Warren Buffet famously issued two rules for successful investing. Rule one: Don’t lose any money. Rule two: Don’t forget the first rule. This fund’s conservative portfolio reflects this timeless approach.

The S&P 500’s gains over the past two years might suggest that all is right with the world. The index racked up a gain of more than 26 percent in 2009 and an admirable return of 15 percent last year. But a brewing sovereign debt crisis in Europe and sputtering US economic growth have injected a dose of reality to the party.

Weaker-than-expected economic data and a downgrade of US credit has battered the index; the S&P 500 entered negative territory for 2011. In these times, many investors seek downside protection from a back-to-basics fund such as Nicholas Equity Income (NSEIX).

“We aren’t willing to pay high prices or speculate on Internet stocks,” Albert “Ab” Nicholas said. “We will not be the big winner in up markets but we will certainly hold better in down markets.”

This fund’s conservatism paid off during 2008, when the market punished funds of all stripes. Nicholas Equity Income declined by 23.6 percent, compared to a 37 percent loss for the S&P 500—a performance that put the fund in the top 2 percent of the Morningstar Mid-Cap Value category. The fund came roaring back in 2009 with a gain of 34.5 percent and went on to return 22 percent last year. This fund shines in the long haul; Nicholas Equity Income ranks in the top 2 percent of its category for the trailing five years.

The fund invests in dividend-paying value stocks that are often overlooked by the Street. Management adopts a buy-and-hold strategy reflected by the fund’s low turnover ratio of 26.4 percent. About three-quarters of the portfolio is dedicated to mid-, small-, and micro-cap companies, many of which have yet to garner the interest of Wall Street analysts.

Rocky Mountain Chocolate Factory (NSDQ: RMCF) is a Colorado-based confectioner and gourmet chocolate maker that primarily operates on a franchise model. The company and its franchisees continue to grapple with slackening consumer spending and a tight credit environment. Nevertheless, the company continues to execute on its expansion plans. In addition to more than 300 franchises in the US, Canada and the United Arab Emirates, the company has also expanded into the frozen yogurt business with its Aspen Leaf Yogurt (ALY) chain. Rocky Mountain aims to open 15 to 20 ALY stores in the next six to eight months.

Nicholas anticipates the US economy will experience modest growth for the next few years and that success in the markets will depend on savvy stock picking. But the market’s tumult has also reinforced the importance of collecting a dividend from reliable companies.

Nicholas Equity Income’s SEC yield came in at about 3.3 percent as of mid-July. But Nicholas said that the presence of several master limited partnerships—which are not reflected in the portfolio’s yield for accounting reasons—brings the fund’s actual yield to more than 4 percent.