Hey, everybody’s got to eat! And everybody gets sick once in a while and needs healthcare services. On the other hand, not everyone can buy a car or house when they feel like it, nor can they afford to take a cruise, a luxury vacation, or buy a home theater.

These are examples of the commonsense issues behind defensive investing. And there are many more industries that fall into this category. On the Street, they’re known as the consumer non-cyclicals and they provide the foundation for diversifying one’s portfolio. At first consideration , putting a portion of your money into those companies whose businesses not only don’t suffer but may even increase their sales during bad times would seem prudent.

But that’s not necessarily the case.

Those companies tend to be very stable and non-volatile, to be sure, but they don’t typically produce the stronger returns that you can expect from those sectors that are affected by a down market. So, for all the time you own them that times are good, are you not actually diluting the average return from your portfolio?

On top of that, unless you are a certified wizard with precognition, should you decide to swap those stocks for the more volatile ones when the market turns around following its “correction,” you’re going to miss the forty percent of the growth that the typical market timer misses when the stocks return from their low point. And if you think I’m just being a maverick, keep in mind the proven rewards of learning to evaluate companies, not just being a nerd with the herd. With that in mind, listen to what Warren Buffett says about it.

s Investment Concepts