March 1, 2019

Are conservative stocks the smarter choice?

Many stock investors rely on conservative stocks - traditional or former state-owned companies. What has worked in the past will work tomorrow, that is the motto of this strategy. But are these stocks really better, or in other words, are they more profitable and safer?

Not necessarily. The former pride of the Swiss economy, the industrial group ABB, stupidly bought an asbestos company one day - and then was faced with a bunch of lawsuits. That almost cost ABB an arm and a leg. UBS also speculated dangerously close to the point of no return, and Swissair no longer exists. And in Japan, Toshiba and Nissan are in the headlines.

You can also lose money by investing in large companies. The value of their securities also fluctuates, in some cases significantly. However, the fact that they have a number of managers and are therefore more predictable speaks in favor of adding these companies to a portfolio. We classify these companies as either X-Large or XX-Large. There are simply fewer unpleasant surprises than with less companies.

Thus, the size of the stock, which represents the size of the company, is, by all means, a mark of quality. Nevertheless, one should not put all one's eggs in one seemingly trustworthy basket, but keep the portfolio broad.

A glance at the value rank shows whether the company is currently cheap compared to similar companies - a high rank is, therefore, an argument for buying the stock. A high security rank is also a good argument because that means that the company is well financed.

And yet nobody knows what the future holds. Even a company with multiple managers can also make bad decisions. Swissair was, rightly so, regarded as indestructible until the fatal "Hunter Strategy". Investors were well advised, at that time, to include other stocks in their portfolio and they still are today.

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