Defensive Strategies - do they really work?

[mintywang]

Hi guys,

It has been recommended in several articles/websites i come across that when the market is oversold/into correction/bear conditions, we should be adopting defensive strategies and many of which recommend buying defensive sectors such as utilities, consumer staples etc. But when comparing their performance (using ETFs and some stocks from those sectors), they either go into a range or slide down together with the general market (albeit to a much lesser extend). Thus it doesn't seem to make sense to me as a swing trader (don't hold for more than a month) to adopt such a strategy, I would rather just sit on cash or short. But being still relatively new I would appreciate if anyone can advice if I am missing out on something here or misinterpreting this whole defensive strategy play because it doesn't make much sense to me.

Thanks,
MW

 

[malaguti]

Hi guys,

It has been recommended in several articles/websites i come across that when the market is oversold/into correction/bear conditions, we should be adopting defensive strategies and many of which recommend buying defensive sectors such as utilities, consumer staples etc. But when comparing their performance (using ETFs and some stocks from those sectors), they either go into a range or slide down together with the general market (albeit to a much lesser extend). Thus it doesn't seem to make sense to me as a swing trader (don't hold for more than a month) to adopt such a strategy, I would rather just sit on cash or short. But being still relatively new I would appreciate if anyone can advice if I am missing out on something here or misinterpreting this whole defensive strategy play because it doesn't make much sense to me.

Thanks,
MW

Its never worked for me..if conditions are bearish, I tend to short whatever I can.
For investment purposes, I have always found stocks breaking out of long term downtrends and they are not necessarily in defensive sectors.

 

[mintywang]

After posting this question, came across this article Don't Fall For False Security Of 'Defensive' Stocks - Forbes
that convinces me that those defensive strategies don't work at all unless market is in a minor correction but one wouldn't be able to tell if it is a correction or a bear market until it is too late.

Just to clarify, when u said " I have always found stocks breaking out of long term downtrends and they are not necessarily in defensive sectors", you're referring that's yr usual strategy regardless of market conditions right?

 

[malaguti]

After posting this question, came across this article Don't Fall For False Security Of 'Defensive' Stocks - Forbes
that convinces me that those defensive strategies don't work at all unless market is in a minor correction but one wouldn't be able to tell if it is a correction or a bear market until it is too late.

Just to clarify, when u said " I have always found stocks breaking out of long term downtrends and they are not necessarily in defensive sectors", you're referring that's yr usual strategy regardless of market conditions right?

That's correct, regardless of market conditions..however its not a strategy though. I might use it just as a filter for potentials.

 

[mintywang]

That's correct, regardless of market conditions..however its not a strategy though. I might use it just as a filter for potentials.

Thanks dude. Appreciate the reply

 

[NVP]

Hi guys,

It has been recommended in several articles/websites i come across that when the market is oversold/into correction/bear conditions, we should be adopting defensive strategies and many of which recommend buying defensive sectors such as utilities, consumer staples etc. But when comparing their performance (using ETFs and some stocks from those sectors), they either go into a range or slide down together with the general market (albeit to a much lesser extend). Thus it doesn't seem to make sense to me as a swing trader (don't hold for more than a month) to adopt such a strategy, I would rather just sit on cash or short. But being still relatively new I would appreciate if anyone can advice if I am missing out on something here or misinterpreting this whole defensive strategy play because it doesn't make much sense to me.

Thanks,
MW

hey dude..thats what defensives do ?..they are still paying dividends but with less capital exposure to losses ....but not Zero losses

if you are feeling unsafe in these circumstances go to cash

or better still short the trend down .....

N

 

[new_trader]

Hi guys,

It has been recommended in several articles/websites i come across that when the market is oversold/into correction/bear conditions, we should be adopting defensive strategies and many of which recommend buying defensive sectors such as utilities, consumer staples etc. But when comparing their performance (using ETFs and some stocks from those sectors), they either go into a range or slide down together with the general market (albeit to a much lesser extend). Thus it doesn't seem to make sense to me as a swing trader (don't hold for more than a month) to adopt such a strategy, I would rather just sit on cash or short. But being still relatively new I would appreciate if anyone can advice if I am missing out on something here or misinterpreting this whole defensive strategy play because it doesn't make much sense to me.

Thanks,
MW

For a defensive strategy to work you have to understand exactly what it is you are defending your Capital from. If you don’t know what that is then there is no point in applying a strategy.

 

[mintywang]

hey dude..thats what defensives do ?..they are still paying dividends but with less capital exposure to losses ....but not Zero losses

if you are feeling unsafe in these circumstances go to cash

or better still short the trend down .....

N

Hi NVP,

As a swing trader, I was looking to see what sectors i could still trade on the long side if the general market is undergoing a correction/bear. From what i read, many are saying buy stocks in defensive sectors when the market is tanking so I was thinking if I could look for long positions in that sector for swing trading. From looking at the charts, this doesn't seem like a good idea. In any case, it doesn''t seem like a good idea to buy and hold onto defensive stocks at all since the dividends they give out during that period doesn't make up its capital loss (this is assuming we buy when we realize market is turning) Also, as pointed out earlier, if the correction turns into a bear, then doesn't seem like any defensive stock can substain a bear market.

 

[NVP]

Hi NVP,

As a swing trader, I was looking to see what sectors i could still trade on the long side if the general market is undergoing a correction/bear. From what i read, many are saying buy stocks in defensive sectors when the market is tanking so I was thinking if I could look for long positions in that sector for swing trading. From looking at the charts, this doesn't seem like a good idea. In any case, it doesn''t seem like a good idea to buy and hold onto defensive stocks at all since the dividends they give out during that period doesn't make up its capital loss (this is assuming we buy when we realize market is turning) Also, as pointed out earlier, if the correction turns into a bear, then doesn't seem like any defensive stock can substain a bear market.

hey M

I would step back and review your whole trading strategy.....you seem to be blind to the Gorilla in the room if the market is falling...and trend traders will graciously fleece you in the process

N

 

[mintywang]

hey M

I would step back and review your whole trading strategy.....you seem to be blind to the Gorilla in the room if the market is falling...and trend traders will graciously fleece you in the process

N

Like i said, it doesn't make sense to do long in defensive stocks to me and neither does the buy&hold strategy makes sense either which is why it baffles me why people would recommend buying defensive stocks when the market is tanking. U're highly likely to be losing money despite the dividends as it can;t make up for your capital losses. Which is why i'm asking why people would recommend a non-working strategy?

 

[PetrS]

Hi NVP,

As a swing trader, I was looking to see what sectors i could still trade on the long side if the general market is undergoing a correction/bear. From what i read, many are saying buy stocks in defensive sectors when the market is tanking so I was thinking if I could look for long positions in that sector for swing trading. From looking at the charts, this doesn't seem like a good idea. In any case, it doesn''t seem like a good idea to buy and hold onto defensive stocks at all since the dividends they give out during that period doesn't make up its capital loss (this is assuming we buy when we realize market is turning) Also, as pointed out earlier, if the correction turns into a bear, then doesn't seem like any defensive stock can substain a bear market.

Did you ever tried pair trading?
Just open long and short position at the moment and you are protected against market fluctuations.
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Look at my site: http://stockpairtrader.com/EN/