Finance: What is Defensive Stock?

What is Defensive Stock? There are certain sectors that are considered essential services and products, no matter whether the economy is doing well or poorly. Among these are staples, such as food, medicine, electricity, and water. During Bear markets, stocks in these industries will perform steadily, since their businesses are not dependent on financial sentiment, and are thus categorized as Defensive Stocks.

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Transcript

00:19

money he invested or getting richer on the best investment

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results of that bunch come from the aggressive investors or

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offensive groups of stocks the ones that exist on a

00:31

hope and a prayer of massive growth They usually pay

00:34

no dividend that khun traded hundreds of times trailing earnings

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or more and they're expected to more than double earnings

00:41

every year for the next five years or more Offensive

00:44

that's How owners of them get when those stocks get

00:47

crushed in a bad market Yeah well the fed raises

00:51

rates Bomb goes off in an oil field The president

00:55

loses a high stakes arm wrestling match Something like that

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And all of a sudden the bull market is over

01:00

the masses air selling selling selling and well that hundred

01:03

times a dollar of earnings growth stock promising wifi enabled

01:08

fidget spinners trading at one hundred bucks a share atleast

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it wass last month Yeah well it crater celestine Half

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of that ouch Fifty bucks a share and still expensive

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and trading down So what about that tortoise to this

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company's hair The big dumb slow moving oil company How

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about them It grows revenues It like something totally unexciting

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like gdp plus a percent in a good year It

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won't double earnings for like thirty years or more but

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it has and will pay a six percent dividend more

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or less forever And if you think about it while

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skittish linoleum our favorite company like that trades at forty

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bucks a share and pays two dollars forty cents a

01:48

year in davy in a big bad ugly awful market

01:52

Well sure it probably goes down a bit Two bucks

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to thirty eight a share five bucks to thirty five

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maybe even a bit more But while nervous marble has

02:00

gone from one hundred to thirty down some seventy percent

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while skittish linoleum is gone from forty to thirty five

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in these bad two years of bear market itis down

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a few percent not too bad And meantime it's paying

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its two dollars forty cents a year dividend steady so

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you've gotten back four dollars and eighty cents in dividends

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so even down from forty to thirty five If you

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add back the dividend and you should know you're only

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down like twenty cents and we're going to forget about

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taxes here Big would compare that to nervous marble So

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yeah that's a defensive stock when the trades at low

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multiples of earnings and pays a big fat dividend and

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generally does well when the tide goes out and shows

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everyone else's you know not thing And so well there

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Yeah but every now and then it's Awfully nice to 00:02:47.788 --> [endTime] be the tortoise and not the hair