Why I Sat on My Hands
My perfect (lucky) timing... Why I sat on my hands... The first rule of trading... Andy Swan's six rules... My long-term take on silver... Cautious and bullish at the same time...
The timing was uncanny...
In last Thursday's Digest, I (Dan Ferris) warned you about silver.
At the time, silver was up more than 55% since January 1 and more than 250% over the past year.
I wrote that holding big gains in an asset like silver is a good problem to have – but it is a problem that must be dealt with properly.
The very next day, silver was absolutely bludgeoned. It fell nearly 32% by Friday's close, according to data compiled by Bloomberg. The widely owned iShares Silver Trust (SLV), which I hold in The Ferris Report's model portfolio, traded as much as 38% below the previous day's high.
What did I do about it?
Nothing.
The reason is simple. I decided under what circumstances I'd exit before I ever recommended SLV to my subscribers in December 2022. Specifically, I imposed a 35% trailing stop, based on closing prices.
SLV closed Friday at $75.44, nearly 29% below Thursday's close of $105.57. It fell again on Monday, closing at $72.44 – 31% below Thursday's close.
That's a big, fast drop. But it's not 35%.
SLV shares bounced off their low earlier this week. Then, as I write on Thursday afternoon, they're down double digits for the day... and once again flirting with a 35% drop from their highs.
But until the market closes, it doesn't make a difference. And if shares do trip my stop, then that's when I'll tell my Ferris Report subscribers to sell – not before. We'd still be looking at a gain of more than 200%.
It's difficult for most folks to watch as much as 38% of a position's value disappear in a matter of hours without selling in a panic... But that's how trading works.
I emphasized last week that there's no such system or skill of calling the top on every trade (or any trade).
My warning on silver came right at the top. But that was pure luck.
If I'd told subscribers to sell at the top, that would have also been lucky.
But much more likely, I wouldn't have been so lucky. And subscribers would have missed out on gains.
Being lucky is great... but it's not an investing or trading strategy.
Very early in my investing career, I was particularly unlucky...
About 35 years ago, I put $2,000 into a commodity-futures trading account. In my mind, I was investing. In reality, I was gambling.
Between the lethal combination of confidence, ignorance, and $100 commissions on each completed trade, I'd drained my account down to $268 in about six months.
A few years later, I bought a gold-stock mutual fund when gold had fallen to around the $330s or so. Then I held it through a nice (and very brief) rally back above $400. The mutual fund doubled, I sold (luckily, within a penny of the top), and felt I'd learned something about trading risky situations.
Though I made other mistakes, I eventually figured out something that all the best traders will tell you...
The first rule of successful trading is sheer survival. Don't blow up your account.
Everybody wants to get rich, and that is a wonderful goal. But counterintuitive as it seems, you will get rich in financial markets a lot faster if you focus on minimizing losses and controlling risk rather than maximizing gains.
As a published investment analyst, I will absolutely die on this hill. No matter what anybody tells me I need to say to get folks interested in what I write, my readers will always get a heaping helping of the inviolable primacy of recognizing, understanding, and controlling risk.
You can make other mistakes and still get rich. But if you accumulate wealth and blow up your account, you'll have to get rich all over again...
I blew myself up when I was young and had little money. That was lucky, because I had plenty of time to learn my lesson, accumulate more capital, and learn how not to blow myself up.
If you screw this up late enough in life, that's a hopeless prospect. You're out of time.
The primacy of capital preservation comes up often when we interview traders on the Stansberry Investor Hour podcast, including in two of the last three interviews we've done for upcoming episodes.
We most recently interviewed Andy Swan from LikeFolio – an innovative, effective approach for trading stocks based on data most investors don't even know exists.
When we spoke with him, Andy said nobody wants to read an article about not blowing up their account. But it's a lesson so important that, if you don't learn it and honor it, you'll never, ever get rich in the financial markets.
Like me, Andy had the good fortune to learn that lesson early. He started trading stocks in college during the dot-com boom. He says he made and lost about $30,000. It taught him that he needed to learn how to hang onto his gains and cut his losers... as do we all, no matter what investment style or strategy you use.
Andy lists six trading rules on his website. Only one addresses entering trades. Two address risk limits and two when to exit. Here's his full list...
- Have a data-backed thesis
- Determine in advance what will prove your thesis wrong
- Position small enough to fly blind
- Define your maximum risk in advance
- Automate your profit taking
- Do something else for a while
The final rule is essentially telling you that, once you've followed the other five rules, you should chill out and let them do their job.
It's like what I said above about our silver position in The Ferris Report. I set a trailing stop. It wasn't hit. So I didn't have to do anything.
Notice Rule No. 5: Automate your profit taking.
Last week, we addressed a time-honored solution for that: selling half of the position when it doubles. That's just one possible technique. And if you're currently doing nothing to protect your gains on a trade, it's an easy one to implement.
Turning back to silver... what should you do next?...
That's up to you. But if you're holding a silver investment that hasn't hit your stop... why do anything?
I know at least one famous trader who thinks last Friday's crash was just the silver market's way of shaking out the weakest hands on its way to $200 an ounce. (Depending on the source you use, the all-time high was about $120 per ounce last month.)
I have no view on that, but I will say this: I have a lot of experience with markets, and a lot of data to back me up. And you won't find many cases of a market going straight up once, then straight down once, and then it's all over.
Yes, I did say last week that ballistic price movements like silver's recent run don't resolve by going sideways. They plummet. Sure enough, silver plummeted last Friday.
And I can't help noticing that silver's recent run bears a striking resemblance to its move from 1971 to 1980...
After the 1980 peak, it took silver 13 years to find its next bottom.
Will it go into a 13-year bear market this time? I won't pretend to know. Nor will I listen to anyone who does pretend to know.
All you can do is plan your trade and trade your plan. Last Friday was a gut punch, but my stop told me this trade was still working.
That's all I know. And it's all I need to know.
And if today's price action stops me out, or tomorrow's, or another wacky day next month? I'd look for a good moment to reenter.
I have a fundamental view of silver which makes me bullish over the longer term, even despite Friday's big crash...
To explain why, let's look at the three most important fundamentals for silver.
- The historical gold/silver ratio
- Its history as a monetary metal
- Its status as mostly a byproduct of other metals like gold and copper
The gold/silver ratio is the price of gold divided by the price of silver...
It tells you how many ounces of silver it takes to buy an ounce of gold. Since 1975, the ratio has spent most of its time between 40 and 100, with an average of about 68. The higher it gets, the cheaper silver is compared with gold. By the chart alone, it was a screaming buy in March 2020.
It's notable that the ratio got a boost up above 100 last April, mostly because gold went up. As long as gold's bull market is intact – and it is – then any rise toward 100 seems a reasonable time to buy silver.
I also watch for whether the ratio is at a high or low relative to its most recent price cycle.
Over the long term, silver's recent ballistic price action has pushed the ratio toward a cyclical low. It bottomed out (so far) at 46 on January 29 – the day before the recent crash – and is in the high 50s as of yesterday's close.
Silver tends to rise and fall with gold, but later and a lot faster. That's why we see such sharp spikes in the chart.
Gold is also in a slump this week. On Monday, it closed 14% off its high from the previous Thursday. But that's only about half of silver's 31% drop during the same time.
As long as the gold bull market is intact, the silver bull should follow – volatile as ever, of course. Given gold's proximity to recent highs, I have to conclude that both the gold and silver bull markets are still intact.
Next comes silver's history as a monetary metal...
Silver has been used as money for thousands of years (as long as gold), starting in ancient Egypt and Mesopotamia.
Around the middle of the first millennium, Charlemagne created a standardized monetary system based on a consistent weight for a silver denier (penny). A pound of silver was divisible into 20 shillings and each shilling into 12 pennies. It revolutionized European commerce and lasted for up to a thousand years. The British currency is still called the pound today.
Silver's decline as a widely circulated currency began in the late 1800s. Gold's higher value made it more efficient, and discoveries of new gold supplies made it a more viable currency.
But U.S. currency redeemable in silver continued to circulate until the middle of the 20th century.
Silver has spent a lot more of its history as money than not. Like gold, there is no reason to believe it couldn't come into common use as a currency backing again. And I'm willing to bet many of the folks reading this Digest use both gold and silver as a form of savings and a long-term store of value.
That will create steady demand for existing metals investors – and potentially explosive new investment demand in times of crisis.
The third important fundamental is supply...
According to the Silver Institute, silver has been in a supply deficit for five straight years. That means demand has been higher than new supply from mines and recycling. Numbers aren't in yet, but the institute estimates that the 2025 supply was 1.022 billion ounces versus demand of 1.117 billion ounces.
The cumulative deficit of the last five years comes to around 820 million ounces. That's often more silver than gets mined, worldwide, in an entire year.
Here's the big reason that silver supply is slow to keep up with demand: Primary silver mines – where silver is the main product – make up just 30% of global silver production. So most of the world's silver supply is mined by folks who were looking for something else. It's a byproduct of other metals... copper, lead, zinc, and gold.
When gold prices soar, new gold mines come online to take advantage. But rising silver prices aren't going to push the development of a new copper mine.
Base-metal inventories peaked in 2013 and have fallen as much as 90% since.
No wonder that in 2022, mining mogul Robert Friedland said that by 2030, the world will need eight new copper mines the size of his massive Kamoa-Kukula project in the Democratic Republic of Congo.
Soon after, Chile's Codelco (the world's largest copper miner) estimated the world would need eight new mines the size of the nation's Escondida mine – the largest copper mine in the world – over the next eight years.
Those mines don't yet exist.
And it's really hard to bring new mine supply on line these days for various reasons. For example, global copper-mining projects equivalent to roughly 25% of the world's copper production are currently blocked by environmental concerns.
I could go through the same exercise for lead and zinc.
A falling base metal supply means a tighter silver supply – exactly what the Silver Institute has been reporting for the last five years.
So silver's fundamentals are solid, even if the prices are volatile.
Nobody ever went broke letting winners run, systematically taking profits, and cutting losses where appropriate...
My message might seem contradictory: cautious and bullish at the same time.
But look closer...
My caution is solely based on the fact that human nature left unchecked is ill-suited to trading highly volatile markets. And I'm long-term bullish on silver based on its most important fundamentals.
So you see, they're two very different things... which both need to be discussed right now.
In short, making a fortune on silver and silver mining stocks is doable. They've both moved a lot already. The drop looks alarming, and I'll follow my stops if it gets too big.
But over the long term, silver's fundamentals are solidly bullish.
In this week's Stansberry Investor Hour, Josh Young from Bison Interests joins me and Digest editor Corey McLaughlin to talk about oil and gas investing, including how to find winners amid growing geopolitical risks...
Click here to watch the episode on our YouTube page... or listen on our website or wherever you listen to podcasts, like Apple Podcasts, Spotify, or Audible. Just search "Stansberry Investor Hour" and subscribe to get more episodes when they go live.
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In yesterday's mailbag, a Stansberry Alliance member shared his take on silver and why it felt good taking profits recently. Today, another subscriber shares how he preferred to handle the silver trade... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"I'm glad Earl H. liquidated or sold his silver and used it to pay off his medical bills... I, on the other hand, gleefully rode the ride up in silver price in both physical metal and mining stocks and did not sell. I believe both physical metals and mining stocks have a long way to go up before they fall. I am using the recent price drop to add to my stock..." –Subscriber Mark M.
Good investing,
Dan Ferris
Medford, Oregon
February 5, 2026