DEFENSIVE STOCKS THAT DON'T GO BOOM
by Mark Scheinbaum
American Reporter Correspondent
ORLANDO, Fla., Aug. 27, 2006 -- It's the time of year when some professional investors think about "defensive stocks" and we're not talking about tanks, planes, guns, and bombs.
Call it nervousness or just experience, but the with anniversaries of Sept. 11, 2001, the stock narket tanking of October 19, 1987 and the Crash of 1929, some money managers look at so-called "defensive issues" which do well in good times and bad but more so in bad economic times or times of market volatility.
The key is to choose stocks of quality which manufacture or distribute the kinds of necessities that most Americans will not do without or actually can not do without. Even when times get tough folks will try at all costs to keep their mortgage payments, pay their electric and utility bills, and in today's culture probably try to keep their cell phones from being shut off.
Similarly, when you buy shares of Clorox you are also being products such as Pine-Sol and making a bet that most consumers will continue to clean their floors and sinks and do laundry. When you buy Kellogg's, even with corn prices rising, you place a bet on kids begging mom for sugar cereals in the grocery store even if dad has been laid off, commissions are down, and the mutual fund market is retreating.
Defensive stock-picking requires a bit of sociology and lots of imagination. But it is one type of conservative investment move which the average investor can actually do on their own by observing their daily lifestyle or that of family, friends, coworkers and even programs on TV.
A few years ago I got into an argument about whether or not a "discretionary" product such as a Big Mac or a Whopper would do well in cautious economic times. doing a bit of research I found many analysts actually saying that when a working mom drives through the window at Mickey D's en route home and picks up a $9 bag of burgers and fries, she is actually cutting down her work time at home.
Cleaning, helping with homework, preparing for her own work day, often leaves mom with a trip to the salad bar at the supermarket or the fast food drive-thru rather than a home cooked meal preparation. For many lifestyles, fast food is like that electric bill, a defensive item.
Think about the things you buy year 'round and the items in your budget such as auto insurance, or cable TV which you would never want to give up. then check and see if they are represented in your stock portfolio or the mutual funds you purchase.