Stocks are generally known as high-risk investment instruments and are easily avoided when the economy is in a recession. Because stock prices generally move according to the current business cycle, so when the business cycle enters a recession, Many investors therefore need cash or choose to cut their losses in the stock market.
However, there are stocks that should be left alone or if necessary. Increase ownership even in a recession. One of them is stocks classified as defensive stocks. What is a defensive stock? Check out his comments below:
Defensive stock definitions
defensive stock or stock protection It is a stock that yields relatively consistent returns regardless of overall market and economic conditions. What profit means here can be in the form of dividends or capital.
according to linguistics Defense stocks or defensive stocks are stocks used for survival. Therefore, you should not construe them as securities issued by security and defense companies.
In general, company stocks fall into the following categories: defense stock If the income and profit of the business are relatively unchanged. This can happen because companies produce basic needs that communities still need regardless of the ongoing economic situation.
It is rare that these instruments are issued by mature companies and are classified as blue chips. This is because mature companies have experience dealing with crises. and gain the trust of investors in all economic conditions
Defense stocks are generally issued by companies that produce basic necessities, such as: consumables neither healthThe reason is that both during recession and boom People still need consumer goods such as instant noodles, toothpaste, shampoo, etc., and they still need to go to hospitals for treatment.
However, basically Shares are said to be receiving shares. If they continue to provide income regardless of economic conditions. So stocks in any category However, they can fall into this category if they meet these requirements.
So how to identify this investment instrument? First, you need to know in advance which companies produce basic necessities. Second, check the past 15 years of earnings, profits and dividends. Because in the last 15 years, Indonesia and the world have faced crises such as the financial crisis. of COVID-19 in 2008, etc. You can see that the company acted when the crisis occurred.
Thirdly, you can beta testing aka looking for a comparison between these stock price volatility versus IDX stock price volatility in general (IHSG). This means that the price of the instrument does not fluctuate easily regardless of the current economic conditions.
when choosing defensive stocks especially in times of crisis You should also consider which sectors will benefit from a crisis. However, an economic crisis can boomerang for one industry and turn into a fortune for another.
Advantages of support stocks
1. Low risk
The risk of investing in hedge stocks is relatively low compared to common stocks. As this investment instrument has low price volatility. Issued by a stable company and has been proven to survive the storms of crisis. Not to mention the fact that it is possible that companies that issue defense stocks will continue to pay dividends to investors even in the face of bad economic conditions.
2. Suitable for new investors
with low risk as described above make the defensive stocks suitable for beginner investors Or conservative investors. The reason is that by investing in this tool. They don’t have to worry about falling asset prices and so on. This is because dividends are still being paid and price growth is relatively stable.
3. Better performance during recession
during the recession Many stock investors switch to safer instruments, such as: government bondsMutual funds or even deposits As a result, the Composite Stock Index (IHSG) has a downward trend during this period.
On the other hand, support stocks look bright. Because the price is relatively stable because the business is stable, or even the price will rise because many investors consider it safer and more profitable than other stocks.
Defensive Stock Disadvantages
1. Low profit
high risk, high return, low risk, low return. Although it may be possible to pay dividends on a regular basis. But the benefits from companies that issue defensive stocks are also small. especially when it comes to capital increase Therefore, this instrument is more suitable for long-term investment than short-term.
2. Efficiency is less attractive when the economy is booming.
The opposite of a recession is a boom. which is when the economic conditions are good (Strong economic growth) or when the stock market is generally bullish. In such conditions, investing in defensive stocks will seem less attractive. This is because a small increase in price cannot be compared to any other stock price increase in the market.
2. Not suitable for aggressive traders and investors.
Traders are those who profit from short-term changes in stock prices. The lower level the trader is Aggressive investor Is an investor who invests in high-yielding stocks
These two capital market players have a high level of risk tolerance as they also have high profit targets. Therefore, it is not suitable for investing in support stocks due to its low return and risk.
When should you buy defensive stocks?
From the discussion above, it can be concluded that Defensive Stock is a type of stock that should be bought when it is near or imminent. economic recession Because it offers stable profits and lower risks. However, before buying This investment tool before the recession.You also need to consider several things such as:
- Is this stock really a support stock? Limited budget and recession This forces you to choose stocks carefully.
- Do economic conditions during a recession support or oppose the issuing industry? The reason is that recessions can be triggered by different factors and have different effects.
- Is your financial position enough to buy stocks? during the recession Meeting daily needs must be of the utmost importance before investing. you have to think carefully Because buying 1 lot of shares requires a fair amount of capital. And it takes 2-7 days to turn back into cash.