Ellis Martin: I'm Ellis Martin, host of the Opportunity Show . Today again we're featuring the Silver Guru himself, David Morgan. Mr. Morgan is recognized around the globe as an expert on silver, gold, and other precious metals. His Web site is silver-investor.com . David, thanks for joining us again today.

Last time we spoke we talked about setting up a possible new business in this economy and that would be a coin business, as opposed to a precious metals scrap business. You thought that this might be a good time to do something like that. But I'd be afraid to get into a business that I didn't know anything about. Let's say I see this as a great business opportunity, do you just obtain a coin collection or make a deal with one of the mints? Do you acquire as much silver as you can and just hold onto it and sell it into the market as the prices rise? To do any business without any knowledge of what's involved is risky, don't you think?

David Morgan: Absolutely, and you're spot on. It's not as easy as it sounds. The first answer is that a coin dealer or bullion dealer are, in essence, the business. Some coin dealers don't do a lot with rare coins although some coin dealers specialize in that area. Basically a coin/bullion business is a warehousing business—whatever you have on your shelf that you sell you must replace immediately with no thought on the price. That sounds ridiculous, because you make a living by selling silver and gold, but the price that you make—your profit—is that day's price plus your premium. What you have to do is offset that either on a daily basis and make sure that, whatever the market does going up or going down, you always get the same markup. In other words, if it's 4 percent retail markup to you the dealer, you want to ensure you receive that, regardless of what the spot price of the metal is at the time of sale.

This is important to know, because some people begin the business with the thought that you outlined, thinking, “I'll just buy a bunch of metal and begin.” If you ended up buying your silver inventory at $14 and the price dropped to $10 and you had to sell it at the current price plus a markup, you'd be losing a lot of money. Therefore, people who start into the business need to have a clue on how to properly hedge. Some don't do it properly because they're too bullish and they're biased to the upside, and others are biased to the downside or whatever. If you actually do it right, you have a 1 for 1 correspondence. You have hedged exactly what you have in inventory. So that's step 1.

Step 2 is the other question you implied: someone walks in off the street and has a coin collection to sell. Some shops just simply won't do it and that's obviously a business transaction and you say, “That's not our business; we deal in bullion coins only. We don't do anything in the rare coin market; you're going to have to go somewhere else. I'll recommend John down the street.” That's one way. If the coins are “slabbed,” which means they've actually been graded by a professional numismatist who has given it a grade. That transaction is easy for almost any dealer, because the wholesale and retail prices are immediately available on the Internet.

So let's say a dealer is paying a thousand dollars for a slabbed one-ounce gold coin that the client brings in for possible sale. You say to the client, “Okay, I'll give you $850.00 for it,” and the client says, “Oh that's pretty good; I've called on the phone and the best I could get from anybody else was $800.00.” So you pay him eight fifty and now you can hold it or, most likely, you would sell it into the dealer network for the thousand dollars and you'd pocket the difference yourself. That's the easy side. If they're not graded and they come in, that's a little tougher because then you have to really know your coins.

Mr. Martin: You've got to have someone on staff who knows what they're doing if you don't. You have to be able to pay for that person, cover your overhead, and have the business from about week one to week four to be able to cover that overhead. Otherwise, there's no margin for profit at the onset, is there?

Mr. Morgan: That's true. I mean it's a business that you can start fairly easily and you don't have to carry a lot of inventory. But it depends what happens. Let's say you just start shopping on the Internet, which would be very cheap to do, and by some stroke of luck your first order is for a million dollars. Well, you don't have a million dollars, right? So obviously it's going to be a bit tough for you, because what you're going to have to do is lock in a price with somebody who trusts you at your word. You're brand new, though, so why would a wholesaler trust you at your word?

If you were lucky enough to get a wholesaler to lock in a price for you the dealer, then you'd have to get that check and make sure that it clears. If that check didn't clear, you've really got a problem, because now you owe the wholesaler the million bucks you locked in. Let's say the price of silver has gone up substantially in the time it takes to find out there are non-sufficient funds on that check. . . . So you can see where I'm going with this. The big dealers are big for a reason. These are people who have been established a long time. These guys are the type that can write a check for a million or two or three pretty easily and it's because of the power and the strength of their businesses.

On the other hand, some of these guys work off the Internet, from their homes, and I've got nothing against that—and some of them are fairly substantial as well. All I'm saying is that you kind of have to get a feel for these things and most of them just grow into it. Guys like Mike Maloney of goldsilver.com , who we spoke about on the last show: I don't know where Mike started exactly but I know that he's grown significantly from where he started and he can take very large orders at this time without batting an eye. I don't think that was the case when he got started. I'm not trying to scare anybody from getting into this industry at all, although I do not deal in bullion or coins, as most readers know. But it's an area that, in most cases, works out fairly easily, meaning you just kind of grow into it. You start off small, you take small orders, you get a reputation, and you acquire the knowledge necessary to hedge properly, learn how the wholesale market works, and realize what the dealer networks are like. You usually establish two or three people you basically keep doing business with over and over again on the wholesale side, and once those relationships are established, it's really not that tough a business as long as you run it correctly.

Mr. Martin: Let's talk about your Web site, silver-investor.com , and the multitude of resource that's available there whether you want to purchase gold and silver or other precious metals or obtain some thoughts and ideas on possible publicly-traded companies that are producing these metals. It's a subscription-based Web site and you've got quite a following. What's the procedure?

Mr. Morgan: Well it's a twofold Web site, basically. It's built for educating the general public so they can learn about the real economic picture, which I've been writing and speaking about for a very long time, and how the precious metals (especially silver) are required in today's financial landscape. Then there's a members-only portion, which is for people who are serious investors wanting to essentially make money in this sector by employing leverage through mining equities primarily. I talk about silver and gold, I talk about the macro picture in economics, and I also focus on mining companies from the top tier down. I love real metal and have advocated from the start that everybody start his or her precious metals portfolio with real metal, and I won't back down on that. I really think if you're going to be a gold or silver investor you should buy real gold and real silver and put it in your hands or get it in a location that's very handy for you. However, if you really quiz any of these bullion dealers closely, you'll recognize that even they have made most of their money in the paper silver market and the paper gold market, and what I mean by that specifically is by buying the right mining companies.

We had Silver Standard at CAN$0.65, and it topped out at $40.00. Now the price is above $20.00, and most of our early subscribers are still holding, having sold some on the way up. But you know 20 times on your money, even in ten years' timeframe, is still a very good compounded rate of return. So the point I'm making is if you really want to catch the people who were able to buy silver at under $5.00 an ounce and gold under the $300.00 level, the way to play catch up is to get into the market when it's quiet—like right now, when these prices are beaten up so badly. Although gold and silver are not selling for the same price as at the beginning of this market, some of the junior miners are! In other words, you basically are starting the race now all over again as far as I'm concerned. That means you can really make up a lot of leverage if you get into the right mining companies. Now again, I think you should have a balanced portfolio, which means you should balance it between the physical market and the equity market.

Mr. Martin: We've been speaking today again with David Morgan, and in conclusion I believe we've determined that the real potential profit with regard to investing in silver is silver paper itself or silver stocks at this time and perhaps for the long run. More on this in upcoming broadcasts I'm sure. David Morgan's Web site is silver-investor.com . David, thanks again for joining me today on the Opportunity Show . Find us on the web at theoppportunityshow.com .