Finding Safe Stocks

by David Jenyns on October 14, 2009

Is it safe to buy stock? All sorts of prudent and conservative institutions — colleges, pension funds, foundations, trust departments — invest in stocks.

There is, technically, greater risk in common stocks than in preferred stocks or bonds because the latter two have prior claims on the earnings and assets of the issuing company. The point is, some stocks are safer than others, and the value of all stocks may shift and vary and thereby alter temporarily their safety — the possibility of cashing them at the price paid — for the investor.

This in not to say that unlisted stocks or stocks carried on other exchanges are not safe. The Great Atlantic and Pacific Tea Company, Humble Oil, and Creole Petroleum are listed on the American Stock Exchange. Few insurance companies and no banks — both quite stable stock categories — are listed on the New York Stock Exchange.

Still and all, the new investor will be wise to confine his dealings to stocks that are relatively well-known and have a ready market. For out of the estimated 5,000 public, stock-issuing corporations in the United States there are, inescapably, some dogs.

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