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Why should you invest in Blue Chip stocks?

Origin of the term “Blue Chip Stocks”

Mr. Oliver Gingold, an employee at Dow Jones company, first coined the term ‘Blue-Chip' in the year 1923-24.

Gingold noticed that many shares were trading at $200 or more as he was standing by the stock ticker of a brokerage firm. He returned to his office after noticing these high trading prices to write about “Blue-chip stocks”. He related all the high priced stocks with the blue chips which are of the highest value in the game of poker.

Originally, this connotation was only related to high-priced stocks but then later as time passed by, this term was broadly defined for high-quality stocks.

What are Blue Chip Stocks?

A blue-chip company is a well-recognized, well-established, and financially healthy company. This category of companies generally sells high-quality products and services to a large customer base.

A blue-chip holds the highest value in the card game of poker. However, now the term is now used to define companies that are the top 100 largest companies.

Why should you invest in Blue Chip Stocks?

  1. Fundamentally Strong Balance Sheet & Cash Flow: These are large companies usually have low or no debts & generate more profit. 
  2. Consistent Returns: Blue-chip stocks are ideal for investor's portfolio as they provide consistent higher returns along with relative stability
  3. Consistent and Timely Dividend Payouts: Most blue-chip companies give dividends consistently which denotes that they gain sufficient annual profits.
  4. High Liquidity: These stocks are highly liquid and traded at high volumes frequently over the stock exchange. This ensures an investor needing cash, will be able to create a sell order and exit, thereby further create more trust in these companies.
  5. Strong Brand Power: Blue Chip companies have built a reputation as a trusted brand among consumers. These companies are the market leaders in their categories and have a competitive edge.

The Bottom Line

Blue-chip companies are well-recognized, well-established brands that enjoy high consumer trust and have a strong business model, balance sheets, cash flows, consistent healthy growth.

Long-term investors can look for investments in blue-chip stocks for long term wealth creation.

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Disclaimer: The views expressed here are of the author and do not reflect those of Finkompas. 

Finkompas is a leading financial technology company that aims to simplify your financial life by providing you great financial products - stocksmutual funds & loans.

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