Strictly speaking, there is no such thing as a non-speculative stock. The moment you take a position in a stock you are speculating, sometimes without realizing it. Take some notes from this historical piece; much still rings true today.
From time to time the market returns for "safety" to such classic defensive securities as utilities, food, department stores, etc., when the economic weather is getting rough. They generally hold up better in a bad market, though sometimes only a shade better. For instance, on Sept. 27, 1960, while the Dow-Jones Industrial Average dropped 1.38 percent to close at 577.14, the Utility Average was doing only 0.16 per cent better by going down 1.22 percent to 92.48.
There is actually no investment that is decline-proof or risk-free. Real estate, for example, especially in the form of home ownership, is generally considered a safe investment, though investing in residential properties is not necessarily any safer than buying securities. There are at least half a dozen types of securities, such as banks, insurance companies, finance companies, etc., which should be just as, if not more, safe than real estate investment, if safe is taken to mean reducing investment risks.
Despite inevitable speculation, there is, for conservative-minded investors, still a choice between less and more speculative securities. Nobody is likely to dispute you in classifying an insurance stock as less speculative than, say, a space-age stock.
An insurance stock is the nearest to a "defensive" stock that I can think of. In the opinion of Mr. Shelby Cullom Davis, chairman of the Insurance Securities Committee of IBA (Investment Bankers Association of America), the securities of the insurance industry offer yield, growth or any combination of them in varying degrees.
They also offer a degree of stability in dividend return unmatched by securities of any other industry over the past century or more. This stability is based on the breadth of diversification of the primary business—insurance. And more importantly, perhaps, on the diversification of the invested assets of the industry, which are a cross section of the best investments in all other industries.
You will see what that means by just glancing at the enormous stock and bond portfolio of a single insurance firm, Continental Insurance. According to a Capital Gains Research Bureau report dated March 18, 1960, Continental's holdings of bonds totaled $448,864,935; preferred stocks, $35,621,067; common stocks, $858,865,527.
Among some of its bigger common stock holdings were AT&T, 375,900 shares; IBM,
146,384 shares; G.E. 274,800 shares; du Pont, 123,000 shares; Eastman Kodak, 137,900 shares; GM 249,500 shares; Corning Glass, 76,250 shares; National Steel, 147,500 shares; Gulf Oil, 536,782 shares; Shell Oil, 154,670 shares; Union Carbide, 172,000 shares; Standard Oil of N.J., 777,445 shares; U.S. Gypsum, 135,000 shares; Texaco, 294,576 shares; Amerada, 147,100 shares; First National City Bank of New York, 229,450 shares; Morgan Guaranty Trust Co., 117,900 shares; Hanover Bank, N.Y.,
And the beauty of Continental shares (listed on the New York Stock Exchange) was that they were selling at a considerable discount from their liquidating value (in March) of $80.09 per share.
Naturally, even such quality common stocks as those in Continental's portfolio have fluctuated in market values. They constitute about 65 percent of Continental's investment portfolio worth over $1 billion, with the remaining 35 percent in bonds, which provide substantial built-in stability.