Sunday, May 15, 2011

When Defensive Stocks Run...

defensive stocksOne of the first signs of a stock market correction (or worse) is when the leading stocks stop going up, and the defensive stocks start going up.

Here we have defensive stocks making their move while other more volatile sectors are struggling.

Managers who run mutual funds have the mandate to be fully invested. As the market moves up, the hot sectors and volatile stock names make huge gains and funds try to buy as much as possible. But when things take a turn for the worse, these volatile sectors and stocks will correct more than more boring stocks. The manager who must remain fully invested will sell the volatile companies and buy the boring, defensive companies.

Back from Reno! Big storm up the mountains, so came home a little earlier than planned. I wanted to play defensive and not risk the high-volatile driving in a foot of snow. Since this is Spring, sometimes these storms lead to worse traffic as folks aren't prepared.

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