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Lessons From the Market's Defensive All-Stars

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When the markets hit bottom in 2008-2009, these stocks still made money. Let's see what we can learn from them now.

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Hockey fan or not, you'll appreciate the defense played by Tim Hortons (NYSE:THI).

Over the six months when the stock markets hit rock bottom in 2008-2009, just 41 of the 245 or so stocks in the S&P/TSX Composite Index (TSE:OSPTX) came through without losing money.

Tim Hortons, the doughnut chain named after a standout Toronto Maple Leafs defenseman, was in that group. Its 5.1% gain put it in the select company of more than a dozen gold miners, some tech companies, and a few - fewer than you might think - other blue-chip dividend stocks.

Let's get to know this group of stocks - the defensive all-star team - and see what we can learn from them about preparing for future stock-market upsets.

Screening for this exercise was performed by senior consultant Craig McGee of Morningstar Canada. He simply looked for stocks on all the major North American indexes that made money from the beginning of October 2008 through the end of March 2009.

The stock markets peaked in spring of 2008, weakened, and then started to plunge in early September. But it's the six months spanning the fourth quarter of 2008 and first quarter of 2009 that take us through to the nadir of the market crisis.

Blood and gore were everywhere during that period. The S&P/TSX Composite Index fell 24.3%, and that's with dividends included. The S&P 500 (INDEXSP:.INX) fell 30.5%, and the Dow Jones Industrial Average (INDEXDJX:.DJI) fell 28.6%.

All of these indexes rallied in 2009 and 2010, and after a pause in 2011, they gained ground again last year. Yet my sense in listening to individual investors is that some are still struggling to make back what they lost in the crash.

The sheer number of gold mining stocks on our all-star defensive roster suggests there is some benefit to having exposure to gold in chaotic times. The price of gold bullion rose about 4.5% from October 2008 through March 2009, so an exchange-traded fund tracking gold prices would have delivered some benefit. But gold miners, both large and small, did equally well or better.

Can't pick one gold stock from another? Then consider an ETF such as the iShares S&P/TSX Global Gold Index Fund (TSE:XGD), which holds Canadian and global gold producers. It was up nicely during the six months we're looking at here.

Before we proceed, you have to get something straight about the defensive all-stars. On a point-A-to-point-B basis, they made money through the worst of the stock market crash. But the volatility in between was fierce in many cases.

Take Barrick Gold (NYSE:ABX) as an example. It made 5.4% from October 1, 2008 through March 31, 2009, which was exemplary. But a closer look shows the stock was around $35 at the end of September, down to $26 in October, and then back above $37 at the end of March.

Even Tim Hortons took some hits during that stretch. It started near $30 and fell to almost $27 before popping back up to about $33 at the end of the first quarter of 2009. The defensive all-stars survived, but no one can say they were unscathed.

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No positions in stocks mentioned.
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