There's a tried-and-true maxim on Wall Street: Stocks fall a lot faster than they rise. There are myriad examples, and the sharp plunge of 1987 is just one.
The economy was growing at a nice clip, corporate profits were on the rise, and investors were pouring into the market. And then, "Black Friday" came on October 19, 1987, pushing the S&P 500 down more than 20% in a single day. The fact that stocks had risen 250% in the previous five years led to a great deal of complacency, as few potential land mines stood on the horizon.
Looking back, we still don't even know what caused the crash. Some think it was due to computer-driven trading programs that fed off each other in a cycle of negativity, or that maybe underlying derivatives had lost enough value to cause a cascading effect of unwinding contracts. Others simply suggest that the market was due for a breather and a mild sell-off turned into a panic-driven rush for the exits as they day wore on.
We'll never know.
Fast-forward to 2012, and the skies are again seemingly clear. In fact, we've just emerged from a risky phase for the global economy, and the economic backdrop holds few land mines in the near-term. But still waters run deep, and you have to always think about the risks of a seemingly benign market mood. So it's simply prudent to make sure that, at this phase in the market cycle, your portfolio also contains a handful of deeply defensive stocks that will more likely hold their own if the major indices slump badly.
Here are five stocks that have "bomb shelter"-like qualities...
Moody's Puts Puerto Rico on Downgrade to Junk Review Citing Very High Debt, Pension Obligations, Chronic Deficits; Exodus Underway | Mike Shedlock
Radical Capitalism: A remote Indonesian village runs its own telecommunications company. (From a laptop and a tree) | Nick Sorrentino
Open Letter to Obama and Congress From Internet Giants Calls For Reining In Government Surveillance | Nick Sorrentino
(An important interview) Saving the Net from the surveillance state (And Crony Media): Glenn Greenwald speaks up (Q&A) | Nick Sorrentino