What happened

Shares of precious metals miner First Majestic Silver (NYSE:AG) lost a quarter of their value at the open of trading on Feb. 2. Not too far behind was Endeavour Silver (NYSE:EXK), with a 20% drop. Hecla Mining's (NYSE:HL) loss was a swift 19%. And Coeur Mining (NYSE:CDE) and Gatos Silver (NYSE: GATO) each dropped 18%.

This list was cherry-picked; there were a lot more silver mining names in the red. However, the stocks here suffered some of the steepest losses in the first hour or so of trading today. They truly highlight the risks when emotion overtakes facts on Wall Street, as has happened far too often lately.

A group of people made to look like floor traders

Image source: Getty Images.

So what

Late last week a Reddit message board that had gained fame and attention for its short squeezes on GameStop and AMC Entertainment, among other stocks, started to talk up the idea of taking on silver. The price of silver and silver miners did move quickly higher as the readers of this forum turned their attention to the metal. In fact, over the weekend, even silver bullion retailers were hit with materially increased demand. This happened despite the fact that buying physical silver is a difficult way to play short-term price moves in the precious metal. It was, however, a very clear sign of excess. 

A look at the last five days of trading in First Majestic Silver, Endeavour Silver, Hecla Mining, Coeur Mining, and Gatos Silver is telling. The peak appears to have taken place in early trading on Feb. 1, with an early spike followed by cooling prices. The downward trend followed through into today's trading, when the stocks of silver miners fell sharply at the open. An hour into the trading day, the losses were lingering, though perhaps just a touch off their lows.

Silver and silver miners are not like a beleaguered retailer or a movie theater that can't fill seats. It is a broad and complex market around a material that gets used in everything from jewelry to technology products. In fact, one of the notable differences between silver and gold is that silver sees greater industrial demand. These simply aren't troubled companies with bad business outlooks. Quite the contrary, silver was up about 50% in 2020, and silver miners did fairly well overall, too. Moreover, given the somewhat opaque and large market for the metal, it isn't easy to get a good read on short positions. 

SLV Chart

SLV data by YCharts

In other words, this short squeeze looked problematic from the start, which is pretty much what more Reddit message board members are starting to say. And, not surprisingly, silver has cooled off, and so have silver mining stocks. It's important to remember that none of these price moves have been based on fundamentals. This was all hype and prayer. 

Now what

When Wall Street gets into a feeding frenzy, things often end badly. Silver's ups and downs were all driven by investor sentiment, and it appears to be ending in exactly the way you would expect: a swift retreat back to pre-frenzy prices. Long-term investors should probably stay away from silver and miners like First Majestic Silver, Endeavour Silver, Hecla Mining, Coeur Mining, and Gatos Silver until this crazy period is in the rearview mirror. It's just not worth playing this game now, and probably never was. What is worth doing, though, is thinking about what has happened and trying to learn from it.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.