How to become a conservative investor

When it comes to conservative investment, people will think of putting money on the largest, most stable, and most risk-averse companies and assets, so as to ensure the safety of the principal (if the invested capital also rises in value, so much the better). Although certain industries (such as utilities) are indeed defined as conservative, simply buying large, well-known companies cannot achieve the goal of a successful conservative investment approach. On the contrary, this view increases the confusion between conservative behavior and traditional behavior.


If understood and applied properly, conservative investment is not a low-risk, low-return strategy. Investors must understand two definitions in order to understand the appropriate way to make conservative investments.

  1. One Conservative investment It is the most likely way to maintain a person’s purchasing power of capital with the least risk.
  2. Conservative investment It is to understand what a conservative investment is, and then follow the specific course of action required to correctly determine whether a particular investment is indeed a conservative investment.

Many investors are hesitant when trying to invest conservatively. This is a blind assumption that by purchasing any securities that meet the criteria for conservative investment, they are actually conservative investors. In other words, such investors only focus on the first definition.

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Such views are limited and expensive. A successful conservative investment method not only requires understanding what a conservative investment is, but more importantly, it needs to adopt the correct method to determine what is truly qualified as a conservative investment.

Characteristics of conservative investment

If according to the first definition, investors already know what conservative investment is, they need to know which characteristics define conservative investment. This is where the second definition comes into play. Investors can use three categories to determine conservative investments.

  • Safety factor
    Obviously, any conservative investment should be able to withstand market storms better than other investments. In order to do this, certain characteristics must be highlighted. First of all, companies should have lower production costs. The main advantage of being a low-cost producer is that when the industry suffers a bad year, there are still opportunities to generate profits or report smaller net losses. Second, companies should have a strong research and marketing department. A company that cannot keep up with market changes and trends is doomed to fail in the long run. Finally, managers should have financial skills. In doing so, it will be proficient in things such as cost per unit of production, maximizing return on investment capital, and other basic elements of business success.
  • Human factor
    For conservative investments, this is a self-evident qualification. But please note that good people can only benefit after the company shows signs of the above-mentioned qualities. Please pay attention to Warren Buffett’s advice: “When a management team with a reputation for brilliance handles a company known for its poor economic conditions, the reputation of the company will be intact.” A small company can be in one place. Two very talented people succeeded afterwards. But as the company grows, if the company is to succeed and maintain conservative investments, it must consider the people of the entire organization.
  • Business characteristics
    This third quality requires investors to do more work, but it is worth the effort. Here, the goal is to determine which strengths (or weaknesses) may prevent business growth and make more profits, Although the first two conditions are met. An important thing to consider is the competitive landscape of the industry; the presence of many competitors or the relative ease of entry of new competitors will affect the best companies. The possibility of over-regulation may also change the rules of the game.
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Even if a company meets the obvious conditions for conservative investment, you should always remember to consider the third condition.

Losers and passers

Typical examples of companies that passed the test include names such as Coca-Cola (KO), Wal-Mart (WMT), and Johnson & Johnson (JNJ). These companies have demonstrated the advantages of their franchise time and time again. More importantly, these companies may continue to have very favorable future prospects. Coca-Cola basically competes with Pepsi, no one else. More importantly, entrepreneurs are unlikely to sit in the garage and consider creating the next great soft drink company.

In addition to Target, Wal-Mart’s existence and continued success should be a wake-up call for most other retailers. Remember the circuit city that once ranked second in the electronics store? It is now bankrupt, largely because of Wal-Mart. Of course, once a qualified company is identified, the stock price is only important in determining the value obtained.

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Bottom line

Conservative investment is not simply to identify large and well-known companies, but to go through a process to determine why a particular company meets the conditions for conservative investment. As you can see from the names of conservative investment companies above, being a conservative investor can bring some of the most reliable and substantial returns on the market.


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