Is JPMorgan Chase a Good Stock for Beginning Investors?

By Markets Fool.com

Chase Tower in Phoenix, Arizona. Image source: iStock/Thinkstock.

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Beginning investors should wade carefully into stocks, picking ones that minimize the risk of capital loss while at the same time offering a reasonable opportunity for future gains. One bank stock that meets this criteria is JPMorgan Chase (NYSE: JPM).

Why JPMorgan Chase is good for beginning investors

With $2.5 trillion worth of assets on its balance sheet, JPMorgan Chase is the biggest bank in America. This gives it the resources needed to stay on the cutting edge of the financial services industry, which is under assault right now from financial technology companies.

JPMorgan Chase's heft also offers economies of scale -- the bigger a company is, the easier it is to operate efficiently. In the third quarter of this year, JPMorgan Chase's operating expenses consumed 59% of its net revenue. Most other banks tend to spend well over 60% of their revenue operating their businesses.

Thanks in part to its size, moreover, JPMorgan Chase's stock is highly liquid. An average of 13.5 million of its shares have traded hands each day over the past three months. If you were to buy shares of the New York-based bank, you can thus rest assured that you won't have any problem subsequently unloading them.

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JPMorgan Chase is one of the most stable banks in the United States, too. Its performance through the financial crisis confirmed this. While hundreds of banks failed in the downturn, and countless others would have failed but for the government's assistance, JPMorgan Chase was in such a strong position that it not only survived the crisis, but actually thrived because of it.

In 2008, the government went to the Jamie Dimon-led bank and asked for its help in rescuing Bear Stearns, the fifth largest stand-alone investment bank at the time. Later that same year, JPMorgan Chase stepped in to rescue Washington Mutual as well, taking the by-then failed savings and loan institution off the FDIC's hands.

Finally, though not unrelated to the first four points, JPMorgan Chase is very capably run. Its CEO, Dimon, may be the finest banker of this generation. And you needn't take my word for it. Warren Buffett has repeatedly expressed admiration for Dimon, calling the bank CEO's latest interview"off the charts." Not coincidentally, one of Buffett's lieutenants at Berkshire Hathaway recently joined the JPMorgan Chase board.

JPMorgan Chase CEO Jamie Dimon. Image source: JPMorgan Chase.

Risks related to JPMorgan Chase stock

There are of course risks associated with JPMorgan Chase. Regulators have expressed in the past that they want universal banks (banks such as JPMorgan with both investment and commercial banking operations) to simplify their business models. One way regulators are attempting to accomplish this is to put added regulatory pressure on the nation's biggest banks, which could thereby depress their profits.

Along these same lines, banks that have major Wall Street operations, as JPMorgan Chase does, face heightened risk from their trading activities. JPMorgan Chase learned this first hand in 2012, when a single trader in its London offices lost over $6 billion by making a wrong-way bet on derivatives tied to the health of American corporations.

That said, Dimon is reputed to be obsessive about risk, and, at least in my opinion, there's every reason to believe that the bank's mistake four years ago won't be repeated anytime soon. This means that the primary driver of JPMorgan's earnings going forward will be higher interest rates, which are bound to materialize at some point.

In short, if you're looking for a good bank stock to buy as a beginning investor, you could do a whole lot worse than starting at the top with JPMorgan Chase.

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John Maxfield has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.