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Blue chip stock is a term commonly used and probably the least known to novices.
The term “blue chip” is derived from a card game, poker, where blue chips are typically the ones with the highest value.
Blue chip stocks are the secured, stable and less volatile shares of those reputable and well-established companies with huge market capitalisation.
Such companies are known to be market leaders in their respective industries.
Today, blue chip stocks do not necessarily refer to stocks with a high price tag, but rather to stocks of high-quality companies that have withstood the test of time.
Blue-chip stocks can be a great addition to your portfolio if you have little tolerance for risk and a long-term value approach to investing.
There is no universal agreement as to what constitutes a blue-chip stock. In general, blue-chip stocks have the following characteristics in common :
◆ Large market capitalisation — Market cap is a measure of the size and value of a company.
Blue-chip stocks are often large cap stocks, which typically means they have a certain amount of market valuation.
◆ Growth history — Blue-chip stocks have a reliable, solid history of sustained growth and good future prospects.
They might not be glamorous like start-up or small growth stocks, but this is because they are already established.
◆ Dividends — Most blue-chip stock pay dividends.
Dividends are regular payments made to investors from a company’s revenue.
Regular trading of blue-chip stocks can be very effective if done correctly.
Investing in these stocks may lead to huge losses if a proper analysis of the companies is not carried out.
Investors may have the expectation that the blue-chip stocks are able to withstand some of the market challenges; although this may be largely true, it is not a guarantee.
It is, therefore, necessary for investors to diversify their portfolios beyond blue-chip stocks alone. Investors are always encouraged to seek independent investment advice from licensed investment advisors.
Online Reporter