How to Pick Conservative Stocks

For those who like investing the Warren buffet way (conservative), picking the right stock entails meticulous researching and analyzing a company you desire to invest in. This usually takes time and at time involves hiring a professional to help you out, but the result is a secure portfolio that can run for generations. As Warren buffet says “put all your eggs in one basket and focus”.

Indentify your preferred market

For conservative investors, it’s not about volatile and high rising stocks. It’s about how stable the stock is and assets over liabilities that a company holds. Most people get fooled into buying bloated stocks or investing in overpriced IPOs only to witness a reversal when the stock goes live. To pick conservative stocks, take your time or hire a professional to analyze the company’s past (at least 5-10 years). From this, you can easily tell where the company is headed. Investing in start-up companies is not considered conservative.

Dividends over stock price (future telling)

It goes without saying that to pick conservative stocks, dividends should be higher. Most investors only look at price and the possibility of it rising as opposed to the stock price compared to the average dividends that are issued per stock. Be wary of stocks that are highly priced whilst issuing share holders pennies for dividends. Remember that in investing, profits are made when a purchase is made not sold.

What is as solid as gold?

A common joke you will hear today about investing in Internet companies is “is it a .com boom or .com bomb?” Most Internet/ I.T business are not backed by solid assets and float on liquidity. A liquid company is a no go zone for a conservative investor for they are very susceptible to changes in economy. If you want to go for liquidity, try Forex trading. To pick a conservative stock, look for stocks that are deeply rooted in basic needs such as shelter (real estate, insurance) or manufacturing.

Private mutual funds

Read the title again and take note of the word ‘private’. If you have enough money or assets, you start a private mutual fund with other like minded conservative investors. Private mutual funds aren’t fully open to the public but can be are very profitable. In December 2009, Berkshire Hathaway class A shares went for $99,200 while retaining corporate earnings. This would never be allowed for normal mutual funds or in private investing.

Knowledge is the greatest asset

Do not invest in market for you assume it will be profitable. More than half of investors lose money due to lack of financial education. To be a successful conservative investor, educate yourself on what’s going on and seek counsels from those that have done it before. Attend investing seminars and read self help investing books.

Sources and recommend reading:

The Warren Buffets Way (1st & 2nd edition)

Guide to Investing – Robert Kiyosaki

BERKSHIRE HATHAWAY INC. – Comparative Rights and Relative Prices of Class A and B Stock (pdf)

BERKSHIRE HATHAWAY INC 2008 report