To The Moon

We have seen the market trying to make a recovery but it seems like it is still weak. Nvidia earnings has exceed what market forecast, but event like Jackson Hole and yields rise brought the market into a sell-offs.

In such uncertain times , especially in the face of market volatilty, having a well-defined defensive strategy is important to safeguard our investments and minimize potential losses.

A stock defensive strategy involves a combination of prudent planning, risk management, and a focus on long-term stability.

In this article, I will be sharing and exploring some key steps to formulate an effective defensive strategy that can weather the storm and protect our portfolio.

I will be sharing the stocks, ETFs that I will currently have or will be loading for my defensive strategy.

Step 1: Risk Assessment and Tolerance

The foundation of any successful defensive strategy lies in understanding your risk tolerance. Assessing your willingness and capacity to withstand fluctuations in the market is crucial. Factors like your age, financial goals, investment horizon, and previous experience play a significant role in determining how conservative or aggressive your defensive approach should be.

A younger investor might opt for a slightly riskier approach to capitalize on long-term growth, while someone approaching retirement might lean towards a more conservative stance.

Step 2: Diversification is Key

Diversification is often hailed as the cornerstone of a defensive strategy. Spreading your investments across different asset classes, industries, and geographic regions can mitigate risk by reducing the impact of poor performance in any one area.

Diversification serves as a safety net, ensuring that a single market event or sector downturn does not disproportionately affect your portfolio.

This strategy lessens the chances of losing a significant portion of your investments all at once.

This is how I have planned my portfolio

Here is how the stocks will be allocated in the US Stock Market

Healthcare Stocks : 40%, Tech Stocks : 15%, Retail Stocks : 30%, Growth Stocks : 15%

Step 3: Quality Over Quantity

In a defensive strategy, the emphasis is on quality investments over speculative ones. Look for companies with strong fundamentals, stable earnings, and a history of weathering market downturns.

Blue-chip stocks and companies with competitive advantages often demonstrate resilience during turbulent times. Investing in businesses that have a history of generating consistent dividends can provide a steady stream of income even when capital appreciation is uncertain.

One of the ETFs which have been resilient over this week is $Fidelity NASDAQ Composite Index ETF(ONEQ)$. This ETFs have many of the major Tech names.

These stocks have been resilient even in market uncertainty and volatile conditions : $Wal-Mart(WMT)$

Step 4: Incorporating Defensive Sectors

Certain sectors tend to perform relatively well during economic downturns. These defensive sectors include utilities, consumer staples (such as food and household products), healthcare, and essential services.

Including a portion of your portfolio in these sectors can provide a degree of stability, as their products and services remain in demand regardless of economic conditions.

This pharmaceutical stock have been resilient during the recent volatility : $Vertex Pharmaceuticals(VRTX)$

Step 5: Utilize Protective Instruments

Defensive strategies can also involve the use of protective instruments to mitigate risk. One such instrument is options contracts, such as put options, which provide the right to sell a stock at a specified price within a certain timeframe.

Put options can act as insurance against significant declines in the value of your holdings.

However, using options requires a solid understanding of how they work, it is better that you have a good understanding of how options works before using this as one of the step in the strategy.

P.S. I am still learning and have drab in some small options, so I will not share something I am not with much confidence.

Step 6: Stay Informed and Adaptable

Market conditions can change rapidly. Staying informed about economic indicators, geopolitical events, and industry trends is essential for making informed decisions.

Regularly reassess your portfolio and adjust your defensive strategy as needed. What works during a bull market might not be as effective in a bear market, so flexibility and adaptability are crucial.

This is very important now as we can see the earnings week, a company with good earnings result does not necessary have their share price go up.

There are other factors or events we should look out for.

Step 7: Maintain a Long-Term Perspective

A defensive strategy doesn't mean abandoning the potential for growth. It is about striking a balance between preserving capital and participating in market upswings. Patience is key.

Stick to your long-term investment goals and avoid making hasty decisions based on short-term market fluctuations. Over time, a well-executed defensive strategy can generate steady returns and protect your investments from substantial losses.

Summary

Crafting a stock defensive strategy is similar to building a financial fortress.

By understanding our risk tolerance, diversifying our holdings, focusing on quality investments, and incorporating protective measures, we can navigate through market volatility with greater confidence.

Do remember that no one strategy can completely eliminate risk, a well-thought-out defensive approach can provide the stability and resilience needed to weather various market conditions while working towards our financial objectives.

In order to enhance the effectiveness of our defensive strategy, we can also have part of the portfolio managed by professional hedge funds manager for better profits.

Appreciate if you could share your thoughts in the comment section if you would consider building a defensive strategy to safeguarding your investment amid market volatility.

@TigerStars @Daily_Discussion @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.