Having worked on Wall Street myself, I know that there are, in fact, some very fine folks smattered throughout. However, I also know that the people working on Wall Street have very specific jobs, and when it comes to equity strategists, most often that job is to make a case for stocks -- all the time.

That's why I got a good chuckle earlier this month when The Wall Street Journal ran an article that pitted the valuation work of Yale's Robert Shiller against Bank of America Merrill Lynch equity strategist David Bianco.

On the one hand, you've got Shiller, an academic whose work on the stock and housing markets revealed the massive dotcom and housing bubbles before they burst. His extensive dataset on stock-price history suggests that the market looks very pricey today.

On the other hand, you've got Bianco who, if I were to be unkind, I'd call a paid shill for Wall Street. He's suggesting that if you make a few "small" (they're really not small) tweaks to Shiller's work then suddenly stocks look cheap even after more than doubling from the recession bottom.

You may be able to tell who I side with. Of course, if the stock market is actually getting pricey, what should investors do to protect themselves?

Your best defense is a good defense
If you're worried about a pricey market, one of the first things that may pop into your mind is starting to play some stock market defense. But what exactly is a good defense?

For some perspective, I thought I'd turn back to the most recent stock market crash. If we say that the plummet began October 1 of 2007 and lasted until March 9 of 2009, then we're looking at a 56% loss for the S&P 500.

Now if you were to guess at which stocks shrugged off that free fall and held up well for investors during that raucous period, which direction might you point? Perhaps consumer staple stocks? Let's take a look.


Stock Performance 10/1/2007 to 3/9/2009

Procter & Gamble (38%)
Wal-Mart 7%
Coca-Cola (33%)
PepsiCo (38%)
Kraft (39%)
Colgate-Palmolive (23%)
Sysco (NYSE: SYY) (46%)
Average (30%)

Source: Capital IQ, a Standard & Poor's company.

Telecom is generally considered a "widows and orphans" category that tends to hold up well through tough times.


Stock Performance 10/1/2007 to 3/9/2009

AT&T (49%)
Telefonica (NYSE: TEF) (28%)
Verizon (42%)
America Movil (48%)
France Telecom (28%)
Nippon Telegraph & Telephone (31%)
Telecom Italia (64%)
Average (41%)

Source: Capital IQ, a Standard & Poor's company.

And of course we don't want to forget about utilities.


Stock Performance 10/1/2007 to 3/9/2009

Exelon (42%)
National Grid (NYSE: NGG) (28%)
Southern Company (27%)
Duke Energy (NYSE: DUK) (38%)
Public Service Enterprise Group (46%)
PG&E (26%)
Consolidated Edison (30%)
Average (34%)

Source: Capital IQ, a Standard & Poor's company.

Looking at the tables above, a fan of relative returns investing would be stoked -- after all, the average returns of all three groups bested the S&P 500's loss during the period.

Now I don't know about you, but I don't know that I would have been ready to dance around and declare victory with a 30% loss (assuming I switched entirely to consumer staples). It would've been better than the average, but it's still one heck of a hit.

Defensive? Really?
So where were investors actually seeing gains during the market's meltdown? As we can see from the consumer staple table, Wal-Mart managed a small gain and it was joined by Family Dollar and Ross Stores as investors bet on consumers trading down to lower-priced retailers. Not all that surprisingly, gold miners also caught investors' eyes -- Eldorado Gold (NYSE: EGO) was up 68% and Harmony Gold notched a 47% advance.

But many of the best performers during the downturn were actually growth stocks that simply continued to charge ahead despite the rest of the market crumbling around them. Netflix (Nasdaq: NFLX) posted a very impressive 81% gain, while Ebix (Nasdaq: EBIX) tacked on 13% and Green Mountain Coffee Roasters rose 8%. At the outset of the crash, these stocks had price-to-earnings ratios of 24, 21, and 77, respectively, so it's not as if they were particularly cheap either.

When I start researching an article, I generally have an idea of what the data I'm collecting will look like. Sometimes, though, when the data is collected and sitting in front of me, it unquestionably obliterates my preconceptions.

In digging up this set of data I had expected to see that investors who fled to the so-called "defensive" stocks before the crash would have been spared the worst of the drubbing. To be sure, they could have claimed that they beat the market, but considering the losses they still sustained, that'd be like celebrating the fact that a carjacker didn't also take your shoes.

So what should investors do instead? Continue doing exactly what they're always supposed to do: Find stocks that offer attractive expected returns and own them until they no longer offer attractive expected returns. As those opportunities become tougher to come by, then it's time to start moving to the only truly reliable defensive position, which is cash.

While my one-period study here is hardly conclusive of anything, it seems like investors trying to jump around to play "offense" or "defense" may succeed primarily in racking up lots of trading fees. But now that I think of it, the "offensive" and "defensive" guidance usually comes from Wall Street -- a primary beneficiary of trading volume. Go figure.

Now that you're not rushing to dump your entire portfolio into "defensive" stocks, why not check out the six stocks that Motley Fool co-founders David and Tom Gardner think you should be watching? You can get their special report absolutely free.

Sysco, AT&T, Wal-Mart, Exelon, and Coca-Cola are Motley Fool Inside Value picks. Ebix and Green Mountain are Rule Breakers picks. Netflix is a Stock Advisor selection. America Movil and Wal-Mart are Global Gains recommendations. France Telecom, Coca-Cola, PepsiCo, Procter & Gamble, Southern Company, Sysco, Wal-Mart, and National Grid are Income Investor selections. Alpha Newsletter Account, LLC has opened a short position on Green Mountain. Alpha Newsletter Account, LLC has bought puts on Netflix. Motley Fool Options has recommended a diagonal call position on PepsiCo. Motley Fool Options has recommended a diagonal call position on Wal-Mart. Motley Fool Options has recommended a covered strangle position on Exelon. Motley Fool Options has recommended a lurking gator position on Green Mountain. The Fool owns shares of PepsiCo, Telefonica, Wal-Mart, Bank of America, Coca-Cola, and Ebix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Wal-Mart, AT&T, and Sysco, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.