Biggest Doesn't Always Mean Best

After the 80s silver run-up, one company decided to be the place everyone went for silver trades. As I recall, they had a simple name (ABC Bullion?) and were out west (Phoenix?), but not on the left coast.

There are many ways to compete: convenience, hours, expertise, but they picked the one usually 5-8th on the list, price, which is also the easiest to compete with (see "gas wars").

It was pretty obvious. Just about all the silver brokers sold 100 oz Engels for 31-35¢ an oz over, maybe a couple cents more for the prettier JMs and Sunshine struck bars.

They were 30¢ over.

When the established dealers dropped their price to 30¢, ABC lowered theirs to 29¢. I don't remember if it ever got down to 25¢ in the two years or so they stayed in business.

Silver buyers/sellers tend to look at price first, like people who'll put $5 in wear on a car to save $2 on gas. ABC managed to take a lot of business from the competition.

Which means they need to buy product to sell. Easy, just pay more. So instead of the industry standard of 50¢ back, they may have gotten to 25¢ back.

Now there was a reason why brokers had a -50¢+32¢ spread. Years of business showed them they needed 82¢ to stay profitable. ABC may have cut this to -25¢/+25¢, or 50¢. If it takes 70¢ to break even, they were losing 20¢ on every oz (and the largest volume in the industry), instead of making 12¢.

They disappeared, with the usual rumors of bounced checks, padlocked offices, disconnected phones, etc.

A few months later, I got a letter from their bankruptcy court with an enticing offer. I could buy the business, which had a negative net worth of $4 million. I would be getting their client list of some 400,000 anxious silver buyers who had bought some $75 million in silver from them, plus I could save a fortune in taxes by writing off their losses against my own profits. (I may be off on any or all of those figues, I'm illustrating principles here).

Let's look at this:

1) For some ridiculous amount, I can buy a business that managed to lose 5.3% selling $75 million in silver. I could do that buying from Silvertowne and selling to APMEX--two invoices instead of 400,000 customers, and all I need is a phone. Value: zero.

2) I also get a 400,000 person mailing list of the tightest silver buyers on the planet, who have established they'll leave me if they can save $1 on 100 oz. Value: negative. Now if this was Littleton's list of people willing to pay way over retail, that has value.

3) The list is poison anyway, even not counting the buyers who are your competitors. How many on it drowned when the SS ABC sank? "Hi! I'm your new account executive, we bought out ABC... <click> "Hello? Hello?"