Defensive Buy

One of the underlying themes of The Walking Dead is an examination of what is essential for human survival vs. the extraneous and frivolous. Food, shelter, medicine, communications, transportation, heat, and water are the areas that make the cut, in addition to armaments. Ironically, entertainment is not on the list.

Economic cycles have boom and bust periods. During boom periods, people have money and can spend on non-essentials. However, during bust periods, money is much tighter, and discretionary income is forced to budget and choose the basics. Industrial sectors that are deemed essentials on a perennial basis are unlikely to suffer any kind of cyclic downturn, since they are staples that people need all the time.

Stocks in companies categorized in these essential sectors are considered to be defensive buys for portfolios, in the sense that their performance is independent of the prevailing economic climate. As they are tied to business cycles, defensive buys are also synonymously referred to as countercyclical stocks, vs. cyclical stocks, which normally only do well during bullish economic periods. The economic cycles, on average, have trended in each direction every two presidential elections, or roughly eight years, since the latter half of the 20th century.