david morgan discusses the silver market, mining shares and the etf:

Mr. Martin: I’m a retail investor . . . I’m taking a look at the silver ETF, I’m taking a look at silver bullion, and I’m looking at silver stocks. Aside from possibly investing in all three, how would you help me make my decision without telling me what to do, David?

Mr. Morgan: My thinking is very simple. The first thing I want out of my investment in this sector is something that I feel stands alone outside of the system. The only things that do that are coins in hand or bullion in hand. So my first purchase, and I recommend it from the start, is to have the physical gold or silver in hand.

Once that’s accomplished I like to see some safe leverage, if there is such a thing. Whenever there’s leverage involved it means higher risk and that’s a fact. But I have learned during the thirty years I’ve been doing this that the best risk-to-reward profile is actually in the top tier, cash rich, unheard mining shares. As long as you do it for cash—in other words, buy the shares without margin—you’re pretty safe. Not that these prices don’t go up and down, but you get sometimes equal leverage to a futures account without the risk of a futures account, where you put up minimum margin and as soon as the market goes against you, you get a margin call. So I like the mining equities. I divide them into two sectors: top tier companies, where we put serious money for serious companies; and speculative, where you put in a little money to win a lot. That’s how I have advocated investing or speculating in the sector from the get-go, and I continue on that theme.

On the ETFs, I’m neutral to positive on them. I mean certainly this is more of a realm for the institutional investor, the hedge fund manager, or very, very wealthy retail clients. I don’t think it’s the best choice for your average investor, although it’s a very easy one because it’s a stock and you can just click your mouse (if you have an electronic trading platform) and buy or sell the shares. So from a liquidity standpoint, they’re excellent. But I don’t think that would be my first choice.

Mr. Martin: It’s not necessarily your choice of highest return in the long term, is it?

Mr. Morgan: No. I think the highest return that can be proven so far in this bull market has been in the mining equities. However, if you did it right, the highly leveraged options or futures market can certainly make a great deal of money in a very short period of time.

We had Silver Standard recommended when it was under a dollar; it’s been as high as $40.00, and now it’s in the $20.00 range. So if you bought Silver Standard at $20.00 a few years back, you watched it go down to about $5.00 last November then back up to $20.00 now, so you’re even. Pan American was under $2.00, and it’s done about the same as Silver Standard. Many of these stocks have had huge gains. The problem is that a lot of people came into the sector, and for the last couple of years these stocks have been basically flat.

These markets climbed a wall of worry, all global markets do. There are these long pauses or hesitations, what I like to refer to as consolidation periods. Once those consolidation periods end, and I believe we’re ending now, you get ready for the next leg up.

http://www.silver-investor.com/blog/?p=120