What is cyclical stocks?

You can`t win a football match if you`re not offensive, but at the same time you can lose if you are too offensive. You also have to think defensive, which mean you must have a strategy. Just like playing chess and many other games. You can`t succeed with only one tactic.

Who haven`t been too offensive when playing chess? You just saw how you could do it forward without thinking defense.

This is just how you need to think in the stock market too, but in the stock market we are talking about cyclical and non-cyclical stocks. You know that you shouldn`t have all your eggs in one basket.

stock-labels2015

(Companies that are in the housing, airline, and steel sectors are examples of cyclical stocks)

Your portfolio need to be balanced which means you must have a mix of both offensive and defensive stocks. A mix of small caps growth stocks and value stocks, which is diversified by size and industry. In addition; mix different stocks, cash, treasurys and bonds.

You cannot control the cycles of the economy, and it is vital to know how different companies and their industry are in relationship to the economy. That`s why it is important to know the fundamental difference between cyclical and non-cyclical stocks.

If you search for the non-cyclical companies you can better identify where it`s best to put your money when the economy, growth and the stock markets starts to decline. The difference between Cyclical and non-cyclical stocks is that cyclical stocks is more volatile, and move up and down with the cycle. Non-cyclical stocks show little movement relative to the cycle.

Non-cyclical stocks tend to outperform the market when the economy slows down. The defensive stocks experience profit regardless of economic gyrations because they produce goods and services we always need.

Stock Labels Defensive

(Non-cyclical stocks are in the food, beverage, drug and pet food industries)

This is companies that sell food, gas, power and water, because this is something people need no matter where the economy and the stock markets go. People spend the money they have on what is necessary, and that`s not luxury cars, but water, power and food.

When the economy turns sour you need to avoid stocks cyclical industries that follow the cycle. People can`t afford to buy luxury cars. They can`t afford to take the family to a fine dining for an expensive meal. Other cyclical industries are steel, travel and construction. They produce things we can live without when money is tight.

When the economy starts to decline, the cyclical stocks will be hit the hardest, and that`s why it is important to play defensive and look for non-cyclical stocks that produce things you can`t live without.

A great example is utilities which can help you to avoid losses while the cyclical stocks will suffer. In tough times there is not so much money for building projects, but people will still buy power, food, milk and water.

Keep in mind that utility companies grow conservatively and they are not going to skyrocket when the economy is increasing again. Pick the right companies with great dividends in the right industries in relationship to the shift in the cycle. It can help keep your money safe.

 


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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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