Hey Wealth Building Family!
Picture this.
It’s Saturday night.
You’re sitting around the fire pit with a few good friends. Just “shooting the breeze.”
One of your friends announces she’s started dabbling in trading.
You think that’s pretty cool. It’s always good to expand your circle of investing-minded buddies.
And so you ask, “So what stocks are you in?”
“Oh, I have some NVDA, SOUN, MSFT. You know. Mostly ‘conservative’ stocks.”
WHAT?!
And so I said, “NVDA? SOUN? I don’t think I’d say those are conservative.”
“Yeah,” she said. “The Magnificent Seven. Those are conservative, aren’t they?”
“I wouldn’t say so,” I said.
“Well, I’m up on them,” was her definitive reply that ended the conversation.
So, what makes for a “conservative stock”?
In order for investors to understand the answer to this question, they need to disentangle two distinct concepts in their brains: direction and aggression.
Stocks go up; stocks go down. Many traders who trade momentum, particularly technical traders, pile on to the ones heading higher, and the ones heading lower… they drop them like a bar of soap in a prison documentary.
And so a lot of times we see the hot ones shoot up with massive fervor. And the cold ones down just the same.
A lot of people make money—and GOOD MONEY—riding those waves of upward momentum. And that’s not a bad thing. Nope. Not at all.
But, it’s not conservative.
Conservative, in the financial sense, means unlikely to lose money.
There are six criteria to look at to a stock as “conservative.” Let’s take a look…