rest of us. So if insiders are selling, it must be because they know stocks are overvalued. Right? Not necessarily. I’m in the camp that believes stocks in general are too expensive right now. I would not be surprised to see another round of insider selling in the near future. Yet insider selling activity has no bearing on my view. On the contrary, I believe insider selling tells us very little about overvaluation. That’s because there are so many reasons why insiders might sell stock. A conviction that the stock is overvalued is only one possibility. Insiders might sell stock simply to raise cash. After all, insiders sometimes receive a relatively large proportion of their total compensation in the form of stock or options. Actual cash might make up a smaller proportion. So if these insiders want to buy a new home or send their kids to college, they might sell stock to raise cash. Insiders might also sell stock to diversify. It’s simply too risky for anyone to have all of their labor and most of their wealth tied up in just one company. It makes perfect sense for insiders to sell stock every once in a while to spread their wealth into other assets. Here’s yet one more reason why insiders might sell. Many employees are compensated at least in part with stock options. As a result, they can get hit with a tax liability when they exercise their options. They might sell some of the stock they received from exercising the options just to pay Uncle Sam. That’s not to say that a sudden spike in the amount of insider selling couldn’t be something to worry about. However, knowing that there are so many reasons why insiders might sell, I have to conclude that insider selling activity is not a useful signal of a market top. Insider buying is another story entirely. There are many reasons why insiders might sell, but there is only one major reason why insiders would buy. They buy because they believe the stock is undervalued. It’s true that a new member of the board of directors might be encouraged to buy some stock just for appearance’s sake, but that’s an exception to the rule. If insiders are using their own cash to buy stock, that a bullish signal. This just happened at one of the companies on my Bottom Line’s Money Masters recommended stock list. This company recently announced quarterly earnings that fell short of expectations. As often happens in such cases, the stock sold off in response. Yet my analysis convinced me that this stock is extremely undervalued. Apparently, several insiders agree. At least five of them purchased shares following the selloff. The CEO bought the most, spending $185,000 of his own money. That might not seem like a lot, but he didn’t acquire the stock as a result of an employee ownership plan or the exercise of options. He made a direct purchase on the open market using real cash. This CEO already owned a large stake in the company. The fact that he is willing to add to that stake should send a clear signal to other shareholders that the guy running the company is convinced the stock is cheap – so convinced that he is putting his money where his mouth is.

Valuations Are 80% Of The Stock Investing Story

By Rob Bennett I often make the claim that it is a terrible mistake for buy-and-holders not to take valuations into consideration when setting their stock allocations, because the peer-reviewed research in this field shows that valuations are the most important factor bearing on whether an investor achieves long-term investing success. I say that if you get valuations right, you are almost certain to do well in the long run even if your understanding of all other issues is poor, and that if you get them wrong, you are almost certain to do poorly in the long run even if your understanding of all other issues is strong. I sum up the point by stating that the valuations issue comprises roughly 80 percent of the stock investing story. It’s an informed estimate. I don’t believe that there is any way to say precisely how big an impact understanding valuations will have on an investor’s long-term success. But the evidence that I have seen has persuaded me that the valuations factor is of far more importance than most people realize, that it may well be 80 percent of the stock investing story or perhaps even a bit more than that. How much would you say that price matters when buying a car? It’s certainly not the only factor. You need to be sure that a car is well made. A poorly designed car is not a good deal even at a low price. And you need to be sure that the car you buy is one well suited to your needs. Someone who desires a sports car will not be happy with even a well-designed family van. And there are lots of personal considerations that need to be taken into account. Some people like red cars. Some people like black cars. Getting the color right can add a good bit to your enjoyment of the car you buy. Still, I think it can be said that researching prices and negotiating a good deal on price is 80 percent of what makes one a successful car buyer. Getting the color right is easy – you just need to be willing to drive to a second dealer if the first one you visit does not have the right color in stock. And it doesn’t take too much effort to identify the best style of car to satisfy your particular needs. We all know what is out there. You might need to check out a few vehicles to decide which particular sports car or which particular family van is right for you. But it is not difficult to get that aspect of the car buying experience settled in your favor. Nor does it take much research to learn which cars have a reputation for being built well. Getting the price right is harder. If you accept the dealer’s price, you are almost certainly going to overpay by hundreds of dollars, and quite possibly by several thousand dollars. If you do enough research to enter the dealer’s lot with confidence that you know the fair market value of the vehicle that you intend to purchase, and are willing to invest the time and energy needed to negotiate a good deal, you are going to enjoy a huge dollar return for the hours invested. You can improve your car deal by thousands of dollars by working the price aspect of the matter, potentially turning a very bad deal into a very good deal by focusing on this all-important issue. There is now 34 years of peer-reviewed research telling us that it works precisely the same way when buying stocks rather than cars. The safe withdrawal rate in 2000 was 1.6 percent real. The safe withdrawal rate in 1982 was 9 percent real. This means that a retiree with a $1 million portfolio who began her retirement in 1982 could live the life available on a $90,000 budget for her remaining years, while a retiree with a $1 million portfolio who began her retirement in 2000 could only live the life available on a $16,000 budget for her remaining years. That’s a big difference! It is critical to take valuations into consideration when planning a retirement. I think it would be fair to say the numbers show that valuations are roughly 80 percent of the retirement planning story. The story is the same for investors who are in the stage of life where they are accumulating assets, rather than living off the earnings from them. A regression analysis of the 145 years of historical data available to us shows that the most likely 10-year annualized return for stocks purchased in 1982 was 15 percent real. The most likely 10-year annualized return for stocks purchased in 2000 was a negative 1 percent real. That’s a difference of 16 percentage points of return! For 10 years running! Knowing about that difference and taking advantage of the knowledge by going with a higher stock allocation when going-forward returns are likely to be good than you go with when going-forward returns are likely to be poor turns the magic of compounding returns very much in your favor. I think it would be fair to say the numbers show that valuations are roughly 80 percent of the asset allocation story too. Lots of non-valuation factors matter. Interest rates matter. Unemployment rates matter. Consumer confidence levels matter. Inflation rates matter. And on and on. But those factors are all factored into the price that is available to the individual investor considering a stock purchase. So, while these other factors play a role in the investing game, we as individual investors need not pay attention to them. There is only one decision in our control – what percentage of our portfolio will be comprised of stocks. If we buy at good prices, we always do well in the long term. There has never once in the history of the market been an exception to this rule. And if we buy at bad prices, we always do poorly in the long run. Again, there has never been an exception. Most investors accept that valuations matter. But few realize how big a factor the valuations factor is (I can’t help but wonder if the reason might be that there is so much money to be made on the selling side by persuading investors that valuations are not a big deal). The reality is that the stock market is like every other market known to humankind – price is by far the dominant factor in the determination of whether market participants are able to achieve a good deal or not. Disclosure: None.