I have always believed that if something looks too good to be true, it usually is. But eBay creates an interesting exception because the buyer can test the proposition with protection underneath the transaction. I’ve written before in my special report Living the Silver-Backed Lifestyle about using eBay to hunt for physical silver below melt. The strategy is simple: don’t just buy silver because you think silver is going higher. Buy it for less than the silver inside it is already worth.
That’s Benjamin Graham applied to junk silver. And today I found one of the most extreme examples I’ve ever seen. Silver is trading at approximately $69.76 an ounce as I write this. I found an eBay seller offering lots of 90% U.S. silver for $123.41 per lot. The silver contained in each lot has a current melt value of approximately $249.39!
Do the math. The price is $123.41, the melt value is $249.39, and the savings is $125.98. That works out to a discount of approximately 50.5% below melt. You are effectively buying silver at about $34.52 an ounce while silver itself is trading at $69.76. That is not a normal bargain.
I bought 19 lots. My total cost was $2,344.79, with free shipping. At today’s silver price, the metal represented by that order has an estimated melt value of approximately $4,738. If the order arrives exactly as advertised and authenticates, I’ve purchased almost $4,738 worth of silver for $2,344.79. That’s roughly $2,394 of margin of safety on day one.
Benjamin Graham made a career out of buying assets for less than their intrinsic value. His famous net-net strategy involved finding companies whose market capitalization was sometimes lower than the value of the cash and other liquid assets sitting on their balance sheets. In effect, Graham was looking for opportunities to buy $1 worth of readily identifiable assets for 50 or 60 cents. You didn’t need everything to go perfectly. The purchase price itself created the margin of safety.
That’s exactly what I’m trying to do with physical silver. Benjamin Graham bought companies for less than the cash on their books. I buy silver for less than the metal inside the coin. The silver is the asset. The coin is merely the wrapper. And if I can buy that underlying asset cheaply enough, I don’t have to be perfectly right about where silver trades next month.
Most silver investors spend their time trying to predict the future price. Will silver hit $75, $100 or $150? Those are interesting questions, but there is another number I can control much more easily: my purchase price. If silver is worth $100 and I buy it for $95, I’ve immediately created a 5% margin of safety. Buy it for $90 and that cushion becomes 10%.
I’ve repeatedly purchased physical silver at 10%, 15% and even 20% and now 50% below melt. Those discounts matter enormously because physical silver does not necessarily sell at published spot. There is a bid-ask spread, dealers need to make money, certain forms of silver are more desirable than others, and shipping or transaction costs can enter the equation. If I buy silver 10% under melt and ultimately have to sell it 5% under melt, I’ve already overcome the liquidation discount through my purchase price.
That’s why even 5% below melt interests me. It may not sound dramatic, but it immediately reduces your volatility risk. At 50% below melt, however, we are talking about something completely different. Silver could fall substantially and the underlying metal value would still remain well above my cost. That is what a real margin of safety looks like.
Professional bullion dealers generally know what they’ve got. Their prices track spot closely, their margins are calculated carefully, and obvious arbitrage opportunities don’t stay available for long. eBay is a much less efficient market. You’ve got estate sellers, people liquidating inherited collections, part-time dealers, sellers using old prices, incorrect descriptions, misunderstood silver percentages and plain old bad arithmetic.
And sometimes simple mistakes. I once bought a batch of unusual 40% silver quarters that had been broken out of special sets. The seller appeared to have valued them using the wrong silver assumption, but I wanted them anyway because even at the lower assumed silver content they were an acceptable deal. I paid $149 for the batch. When the package arrived, the coins were exactly what the description said they were.
Once I ordered 200 40% silver Kennedy half dollars and received 400. I’ve encountered double shipments and miscounts several times over the years. That’s why every precious-metals delivery gets counted, weighed, measured and authenticated. Sometimes the mistake is not yours. And if you’re actually paying attention, those mistakes can be worth real money.
There’s another reason eBay is different: buyer protection. I’m not wiring thousands of dollars to a stranger based on a classified advertisement. There is a written listing with a picture describing exactly what is being sold, the quantity is documented, the transaction is documented and the payment is documented. If the merchandise arrives materially different from what was advertised, eBay provides a buyer-protection and refund process.
So when I see a deal that appears almost impossibly cheap, I can test it. If the merchandise arrives as advertised, I’ve captured the pricing anomaly. If it doesn’t, I have a mechanism for getting my money back. That changes the entire risk-reward calculation. It turns “too good to be true” from something you automatically avoid into something you can investigate with limited transaction risk.
I also paid for this purchase using a 2X Capital One rewards card. My $2,344.79 purchase generated approximately 4,690 points, representing another $47+ of value at a conservative one-cent-per-point valuation. The rewards aren’t why I made the purchase, but they further reduce my effective cost. When you’re buying hard assets, every little reduction in basis matters.
This is why I’ve always loved the less fashionable forms of silver. War nickels remain one of my favorites. Certain Jefferson nickels struck during World War II contain 35% silver, and a war nickel contains roughly 78% as much silver as a 90% Roosevelt dime. Yet war nickels routinely sell at a substantially larger discount. The market simply doesn’t love the wrapper.
At $69.76 silver, the metal contained in a war nickel is worth roughly $3.90. I was buying them for around $1 each about 15 years ago. They were ignored, bulky and misunderstood. That’s exactly why I wanted them. I wasn’t buying a nickel; I was buying the silver embedded inside it at a discount.
The same principle applies to 40% Kennedy halves, 40% Eisenhower dollars and odd silver issues removed from mint and proof sets. People know what a traditional silver dime is. They often don’t immediately know the silver content of the strange stuff. That information gap creates opportunities. I like inefficient pricing because inefficient pricing is where margin of safety comes from.
There’s another useful signal buried inside these eBay deals. When silver is ignored or temporarily out of favor, bargains appear. Sellers aren’t watching every tick in spot, buyers aren’t calculating melt on every obscure coin, and nobody is frantically arbitraging every pricing discrepancy. The discounts sit there long enough for someone paying attention to find them.
Then silver catches fire. Almost overnight, the discounts disappear. Suddenly everybody knows how much silver is inside everything, listings get repriced and dealer bids rise. The same silver nobody wanted six months earlier starts commanding premiums. That disappearance of bargains tells me something important about where we are in the cycle.
That’s when I become much less interested in buying and much more interested in selling. If silver breaks $100 an ounce, my current plan is to sell a portion of my holdings. I’m not trying to identify the exact top, because I don’t need to. I’ve accumulated enough silver cheaply enough that selling into strength above $100 should produce a very satisfactory result.
This isn’t really about predicting silver. It’s about structuring the investment so you don’t have to predict silver perfectly. Buy at melt and you need the market to cooperate. Buy 10% below melt and you’ve created room for error. Buy 20% below melt and you’ve created a substantial cushion.
Buy around 50% below melt and you’ve bought yourself one hell of a margin of safety. That is Benjamin Graham with a scale and a coin tester. The philosophy is identical whether you’re buying a neglected company or a neglected pile of constitutional silver. The less you pay for the underlying value, the less precisely you need to predict the future. And I put that 50% off deal right below and he’s got multiple lots listed that you can purchase immediately!
