Archive for November, 2008

Defensive Stocks Go Down Less, But They Still Go Down

November 28, 2008

Consumer Staples Index (XLP) Vs. S&P 500 During Bear Market of 2008

As surely as day follows night, in a bear market environment, you will repeatedly hear the clarion call to “get defensive,” or to buy “consumer staples”.

Ignore this call, individual investor, as it is merely a b-school trope that all the talking heads like to trot out in tough times to justify what they’re doing by investing other people’s money in the first place.

The basic premise of getting defensive is that in an uncertain economy, consumers will continue to spend on items and services that they can’t live without, like healthcare and food.  Fine, we agree…but here’s the problem:  If things are bad, the stocks of those staple and healthcare providers will decline right alongside everything else when people are pulling their money out of the market.