If there's one thing that I've discovered in my careers as a hedge-fund manager, investment advisor and financial columnist, it's this: Whenever you pitch a stock that has something to do with mining or metals, you'll always hear the argument that "physical metal is better."
As my experience has demonstrated, however, that's not necessarily true.
Wealth protection in hard economic times is driven by asset diversification. In good times, an investor should concentrate their investment bets on profitable enterprises, in hard times you want to diversify your assets across different asset classes. You will lose some money, but if you choose wisely, you will have real assets and value on the other side.
That's not always the case when you concentrate your assets during a period in which there's substantial market risk.
Silver Wheaton Corp.
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Money Morning Mailbag: When Investing in Precious Metals, 'Physical Metal' Isn't Always Better
Buy, Sell or Hold: Silver Wheaton Corp. (NYSE: SLW) Is Poised to Profit from the White Metal's Rally
Have you ever wanted to invest in a company that owned the supply of a product at a nice fixed rate of cost, but was able to leverage the upside, but not have to take any risk in actually making the product? How about if it's something inherently dangerous and expensive with bad margins like mining?
In the case of Silver Wheaton Corp. (NYSE: SLW) we have a very interesting investment vehicle, because the company does not have to take additional risks to grow its production numbers. Silver Wheaton owns the rights to silver production from mines that produce it as a bi-product. This allows the company to enjoy a growing supply curve, while protecting its balance sheet.
It has already purchased these rights upfront for cash, helping some miners with their capital costs to open a new mine. As these mines ramp up production in whatever primary product they are producing, Silver Wheaton gets access to the silver produced as a bi-product.
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