It hasn't been a great start to 2014 for stock market investors with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) losing 4.8% so far this year. Weak data out of China and the US, a sell-off in the currencies of emerging markets, and hesitation about the upcoming domestic reporting season have all played their part.
In the face of market falls and investor nervousness, the benefits of owning quality, defensive blue chip and dividend-paying companies has been evident. Origin Energy Limited (ASX: ORG) and Westfield Group (ASX: WDC) have bucked the down trend gaining 0.4% and 1.8% respectively, while Woolworths Limited (ASX: WOW) has declined by just 0.5%.
While there are many reasons these three stocks have outperformed the wider market this year, their diversified stream of earnings, solid balance sheets, strong cash flows and maintainable dividends are certainly appealing characteristics for investors during times of uncertainty such as now.
Foolish takeaway
When the market rallies strongly it can be hard to outperform; even billionaire investor Warren Buffett has acknowledged that in a particularly strong market he is unlikely to keep up. However of critical importance is that when the market goes down, great investors like Buffett have positioned their portfolios to 'play defence' and rarely decline by as much as the market falls.
As the parable of the tortoise and the hare explains, when the race is long – slow and steady wins the race. Investing is a 'game' best played over decades as this allows for the wonderful effect of compound interest to work its magic. By building a solid, defensive portfolio of businesses purchased at reasonable prices, investors are best positioned to ride out the inevitable storms and grow their wealth over the long-term.
