Don't Fret Your Safe Stocks
Editor's note: As noted last week, our team is taking some well-deserved time off. We'll be back next Friday, August 15 with our regular weekly update.
(For subscribers to the Stansberry Investor Suite, you'll still get this week's research below.)
In place of our usual fare today, we're going to share a lesson on investing safely... adapted from the July issue of our monthly newsletter The Quant Portfolio.
After all, many investors are focused on the AI mania and the "Magnificent Seven" tech stocks today. And that's fine. These stocks have provided investors with huge returns over the past few years.
But at Stansberry Research, we always remind investors to consider risk as well as return. You need to build a safe portfolio... not just one that grows as quickly as possible.
So in this essay, we discuss some key lessons for protecting your wealth... and explain how many of the greatest returns of the past two decades have been in the stocks of safe, boring old businesses.
Your seat belt can kill you.
In 2015, a 49-year-old was rear-ended on a highway in Iran. He died instantly. The curious thing was, he didn't hit his head on the dashboard... he wasn't suffocated by the airbag... he didn't even get whiplash.
Investigators think that at the time of the crash, his seat belt compressed critical arteries in his neck, cutting off blood flow to his heart.
That's an extreme example, of course. (So much so that it warranted a further examination by one medical journal.) Buckling up reportedly saves around 15,000 lives per year in the U.S. According to the National Highway Traffic Safety Administration, seat belts can reduce your risk of death by 45% to 60%.
But every now and then, the device that's supposed to prevent injury can do the opposite, resulting in everything from abrasions and bruising to bowel perforations and spine fractures.
The point here is that life is inherently risky. Even things that are designed to keep you safe can sometimes do the opposite.
That's just as true on Wall Street as it was on that highway in Iran...
There's no guarantee that your investments – no matter how "safe" they look – won't suddenly crash.
That's why, while many investors focus on returns, we at Stansberry Research obsess over risk.
Yes, you can capture big gains by chasing performance... for a while. But what happens when volatility unexpectedly throws a wrench in your investments?
If you haven't taken the steps to protect your wealth, well... all those returns could be wiped out in a flash.
As we'll explain, you need to focus on risk... on building safer, stronger portfolios that can survive market crashes and high volatility not just "for a while" but for a lifetime.
Of course, being invested in safer stocks while a sector like AI continues to soar to higher and higher valuations can make you feel like you're missing out.
In truth, safe stocks have lagged the market recently.
But that's no reason to abandon them...
Hot Stocks for the Short Term
Individual investors love a "hot stock."
Whether it's AI, the blockchain, the metaverse, dot-com companies, or all the way back to tulips and railroads, the story is the same.
Many folks seem to think that investing means hopping on the hottest trends of the day and riding those stocks to riches.
But experienced investors know that you need to own plenty of stocks with simpler stories... ones where the underlying company produces a "boring" product and sells it at a profit.
Take consumer staples, for instance. Over time, you can make a lot of money with simple, consumer-staples stocks – even if you're just buying them to counter risks in other parts of your portfolio.
Now, that doesn't mean consumer staples march up all the time. They're safer than high-flying growth stocks. But they're still stocks... and they come with risk.
Even the biggest, safest, most well-known companies have pullbacks in their share prices.
For instance, during the bear market of 2022, consumer-staples powerhouse Procter & Gamble (PG) fell around 23%.
During the pandemic shutdown, fast-food giant McDonald's (MCD) fell about 24%. (McDonald's is technically a consumer-discretionary stock. But the company is often seen as a safe, recession-resistant source of affordable food, so it's also considered a "staple.")
Even Church & Dwight (CHD), which makes boring old Arm & Hammer baking soda – a staple found in nearly every household – has had at least six double-digit drawdowns in the past 10 years.
But these short-term risks are minor compared with the long-term rewards. Just look at the returns of these safe stocks over the past two decades...
Over the past five years, though, safe stocks have been a drag.
In the chart below, we've used the consumer-staples sector as our proxy for safe stocks. As you can see, these stocks have returned about 29% over the past five years, while the broader S&P 500 Index has returned roughly 94%...
It's easy to want to forget your safe stocks and hop on the hottest trends of the day.
It's easy to believe that technology will outperform over the long term... and that things will just be volatile. In that sense, some investors may believe that diversifying into both hot tech stocks and safe stocks can protect them against volatility... It just may mean lower returns.
But that's not the case at all... As far as returns go, they won't cost you anything.
As a way of illustration, if you had invested in technology only – as measured by the Technology Select Sector SPDR Fund (XLK) – from 1999 through today, you'd have earned 9.2% per year.
That's a good return. And it should be. That period includes at least two monster bull markets in technology (the dot-com boom and today).
However, if you diversified 80% into tech and just 20% into the Consumer Staples Select Sector SPDR Fund (XLP), you'd have earned 9.3% per year. A slightly better return with less risk (as measured by portfolio volatility)...
If there was any period you'd think you should focus on just tech, it would've been this one. But still, diversification was rewarded.
And it would have cost you nothing in returns.
Now, this isn't a particular portfolio you should institute. We at Stansberry Research like to be diversified across more than just two sectors. This is simply to illustrate that even in a world driven by technology... classic, boring businesses can still make money and reward shareholders.
You shouldn't forget about them.
As the market powers ever higher, remember that the most successful investors are the ones that obsess over risk and focus on the long term... not the ones that chase hot trends hoping for a quick payday.
New Research in The Stansberry Investor Suite...
At Stansberry Research, we've spent years tracking what we call "trophy assets."
These are irreplaceable assets – the kind you simply can't recreate. Some of the best investment opportunities we've uncovered over the years have involved companies that own them.
This week, my colleague Mike DiBiase shares his research on one of our favorite trophy asset stocks in the world. The business model behind it is so powerful – and so capital efficient – that it has turned this company into a cash-generating machine.
And right now, it stands to benefit from an unprecedented shift coming out of Washington.
Earlier this year, President Donald Trump signed a series of executive orders aimed at unlocking trillions of dollars' worth of mineral wealth hidden beneath America's public lands.
His plan? To accelerate mining projects, open federal lands, and even establish a sovereign wealth fund that could turn these vast resources into a national treasure chest.
If successful, his plan could unleash a modern-day gold rush... and Mike believes this company is perfectly positioned to capitalize.
What makes this story so compelling is the nature of the business itself. Rather than spending billions of dollars digging holes in the ground and hoping to strike gold, this company figured out a better way to profit from precious metals without the headaches and risks of traditional mining.
And it's working. Its margins are massive... its costs are tiny... and it owns a stake in some of the most prized assets on Earth.
It's one of the smartest ways we know of to invest in America's untapped mineral riches, without getting your hands dirty.
Mike lays it all out in this week's issue, including how this company ranks in our Trophy Asset Monitor... why its model is so superior to many others in its industry... and how it could generate extraordinary returns as Trump's plan unfolds.
Stansberry Investor Suite subscribers can read the full report here.
If you don't already subscribe to The Stansberry Investor Suite – and want to learn more about our special package of research – click here.
Until next week,
Matt Weinschenk
Director of Research
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