Defensive Buy

AAA

DEFINITION of 'Defensive Buy'

Securities or investments that are perceived as being lower risk by virtue of their lower exposure to economic cycles. While the term is generally used in connection with stocks that possess defensive characteristics, such as stable cash flows and lower volatility, it may also be used to refer to lower-risk securities such as government bonds and preferred shares. Defensive stocks may outperform their flashier counterparts like growth stocks during periods of economic uncertainty when equity markets display a declining trend, but will underperform during periods of economic expansion.

INVESTOPEDIA EXPLAINS 'Defensive Buy'

From an equity perspective, defensive buys are usually found in sectors that are immune to recessions and economic slowdowns. These sectors generally comprise suppliers of essential goods and services - such as pharmaceuticals, utilities and consumer staples - that consumers cannot forgo even during difficult economic times. Savvy investors with diversified portfolios will tend to overweight defensive stocks during slow or no growth periods, and underweight them during expansionary periods.

RELATED TERMS
  1. Cyclical Risk

    The risk of business cycles or other economic cycles adversely ...
  2. Underperform

    An analyst recommendation that means a stock is expected to do ...
  3. Defensive Investment Strategy

    A conservative method of portfolio allocation and management ...
  4. Buy Minus

    A type of order where a client instructs a broker to purchase ...
  5. Outperform

    An analyst recommendation meaning a stock is expected to do slightly ...
  6. Growth Stock

    Shares in a company whose earnings are expected to grow at an ...
Related Articles
  1. Active Trading

    Guard Your Portfolio With Defensive Stocks

    Find out how these securities can protect you from a market bust.
  2. Fundamental Analysis

    4 Characteristics Of Recession-Proof Companies

    Investors can find profitable companies - even in a recession. It's all about knowing where to look.
  3. Mutual Funds & ETFs

    Your Mutual Fund: It's Riskier Than You Think

    Fund managers often take on more risk than they should, putting business ahead of fund holders' interests.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Economics

    Playing Investment Defense

    Learn how to protect yourself from the potential risks that can impact a company's share price - and your investments.
  6. Economics

    Riding The Bear Into A Bull Market

    How can you get back into the market to avoid missing market recovery gains? Find out here.
  7. Investing

    Where do investors tend to put their money in a bear market?

    A bearish market is traditionally defined as a period of negative returns in the broader market to the magnitude of between 15-20% or more. During this type of market, most stocks see their share ...
  8. Investing

    What are defensive stocks?

    The term defensive stocks is synonymous to non-cyclical stocks, or companies whose business performance and sales are not highly correlated with the larger economic cycle. These companies are ...
  9. Bonds & Fixed Income

    What are the benefits and drawbacks of owning preferred stock and common stock?

    Owning a share of a company can be accomplished through the purchase of common or preferred stock, but there are benefits and drawbacks for each option.
  10. Investing Basics

    What is the simplest kind of company stock?

    Learn about the simplest type of stocks. Explore growth and dividend investing strategies and examples of companies whose shares are available for investment.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center