While the goal of any investment strategy is to increase your portfolio as much as possible it is also vital to protect your investments. This means finding and buying conservative stocks which will grow slower than the others but that can be safely left in that investment for a long time to continue to grow.
The first thing to remember is that no single stock is going to be as safe as a diverse portfolio. Any business no matter how secure can have financial difficulties or the market can change. This does not mean that you should not buy conservative stock it only means you still need to follow the most basic rules of investing if you want to be safe and diversify. Still, part of your diversification should be conservative stocks.
One good way to know that a stock is considered safe is to have someone put their money where the mouth is. If you look for a “margin lending approved securities list” you will find a list of stocks that banks are willing to lend money on. Even if you have no interest in borrowing this is valuable recommendation because the banks trust it will stay solid and could lose money if it does not.
Another important thing to look at is the size of the companies. The bigger the company the more likely it is to continue even if the earnings are not impressive. Businesses that are worth ten billion dollars and have little or no debt are a good place to start. Just be aware that an entire industry on decline will hit those who are the largest just as hard as the smallest they are just less likely to go out of business.
Next you want to look at the value of a stock. Overvalued stocks are not going to be a safe investment even if the companies continue to do well. For this reason you will want to compare the price of the stock to the book value of the company. If the value of the stock is worth more than one and a half time that of the company it is likely inflated and you’ll want to strongly consider something else.
Another sign that a company might be a bit to aggressive to be considered a safe choice is to look at their debt. If a company has more debt than assets which can be sold to pay for it they can not be considered a conservative investment even if they are a good investment.
Taking a few risks with your investments is not a bad idea but just as important is to have solid companies in your portfolio which will grow and improve over time but never put your investments at more than the minimum amount of risk.