What is the primary characteristic of a defensive stock?

What is the primary characteristic of a defensive stock?

• A. High volatility and risk
• B. Stability during market downturns
• C. Rapid growth potential
• D. High dividend payouts

Answer: (B)

A defensive stock is characterized by its ability to remain relatively stable during market downturns. These stocks typically belong to industries that provide essential products or services, such as utilities, consumer staples, and healthcare. Because demand for these essentials does not fluctuate significantly with the economic cycle, defensive stocks tend to perform better when the overall market is experiencing volatility or a decline. This quality makes them attractive to investors seeking to protect their portfolios against economic downturns and reduce risk. While characteristics like high dividend payouts or low volatility may also be associated with defensive stocks, the defining feature is their stability in adverse market conditions. This stability is what investors often seek in times of uncertainty, making these stocks a preferred choice for risk-averse individuals.

A defensive stock is characterized by its ability to remain relatively stable during market downturns. These stocks typically belong to industries that provide essential products or services, such as utilities, consumer staples, and healthcare. Because demand for these essentials does not fluctuate significantly with the economic cycle, defensive stocks tend to perform better when the overall market is experiencing volatility or a decline. This quality makes them attractive to investors seeking to protect their portfolios against economic downturns and reduce risk.

While characteristics like high dividend payouts or low volatility may also be associated with defensive stocks, the defining feature is their stability in adverse market conditions. This stability is what investors often seek in times of uncertainty, making these stocks a preferred choice for risk-averse individuals.