"What stocks should I buy, son?"
A question like that from your mother can clarify your thinking quickly. When the stock market has gone to hell in a handbasket, you won't want to suggest she buy fliers, penny stocks, or other wish-me-luck stocks.
Instead you're going to consider the best investment possibilities in the market today. Perhaps a consumer goods company like Kraft (NYSE:KFT), which should perform well in up or down markets. Or maybe an agricultural stock like Monsanto (NYSE:MON); after all, demand for food -- and the fertilizer to grow it -- is never in short supply.
A stable of stable performers
The exact stock doesn't matter. You'll simply want solid, stable companies that hold minimum levels of risk. Come to think of it, why don't we invest in these basic kinds of stocks for our own portfolios all the time? These companies should form the bedrock of all of our portfolios.
Procter & Gamble (NYSE:PG) makes a bevy of consumer goods that maintain high levels of name recognition and customer satisfaction alike. Clorox (NYSE:CLX) might be another such company. Even in the dread financial markets, not every bank is the next Washington Mutual. Wells Fargo (NYSE:WFC) is generally considered a conservatively run bank, which was one of the reasons it was able to beat out Citigroup (NYSE:C) to win the bidding battle for Wachovia's assets. It's even received the imprimatur of Warren Buffett.
I'm generally a long-term investor, buying stocks I intend to own for years and years. I try to buy good stocks going in, so that when the markets rumble, grumble, and collapse -- as they've done lately -- I don't have to think too hard about them.
What would Mom say?
When someone recently asked me what stocks to buy, I talked about ones I already owned. Those stocks meet my Mom test, even if no one else likes them. By keeping things simple, I follow the same approach Warren Buffett uses when composing his annual letter to Berkshire Hathaway (NYSE:BRK-B) shareholders: "... I pretend that I’m talking to my sisters. I have no trouble picturing them: Though highly intelligent, they are not experts in accounting or finance."
I think that's an exercise all investors ought to be taking now: choosing stocks for our own portfolios as if we were picking them for Mom -- or Buffett's sisters. Specifically:
- Review your current portfolio.
- Watch out for stocks that exhibit too much risk.
- Eject stocks that don't meet the current need for safety, and replace them with companies that do meet those needs.
- Emerge with a portfolio worthy of your mom's approval.
It's possible we'll see Dow 5,000 before we see 15,000, but that's no reason to abandon the market completely. In fact, it's time to begin eyeing stocks more closely than ever. More importantly, we should be eyeing the stocks we already own, to make sure they're the best ones we should be holding now. It's a particularly Foolish way to make Mom proud.
