Bear Market Advice
Friday, April 30th, 2010Bear Market Advice
Stocks can be classified as cyclical or defensive.
Cyclical stocks are those whose fortunes are tied to the strength of the economy. They perform well when the economy is strong, and will decline when the economy is weak.
Generally defensive stocks tend to offer more steady products and services. Business doesnt necessarily boom when the economy is strong, but on the flipside doesnt suffer too much when the economy is struggling.
Defensive stocks are seen as safer, and should perform better in a bear market. Even if they dont manage to increase in a bear market, they shouldnt decrease by as much as cyclical stocks during hard times.
Healthcare industry stocks are an example of defensive stocks to choose in a bear market.
Defensive stocks are defensive in nature because the demand for them tends to be strong no matter how the general economy is performing. This is because defensive stocks produce items considered necessities, and product demand should continue regardless of the economy.
For example, homes will always need electricity, so utilities companies tend to perform steadily over time; its not as if you will buy twice as much electricity when the economy is good!
Find out more with the Australian Stock Report.