Blue chip stock is very simply put, the stock of an established company that has stable earnings. It is the kind of stock that does well even in a volatile market. These stocks pay regular dividends.
The blue chip in the game of poker is the chip which has the highest value among the other chips. But the term was first used to describe stocks in the early 1920’s. It was used by Oliver Gould of Dow Jones which is an American publishing and financial information firm.
He noticed several trades of a certain company which had very high value stock and stated that he would like to write about these blue chip stocks. The term was first used in reference to stocks of high price. Today it is used in reference to high quality stocks.
There are no criteria to determine whether the stock of a company is blue chip stock. However there are certain characteristics, that most investors would agree, which qualify the stock to be blue chip stock.
The company should have strong market reputation. It should have an established track record of stable earnings and should pay regular dividends to common stock holders. The company should also have high credit ratings as well as diversified product lines.
The Dow Jones India Titans 30 Index is a price weighted average of 30 blue chip stocks in India. This index tracks the share prices of leading players in the various business segments over a twelve month period. The index is reviewed every March.
Blue chip stocks are very important while creating a diversified investment portfolio. It is a type of common stock. By purchasing these stocks, the investor becomes a part owner of the company.
These turn out to be a very safe form of investment as they offer great long term rates. Blue chip stocks normally feature in the investment portfolios of non- profit organizations and conservative individuals.
There are many ways to invest in blue chip share. The shares may be acquired by a broker or a purchase plan direct actions. There are also mutual funds that specialize in blue chip share. Another way to invest in blue chip share purchase options. The option gives the investor the right but not the obligation, to buy or sell shares at an exercise price set at a later date.
Although blue chip stocks offer a certain amount of investment stability, it is important to remember that all investments entail a certain amount of risk. And blue chip stocks sometimes offer a false sense of security. After all, some of the world’s biggest financial disasters have involved renowned blue chip companies.
While planning an investment strategy, investors should obtain a detailed and realistic advice on the date of entry and exit and return expectations.
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