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Term Of The Day 1. Escheat The transfer of title of property or an estate to the state when an individual dies without a will and ... Learn More

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Defensive Stock
Filed Under Portfolio Management, Recession, Risk Management, Sector - Consumer Non-Cyclical, Stock Market Terminology

Definition of 'Defensive Stock'

A stock that provides a constant dividend and stable earnings regardless of the state of the overall stock market. This is not to be confused with a "defense stock", which refers to stock in companies which manufacture things like weapons, ammunition and fighter jets.

Investopedia explains 'Defensive Stock'

Defensive stocks remain stable during the various phases of the business cycle. During recessions they tend to perform better than the market; however, during an expansion phase it performs below the market. Betas of defensive stocks are less than one. To illustrate this phenomenon, consider a stock with a beta of 0.5. If the market is expected to drop 15%, and the existing risk-free rate is 3%, a defensive stock will only drop 9% (0.5*(-15%-3%)). On the other hand, if the market is expected to increase 15%, with a risk-free rate of 3%, a defensive stock will only increase 6% (0.5*(15%-3%)). The utility industry is an example of defensive stocks because during all phases of the business cycle, people need gas and electricity. Many active investors will invest in defensive stocks if a market downturn is expected. However, if the market is expected to prosper, active investors will often choose stocks with higher betas in an attempt to maximize return. Also known as a "non-cyclical stock" because it is not highly correlated with the business cycle.

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Electric Utilities Industry ETF Risk-Free Rate Of Return Business Cycle Defensive Investment Strategy Defensive Company Cyclical Industry Cyclical Stock Beta Defensive Buy Trading Rut

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1. 5 Popular Portfolio Types Learning how to build these portfolios will increase your investing confidence and give you financial control. 2. Beta: Know The Risk Beta says something about price risk, but how much does it say about fundamental risk factors? Find out here. 3. The Impact Of An Inverted Yield Curve Find out what happens when short-term interest rates exceed long-term rates. 4. Will A New Fund Manager Cost You? Learn how a change in leadership could mean more taxes for you. 5. Guard Your Portfolio With Defensive Stocks

Find out how these securities can protect you from a market bust. 6. Cyclical Versus Non-Cyclical Stocks Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks. 7. 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 ... 8. The Riskiest Investment Moves for Retirement That Could Pay Off Before incurring additional risks in your retirement portfolio, be sure to understand the alternatives and the consequences of your strategy. 9. Economic Indicators That Affect The U.S. Stock Market Macroeconomic factors like GDP, Inflation, and Retail Sales affect the value of your portfolio. Understanding these economic indicators is vital for every investor in the marketplace. 10. Portfolio Growth Strategies There are many ways to grow a portfolio, and the best approach for a given investor will depend upon various factors. comments powered by Disqus Follow Us: Marketplace Hot Definitions 1. Escheat The transfer of title of property or an estate to the state when an individual dies without a will and legal heirs. Escheat ensures that property always has a recognized owner, which would be the state or government if no other claimants to ownership exist. 2. Right Of Egress The legal right to exit or leave a property. Right of egress is usually used in conjunction with the right of ingress, which means the legal right to enter a property. The right of egress is most commonly found in real estate law. 3. Adjustable-Rate Mortgage (ARM) A type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month. The interest rate paid by the borrower will be based on a benchmark plus an additional spread, called an ARM margin. 4. Blanket Mortgage A mortgage which covers two or more pieces of real estate. The real estate is held as collateral on the mortgage, but the individual pieces of the real estate may be sold without retiring the entire mortgage. 5. Gazump The practice of raising the price of a previously agreed-upon real estate transaction. A gazump refers to a situation where a seller and buyer of a piece of real estate (such as a parcel of land or a house) have in place a verbal agreement regarding price, but where the price is suddenly raised shortly before or at the signing. 6. Defective Title A piece of property or asset that has a publicly-recorded encumbrance, such as a lien, mortgage or judgment. Because other parties can lay claim to the property or asset, the title cannot be legally transferred to another party. For example, a homeowner cannot sell a home if there is an outstanding tax lien on the property. Trading Center

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