investing in blue

8/3/2019 Investing in Blue

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INVESTING IN BLUE-CHIP STOCKS

What are Blue Chip Stocks?

The stocks of well-established companies, leading in their sector, with

consistent profit growth over a long period and steady dividend payment

are called "blue chip stocks". The term "blue chip" gets its name from

the game of poker where a blue chip has the highest value. Similarly, the

stocks of blue-chip companies are highly valued due to their consistent

financial soundness. A regular dividend is expected from blue-chip

stocks even in bad financial times in the stock market.

Blue chip stocks have a lot of prestige as an investment asset class. They

are perceived to be the best stock for long-term investment. Blue-chip

companies are the leaders in their sector, and are known for their sheer

size and reputation - in products, services and company governance.

Features of a Blue Chip Company

Here are some aspects of a blue-chip company: -

Leaders in their sectors, with significant competitive advantage.

Steady earnings over a long period of time.


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Large market capitalisation.

High public confidence due the quality of its products and services.

Ability to face both good and bad financial times, includingrecession.

Blue Chip Stocks Indices around the World

Blue chip stock indices include a number of selected blue-chip

companies. The indices provide cumulative data such as an indexnumber as well as some individual data on the included companies.

Stock market indices exist around the world, indicating top blue chip

companies in each sector in their respective countries. Companies are

included in a blue chip stock index based on the individual index's

criteria.

Not only do some of these indices help in making individual investment

decisions, but act as the "bellwether" of a nation's economy and an

indicator of the value of its leading companies.

On investing decisions and deciding which stock pay dividends

consistently, referring to the blue chip stock list in a blue chip stock

index can help in deciding which blue chip stock to buy.


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Some of the major blue chip stock market indices are: -

Dow Jones Industrial Average or Dow - The Dow Jones indexincludes 30 top blue chip stocks companies based in the United

States (US). Some of the blue chip companies listed in the Dow

are: -

o Wal-mart (Retail sector)o IBM (Computers and technology)o Intel (Semiconductors)o Coca Cola (Beverages)o Boeing (Aerospace)

Standard & Poor's (S& P) 500 - According to its website, S & P500 is "widely regarded as the best single gauge of the large cap

U.S. equities market...the index includes 500 leading companies in

leading industries of the U.S. economy, capturing 75% coverage of

U.S. equities." A subset of this list is the S&P 100, which includes

100 blue chip companies from this list.

Some of the top blue chip companies in S&P 500 are (July 2010):

o Exxon Mobil (Energy sector)


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o Apple Inc. (Information Technology)o Microsoft Corp (IT)o Procter & Gamble (Consumer & staples)o Johnson and Johnson (Healthcare)

Bombay Stock Exchange (BSE) Sensex - This index includes 30top Indian blue-chip companies from important sectors in India.

Some companies included are: -

o Reliance Industries Limited (Oil & Gas sector)o Infosys Technologies Limited (IT)o ICICI Bank (Finance)o NTPC (Power)o

HDFC (Finance)

Why Invest in Blue Chip Stocks

Here are some advantages of investing in blue chip stocks:

The main reason why blue chip shares are much sought after is dueto the perception of safety. Blue chip stocks are perceived to be

less risky than small caps stocks.


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The preference for quality among investors is another reason thatblue chip stocks are valued. High value blue chip stocks are said to

be worth possessing for long-term investment purposes.

The prospect of steady dividends, irrespective of marketconditions, is a factor of attraction in blue chip stock for investors.

They are a preferred choice for those seeking recession-proof

investment and are considered to be great dividend stocks.

A stock portfolio should consist of a mixed bag of investments -there should be diversity in assets. Instead of putting all eggs in

one basket, it is better to diversify and dedicate a percentage to

large-caps or blue chip stocks, and the rest to other asset classes.

This would create a balance between stability and risk in a stock

portfolio.

Buying Blue Chip Stocks

Blue chip stocks can be purchased by:

Utilising the services of a stockbroker and brokerage firms - someinvestment companies offer specialised blue chip stock portfolio

packages with emphasis on high dividend growth or alternatively

with priority on stability.


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Investing in a blue chip mutual fund offered by financial serviceproviders. This further reduces the element of risk as all

investment decisions are made by the fund manager.

Blue Chip Shares - Some Disadvantages

The share market is prone to ups and downs. Blue chip stocks are not

immune to those fluctuations, although they are in a better position to

weather any financial storms and pay consistent dividends.

As lot of investors flock to blue chip stocks as to a refuge of stability,

the dividend returns from such stocks tend to be lower, although

consistent.

Warren Buffet - a Successful Blue Chip Investor

Warren buffet is a billionaire American investor who invested in blue

chip stocks to great success. He believes in investing in solid, reputed

companies having competitive advantage and is an advocate for long-

term investment in blue chip stocks.

Stock market investors would do well to take a feather out of WarrenBuffet's cap and include blue chip stocks in their stock portfolios.

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