A Blue-Chip is a nationally recognized well-established and financially sound company. The term comes from blue poker chips which have the highest value in the game. These stocks are known to have the ability to withstand tough market conditions and give higher returns in better market conditions. Blue-chip stocks usually cost higher, as they have a good reputation and are often market leaders in their respective industries. Blue-chip companies are known for weather recessions and manage profitably even in adverse economic conditions, which helps them contribute to a long record of stable and reliable growth. Such firms are known for their slow but steady growth in earnings and dividends and are therefore favorable to conservative investors. The term (a reference to blue insect chips, which usually has the highest value) has become a common expression for improved quality or potential.
In the 19th century the United States, it was common practice to use blue chips for high quality, with “blue chip” nouns and accents signaling high-quality chips and high-quality properties since 1873 and 1894, respectively. The term ‘blue-chip’ was coined in 1923 by Mr. Oliver Jing land, who worked for Dr. Jones. After the term became popular, Jingled, when he stood near a stock ticker at a brokerage firm, noticed that several shares traded at 200 or more per share. Poker players place bets on blue, white, and red chips and place more value on both red and white chips on blue chips. Today, blue-chip stocks do not necessarily refer to stocks with high price tags, but more accurately to stocks of high-quality firms that have undergone testing over time. The term was born in the financial world and since then it has been used to refer to high priced stocks, but now it is used more to refer to the largest stocks on the market. Blue-chip stocks are generally a component of the most reputable market indices, such as the Dub Jones Industrial Average, Standard & Poor’s (S&P) 500, and the US Nasdaq-100, Canada’s TSX-60, or the FTSE Index in the UK. How big an organization needs to be to qualify for blue-chip status is open to debate. Most blue-chip stocks are traded on the New York Stock Exchange and make up a significant portion of the Down Jones Industrial Average and the S&P 500 index. These can be bought through brokers or online. Think companies like Coca-Cola, Disney, PepsiCo, Wal-Mart, General Electric, IBM, and McDonald’s are influential leaders in their respective industries. Blue-chip companies have built a well-known brand over the years and they have been able to survive multiple recessions in the economy by keeping their stable companies in a portfolio.
Originally in the context of high-value stocks, the blue-chip has been used ever since, commonly used today to refer to high-quality stocks. Some people associate blue-chip stocks with blue betting discs on poker cards, where the blue disc has the highest value but the white disc has the lowest value. Younger investors may typically bear the risk of acquiring a larger percentage of their portfolios in stocks with blue chips, but older investors may choose to focus more on saving capital through large investments in bonds and cash.
