Defensive Investing

Q What’s a “defensive” stock? — R. C., Jacksonville, North Carolina A It’s stock in a company whose performance isn’t very tied to the economy’s movements. For example, people might put off buying refrigerators or cars during a recession, but they’ll still buy groceries, socks, soap, gas, medicine, electricity and diapers. Food, tobacco, energy and pharmaceuticals are some defensive industries, seen as more stable than their “cyclical” counterparts, such as the homebuilding, steel, automobile and airline industries. You don’t have to avoid cyclical industries, but know that they can move sharply in relationship to the economy. Q Can I match the performance of Warren Buffett’s company, Berkshire Hathaway, by buying the same stocks it owns? — M., Midland, Michigan A Not at all. Many people mistakenly think of Warren Buffett’s company as a kind of mutual fund, since it does own stock in a bunch of companies, such as Apple, American Express and Coca-Cola. We might buy or sell the same stocks that Buffett or his money managers do, but we can’t do so at the same time, as their moves are only revealed via occasional required filings with the Securities and Exchange Commission. Also, Berkshire Hathaway is much more than a portfolio of stocks. It’s a conglomerate with strong focuses on insurance and energy, and it encompasses dozens of entire companies, such as Forest River, GEICO, See’s Candies, Fruit of the Loom, Benjamin Moore, Clayton Homes, Johns Manville, sneaker maker Brooks, boot maker Justin Brands, Dairy Queen, Pampered Chef and the BNSF railroad, among many others. You can’t duplicate those. Instead, you might just buy shares of Berkshire Hathaway (NYSE: BRK-B) itself. (The Motley Fool owns shares of and has recommended Berkshire Hathaway.) Want more information about stocks? Send us an email to foolnews@fool.com.