defensive investing strategy: with Example? 

Defensive investing strategy with example for low risk

defensive investing strategy: with Example?

introduction 

There are different types of companies in the stock market in which the returns and risks of investing are quite different. One such type of companies Are called defensive companies or defensive stocks. In this blog we will learn what defensive stocks are and how we can create a good portfolio by investing in these stocks. Hello friends, welcome to bullish run on the blog. (defensive investing strategy: with Example?)

Best way to invest 

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Friends, the best way to invest in the stock market is to create a portfolio, that is, we should invest in at least 10 or more different companies. Also, we should keep in mind that we should not invest in many companies of the same industry. By doing this, our entire investment does not depend on any one company or any one industry and even if there is a loss in some companies or any problem in the industry, it does not have much effect on our portfolio. Friends, stock

Long term profit is made in the market only when we hold on to good companies for a very long time and in this long term, market crashes often occur in which most investors sell many shares of their portfolio due to fear of loss, due to which they are unable to hold the company's shares for a long time and are unable to make big returns. Friends, market crashes have been happening in the stock market and they will continue to happen and it is human behavior that we get scared of loss and to avoid it, we take action very quickly without thinking.

what are defensive stocks?

 For example, if the Nifty 50 index falls to 20 in a market crash, due to which the stocks in our portfolio also crash and our portfolio falls to 30, then we will be very scared that we may suffer a bigger loss and in such a situation we may sell all our shares, but if the Nifty 50 index crashes to 20 and the stocks in our portfolio crash only to 10 to 15 or the price of some stocks crashes to 2 or 5, then we will not be so scared and may feel good.

Even if it is so that while the stocks in the market have crashed by 20%, the price of our stocks has crashed by much less. Now the question is how we can find such stocks which give us good returns and also protect our portfolio from crashing in a market crash. Defensive companies or defensive stocks are such stocks which give good returns as well as Protects our portfolio from crashing

How to find these companies

Concept of beta 

For this we have to understand the concept of beta. Friends, beta is a kind of indicator which tells us the volatility of a company's share price in comparison to the stock market index. Friends, the volatility of share price means how fast the share price of a company is going up or down. The beta of the stock market index is considered to be one and we compare the beta of companies with this.

example 

If the beta of a company is 2, it means that the share price of that company will go up or down by twice the amount compared to the stock market index, i.e. if the stock market index changes by 1, then the share price of this company will change by 2, which means if the index goes up by 1, then the share price of the company will go up by 2 and if the index goes down by 1, then the share price of the company will go down by 2, i.e. in whichever direction the movement of the index takes place, the share price of the company will go down by 2.

The price movement will be in the same direction with double the value. If the beta of a company is 0.5, then if the index changes to 2, the share price of that company will change only by 1 and if the index crashes to 10, then the share price of that company will crash only by 5. Friends, companies whose beta is less than one are called defensive stocks because beta less than one means that the share price of these companies will move less than the stock market index, that is, in a stock market crash, their share price will crash less than the index and we can make our portfolio quite stable by adding defensive stocks to our portfolio. Also, such companies are among the most profitable companies in their industry and also give good dividends every year, which also gives us good income.

It happens friends, defensive companies are such companies whose products and services always have almost the same demand, due to which whether the country's economy is doing well or in recession, such companies keep making profits, due to which their share prices do not change much.

Types of defensive companies?

Generally, there are three types of companies in defensive companies: utilities companies, health care companies and consumer staples companies. Utilities companies include water, gas and electricity companies without which it is difficult to carry on daily life. Health care includes pharma companies, hospitals or medical device manufacturing companies and consumer staples include essential items used in daily life like soap Sams. Companies like food, beverage, tobacco or alcohol come under this category. Friends, whatever be the economic condition of the country or the financial condition of someone's house, hardly anyone stops using the products and services of these three types of companies and hence when recession comes, the profit of these companies is not affected much and hence their share prices also do not crash much. Friends, one thing is worth paying attention to

Do not keep it in your heart

 If the beta of all the companies in our portfolio is less than one, then the beta of our entire portfolio will also be less than one. In such a situation, our portfolio will not crash as much as the stock market crashes, but when the stock market goes up, our portfolio will not be able to go up as much, due to which we will not be able to take full advantage of the rising stock market. Therefore, investors tell us to keep both types of stocks to make a good portfolio, that is, if we are making a portfolio of 15 stocks, then we should invest in five to six defensive companies whose beta is less than one and the remaining nine to 10 in such companies.

Investment should be made in companies whose beta is more than one. Friends, apart from all these things, you should always keep one thing in mind that before looking at the beta of the company, we have to keep in mind that we are investing only in good companies because if we do not invest in good companies, then in a market crash, its share price can crash a lot and it is possible that its share price may never rise. Along with this, we also have to keep in mind that the companies in which we are investing are available to us at a cheap price and for all this, we have to analyze the companies properly. Analysis of companies

Conclusion 

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