Equity characteristics, volatility. Now, when equity investments are divided among more volatile and less volatile profiles, they're generally split into two major categories, cyclical and defensive. Now first, let's look at cyclical investments. Cyclical stocks or industries tend to be those that are significantly tied to the economy, and the fluctuations in the economy. And as a result, these stocks and industries tend to have a beta that's greater than one, meaning they are more volatile than the broad market. So these companies are more sensitive to the overall economic cycle and movements in the equity market. So when the economy is in a recession, the profits of a cyclical company tend to drop and so does its share price. On the other hand, when the economy is in great shape, when in expansion, the share price tends to go up with profit growth. Now, what sectors or industries are cyclical in nature? Well, from a broad sense, it's basic materials, consumer discretionary companies, financial services and real estate. The best example might be the automobile industry, which falls in the consumer discretionary sector. In a recession, an individual may not be willing

when his income is likely down, and that's gonna drag down a car manufacturer's revenues, and therefore you'll see a decline in share price. On the other hand, this individual will be more tempted to treat himself to a new car if his economic situation is improving, and we're seeing an expansion in economic activity. On the other end of the spectrum, we have defensive stock. In defensive stocks or industries are those that are relatively immune to fluctuations in the economy. These stocks tend to have a beta of less than one because they're less sensitive to the overall market and economy. So, a defensive or non-cyclical stock is a stock whose profit growth and therefore its price have a very low correlation to economic activity. No matter how the economy is doing, the revenues, the earnings, and the cash flows of the company remain generally stable, as does their share price. So which industries fall into the defensive area? Well, it's healthcare, it's consumer staples and utilities are the three major sectors, because after all, individuals will tend to not spend less money on healthcare and utilities or toothpaste, for example. Even when they're going through our recessionary period, they tend to keep the spending in those sectors relatively stable. Now, of course you'll find many companies that fall in between the defensive and cyclical categories, and they tend to ebb and flow with the overall economy but not as severely as cyclical companies do. You may hear these sectors call sensitive industries by many. And in general, the stocks in these industries have betas of around one, and some examples are communications, energy, industrials and technology.