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In: Finance

Of what strategic use are the terms "defensive" and "aggressive" when applied to individual stocks or...

Of what strategic use are the terms "defensive" and "aggressive" when applied to individual stocks or portfolios?

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Expert Solution

Defensive stocks are the stocks which are not sensitive to fluctuations in the market conditions in comparison to market portfolio. These stocks have a beta of less than 1.00. This means that these stocks are less risky. The lower beta indicates that risk involved in the security is less. These kinds of stocks attract the customers which are risk averse and prefer low risk with average return. Thus categorizing the stock as defensive help the investors who are risk averse to invest in the stock without further analyses the degree of risk

On the other hand aggressive stocks are sensitive to market rate fluctuations and value of stock is dynamic as per the conditions prevailing in the market. When the market conditions are favorable, the stock provides good return and when the conditions are unfavorable, it may prove to be contract of loss. Thus this kind of stock is beneficial for risk lover investors who are ready to undertake high degree of risk with the hope of earning high profits.


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