Silver Stocks: Outperforming The S&P 500 By 3 To 1

Everyone would agree - the broad markets have made an astounding turnaround in 2009, with the S&P 500 index (^GSPC) up as much as 65% from the March 2009 lows to the recent highs made just a few days ago. Hopefully, you’ve been able to profit handsomely as the market reversed from bear to bull mode, but if not, don’t despair - the broad market is made up of many sectors and industry groups, some of which are on an even hotter bull market rampage than the S&P 500.

Hard to believe? Take a look at the charts below for proof positive:

Graphic credit: Metastock v.11

Custom Index

This is a custom silver stock index, one comprised of many of the major players in the primary silver mining industry, names such as Buenaventura (BVN), Coeur d’Alene (CDE), Hecla (HL), Mag Silver (MVG), Pan American Silver (PAAS), Silver Wheaton (SLW) and Silver Standard Resources (SSRI). It’s a simple price-weighted index, one designed to give precious metals equity traders an easy way to track the dominant trends in this highly volatile and frequently profitable industry group. The index made a major, enduring low in late October 2008, bottoming out at $5.27. Just a couple of weeks ago, this index reached nearly $20.00, topping out (for the time being) at $19.85. For those who love interesting statistics, that’s a gain from trough to peak of about 277% in less than 12 months. Even better, one of the index components, BVN, has an annual dividend yield of .29%, adding a few extra dollars of profit for long-term holders of the stock.

The trend of the index is clearly ‘up’, as the blue up trend line plainly demonstrates, and until this particular line is violated on a weekly close, this powerful uptrend should be given every benefit of the doubt. In fact, should the index approach the uptrend line, a significant new buying opportunity may present itself to traders who believe in the long-term prospects for Silver and its related mining shares.

Now, let’s take a look at the S&P 500 weekly chart to compare the two charts:

Graphic credit: Metastock v.11

Good Returns vs. Great Returns - It’s Your Call

Sure, it’s a great looking chart, and it’s not likely that anyone would complain about a 65% gain in less than eight months, but wouldn’t you rather have had the bulk of your money in the sectors and industry groups that were actually outperforming the S&P 500?

With your money in the silver stock index (spread equally across all seven component stocks), you would have increased your money at a rate three times faster than the return generated by the S&P 500 index - for an average gain of nearly 24% per month since October 31, 2008. And while no one knows what the future holds for the broad market indexes or for the seven silver stocks in the index, we do know that industry groups that outperform the broad market tend to continue to outperform. Further, we also know that both Gold and Silver are in major primary bull markets, the likes of which have not been seen in a generation, and that Gold and Silver mining shares typically increase in price at a rate that is usually 200-400% greater than the gains posted by physical (real coins, bullion and bars) Gold and Silver.

Joe Average or Savvy Investor/Trader

So, the choice is yours; you can continue to plow money into an S&P 500 index fund and settle for ‘average’ returns, or you can monitor the various stock sectors and industry groups to determine which are outperforming the S&P 500 index and reap profits that are consistently better that the broad market indexes. And right now, the stocks in the silver mining industry group are among the hottest of all, far outperforming all of the major US stock indexes by a wide margin.

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