What Are Countercyclical Stocks?

Anti-cyclical stocks, which usually refer to stocks that appreciate during a downturn and depreciate during a boom.

Countercyclical stock

Anti-cyclical stocks, which usually refer to stocks that appreciate during a downturn and depreciate during a boom.

Such stocks are important to diversify your portfolio because they help you achieve a balanced profit in any type of market. The existence of countercyclical stocks is often related to specific economic reasons or the policies of certain companies. Generally, it is more difficult to become a counter-cyclical company, because it is difficult to find a business model that flourishes during a period when most people are short of money.

Chinese name

Countercyclical stock

Also known as

Countercyclical stock

Price characteristics

Moves in the opposite direction to the overall economic trend

Types of

stock

1. Some counter-cyclical stocks perform quite well during downtrends or periods of market downturn, because the market demand for the products or services provided by the issuing company will not change, the so-called "rigid demand".

For example, no matter how the stock market changes, demand for goods or medicines remains relatively stable. During the economic downturn, investing in food stocks will still likely yield some benefits, as their stability is almost guaranteed by constant demand. Due to the consistent stability exhibited by such stocks, they are also considered non-cyclical stocks, and it is of great benefit to apply them as a defensive strategy in countercyclical investments.

2. The operating layout of some companies performed better during the economic downturn.

During the economic downturn, some large temporary companies will usually achieve a significant improvement in business as large companies fire employees to save money or downsize. Conversely, during periods of economic expansion, temporary companies will typically lose business as large companies will hire more full-time workers. Other institutions that benefited during the recession include bankrupt companies and lawyers.

The risk of investing a lot of money in countercyclical stocks comes from the complexity of the stock market system. If it reveals that the market is being led in a serious downturn, this strategy seems to make investors unconsciously and wisely invest in countercyclical companies. Although there are some potential problems in this strategy, for example, economic growth is not always proportional to the growth of the stock market; a small increase in the market, especially during the economic downturn, may cause later The stock price plummeted. Because of this, when the entire market may show a downward trend, some areas may experience a surge of surges, and at the same time lead to poor performance of countercyclical stocks.

Another risk is that just because a company is a counter-cyclical company, it is speculated that it will perform better than other similar companies during the economic downturn. Investigating the company's past performance and any operating policies remains essential. If it is a poorly run company with a history of failure, similarly undervalued companies may outperform it.

Despite these risks, investing in countercyclical stocks is still a smart way to diversify your portfolio. In order to ensure that their investment can make a good profit in the market's upward and downward trends, investors will want to achieve a balanced layout of the investment portfolio, that is, regardless of market trends, they can make money. For a novice investor, choosing a counter-cyclical investment is a good defensive strategy as long as he conducts detailed investigations and studies and is prepared to deal with market risks.