I always warn my friends not to trust funds. When you buy shares of a fund, you don’t know what you are getting. There are too many stocks to get to know any of them. To me it is safer only to have six to eight stocks and know their behavior well. Some stocks crash in a recession while others hold steady like Coca-Cola. If you have a fund with 500 stocks, you might be fooled into thinking you are “safe.” But, when the market crashes and you lose 80% of value, I’ll be holding on to KO (coca-cola) stock which only loses around 25% in a bad crash. Coke holds its value when the market fizzles.
My basic ideas for investing include the concept that whatever you buy should hold its value during the worst of times including war, famine, drought, depression, unstable interest rates, etc. I like stocks that stay steady during a stock market crash. I also like stocks that deal with very basic products that people will always need. Here are some of my basic categories for investing.
Food & Water
Coca-Cola and Pepsi are the two best conglomorates for food and bottled water. In a bad water shortage or war, these two companies will survive well while others will perish. They also do well in stock market crashes.
Basic Products
Proctor & Gamble, Johnson & Johnson and other companies that deal with basic grocery store or drug store products seem pretty stable to me.
Basic Technology & War Technology
IBM, LMT (Lockheed Martin) and RTN (Raytheon) are companies that sell technology or weapons that the government needs in peace or war, but especially in war. You have to plan for war, especially these days when there will be wars and rumors of wars.
Banks
Banks sometimes have very low price/earnings ratios which is wonderful, especially if they offer good dividends. The danger is that banks can lose their value in a bad crash while the stocks that sell commodities basic to survival stay steady. Banking stocks also can fluctuate with interest rates which is a great way to make a quick profit if you play the market correctly.
Oil & Transportation
The problem with oil and transportation stocks is that in a crash, people use less oil and have less products to transport. Oil and railroad stocks can make you a nice profit, but owning too much can be a danger when the economy slows down.
Airlines & Auto
These two are very unstable, but have very low P/E ratios. Warren Buffet bought some Delta Airlines a few months ago and has gotten a 37% appreciation in such a short time. Warren pays attention to hundreds of stocks and is always ready to buy when he sees a bargain.
I put most of my money into the top four categories and put less into medical, innovative technology and other types of stocks as they are too unpredictable. I love the prospect of having a gain, but not if it involves too much risk. I put less than 10% of my money into volatile stocks as a safety precaution. But, with stable stocks, you can make good money if you profit from the small ups and downs in the market. If you can make a 4-8% profit on stocks with a short turnaround of a few days, weeks or months, that is a way to make a very nice profit at the end of the year if you play your cards right.
At the current time of December, 2016, I am selling, or have sold most of my bank stocks and bought more food oriented stocks as they went down in price and have become more affordable. The bank stocks went up as the public thinks that Trump being in office will enhance banks ability to make money. The public might just be right!