What's a safe stock? If you have a short-term mindset, there's no such thing. Any stock, no matter the strength of the underlying business or its growth prospects, could tumble in price at any time. In a bear market, the baby often gets thrown out with the bathwater.
If you're a long-term investor, a safe stock is one that is highly unlikely to deliver a permanent loss of capital. That doesn't mean there won't be a temporary loss of capital. Even shares of the most stable, resilient companies can crash during times of market turbulence. It means that the underlying company is unlikely to suffer an irreversible event that permanently impairs its revenue or profit.
Because no one can predict the future, it can be difficult to tell whether a stock is truly safe. Breakthrough technologies and products can upend industries in unpredictable ways. What looks stable can become unstable almost overnight. The safest stock is one where the underlying company hasn't put all its eggs in one basket, has immense financial resources, is willing to adapt as the environment changes, and has a decades-long track record.
There aren't many companies that fit the bill. The best one, in my opinion, is Warren Buffett's Berkshire Hathaway (BRK.B -0.68%) (BRK.A -0.28%).
Betting on what won't change
Berkshire Hathaway is a collection of wholly owned businesses spanning a wide variety of industries, plus a gigantic investment portfolio. The company has a presence in the insurance, railroad, manufacturing, retail, media, real estate, and energy industries, and its stock portfolio includes massive stakes in leading companies like Apple, Coca-Cola, American Express, and Kraft Heinz.
Buffett has been building Berkshire for nearly 60 years. Not all of Buffett's deals and investments have worked out, but he's avoided the kind of bet-the-farm situations that have led to the downfall of countless companies. Buffett certainly isn't afraid to take risks -- you don't build a company worth nearly $700 billion by playing it safe. He's just very good at avoiding the kinds of risks that tend to blow up those who take them.
Berkshire has thrived for almost six decades under Buffett's leadership, through panics, financial crises, and stock market crashes. When euphoria is in the air, Berkshire doesn't lower its standards. If there are no deals worth doing, the company doesn't do any deals. When nearly everyone else is panicking, Berkshire takes advantage.
Berkshire's biggest bets have been on what won't change. People and companies will always need insurance. Railroads will likely remain the most cost-effective way to transport goods over long distances. These businesses aren't immune to disruption -- artificial intelligence could certainly alter the insurance industry, and self-driving electric trucks could put pressure on railroads. But the odds that Berkshire is seriously disrupted in either industry any time soon seems vanishingly small.
It would take a lot of different things going wrong all at once to do any real damage to Berkshire Hathaway. That's not impossible, but not likely either.
Avoiding disaster
Berkshire Hathaway stock is not going to 10x in five years, but it's also not going to permanently lose 90% of its value. It's always nice to find big winners, but avoiding disasters is equally important.
There's no telling what Berkshire stock, or any stock, will do in the short term. If there's a recession next year or if the bear market reasserts itself, Berkshire stock could very well slump right along with the rest of the stock market. But if your time horizon is measured in years or decades instead of months or quarters, investing in Berkshire Hathaway is one of the safest bets you can make.
