Tuesday, 12 October 2021

What are the difference between cyclical stocks Vs Defensive stocks?

 Not all the people are having knowledge of stock market like investment guru? Even the investment guru also begin from one point and then learn more skills and strategy in the investment with time. All we can do is to start learning the right strategy and make efforts in becoming masters in investment.

Not all the investments by the investment gurus are always right. Sometime even the investment by the great investors also proved wrong. But having the strategy to mitigate the risk to the minimum and learn reducing the loss will help you overcome all kind of worst to worst conditions.

For being a successful investor, one need to learn different type of stocks and what strategy should be used while investing in different kind of stocks. For all in their investment trading journey, they should be aware of different kinds of shares and it is crucial to have the skills to identify the right type of stocks.

Depending on the risk taking nature and the necessity, the investors  tends to invest in either cyclical stocks or in the non cyclical stocks. Make sure, no investor should get too much attached to any kind of investment. Instead, they should make rational and logical decision only after the proper research. Never forget that the investment is also a kind of art requiring much patience.

While investing in the share of any company, the investor should be having all the information regarding the factors that can impact on the growth of the shares or the company. There are several factors both the macro factors and the micro factors that impacts on the growth of the company and thus the growth of the shares as well. The proper research on these factors that impact on the growth of the shares helps in increasing the chance of the right investment strategy.

Without proper research, stock market is also like a gambling with luck factor. If your luck is good, you will enjoy the growth in your purchased shares. Or in the case of bad luck, you will fail in your investment strategy. But in actual, stock trading is way different from the gambling. In gambling, the only factor implies is the luck factor. But in the stock marketing, the investment is done only after proper research related to the history of the performance of the company, economic condition of the market, type of stocks, risk appetite, and many more. Since, the investment in stock market requires much prior work and thus is more likely to be beneficial except in some of the cases with high risk factors.

In order to make right strategy and decision regarding the investment in particular stock, one should make proper research related to the company as well their economic condition, industry, economic condition of the market, and many more. In the case when you are not having much knowledge related to the trading industry, taking help from the reliable broker is also not a bad idea. There are several investment broker who can suggest you with the best stocks for the investment purpose based on your risk appetite.

You should either take suggestion from some top qualified broker or form others with good knowledge of stocks investment or based on your good knowledge in the investment sector. First identify your risk appetite and goals, and then buy shares as per your need.    

For being a good investor, one should understand the difference between different types of stocks. Here in this guide, we are going to discuss on difference between cyclical stocks and the defensive stocks.

In general, most of the investors, differentiate the cyclical stocks as the types of  stocks that performs well when the economic condition of the market is good. While the defensive stocks are those that performs well regardless of the market economic conditions. Other then these, there are several more differences also in between cyclical stocks and the defensive stocks.

Cyclical stocks?

Cyclical stocks are those stocks that performs in the accordance with the performance of the economy of the market. When the financial condition of the market enhances, the values of the cyclical stocks as increases and they tends to give better results. While the recession in the market also impacts on the values of the cyclical stocks making them deliver the negative returns.


Cyclical stocks generally includes the shares of the companies of luxury items, cars, etc. For example, when the market is having surplus money, they will spend it in buying cars, or other luxury items. And, thus the price of the cyclical stocks increase. But when the financial condition of the market degrades, the price of the stocks decrease as well.

Most of the cyclical stocks are generally having high Beta value means they are volatile in nature. These kind of stocks though having high risk but can deliver high returns as well. When the market doing ball run, these stock outperform but when the market is facing the bear phase, these stocks underperform.

Defensive stocks

These stocks are mainly associated with necessity companies like grains, beverages and thus generally are not impacted by the financial condition of the market. They are low risk and offers regular dividend income. These stocks are basically for protecting the investments. They are more safe thus are sometimes providing lesser returns in compare to cyclical stocks. Those who are interested in keeping their investment safe, should invest in defensive stock but should not expect for the extraordinary returns with these stocks.

Defensive stocks VS Defensive stocks


Defensive stocks

Cyclical stocks

Beta value

Less than 1

More than 1


Rely on financial condition of the market

Independent of the financial position of the market


More risk

Less risk

Volatile nature

More volatile

Non volatile


High returns with more risk of loss and are less stable

Stable but less returns


Automobile, luxury items

Beverages, utilities


The bottom line

So these are some major differences between the cyclical stocks and the defensive stocks!  


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