Investment professionals will usually define defensive stocks as those with steady and predictable earnings, competitive advantages that prevent rivals gaining a foothold in their sector, a strong balance sheet and a relatively stable share price. But in reality, what’s considered “defensive” is whatever held up best in the last market sell-off.
In behavioural science this is called recency bias. It causes nervous investors to rush for what they wish they had owned in the last bear market, regardless of whether those companies are well placed for the current one. If market declines are brief enough, the very belief that a company is defensive can help it resist price falls and bolster its defensive reputation.
But when bear markets drag on long enough, actual
