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When Considering Stocks, Remember We'll Always Need Toilet Paper

This is not about a new use for stock certificates, although some I've owned would qualify.

I want you to consider whether defensive stocks are appropriate for your portfolio.

A defensive stock is one that represents industry sectors that are not high growth or high tech, but rather those parts of our economy that provide essential products or services.

Toilet paper is an example, although I am not advocating investing in paper companies.

Utilities that provide basic power, water and/or sewer services are another example. Food and energy companies are also examples of defensive stocks.

Why would you want to invest in defensive stocks?

Defensive stocks tend to do better in tough economic times because demand does not drop as dramatically as it might for more discretionary items, such as electronics or vehicles.

Of course, when the economy begins growing, defensive stocks usually don't grow as fast as other sectors.

People don't buy substantially more food when the economy is booming. Their energy use may rise some, but usually not as fast as the rest of the market.

The tendency of defensive stocks to neither fall nor rise dramatically is why you should consider them for part of your portfolio.

They can provide a buffer from dramatic swings (up and down) in other parts of your portfolio.

Besides, if managed to corner the market in toilet paper, you would be in a position of some strength. (Imagine controlling the price of toilet paper.)

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