Understanding Blue chip stock

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Blue chip stock constitute shares or securities of large reliable companies with stable indices
derived from income and dividends paid. In essence, the term blue chip is employed in the stock
markets by analogy to describe the actions of well-established entities.

The term was coined by Oliver Gingold of Dow Jones & Company in 1923. It is reported that the
term was born when Gingold was taking note of several businesses with shares priced at $ 200
per share or more. And went on to indicate intentions of writing an article about the "blue chips".
Thus the term was born.

Typically, blue chips are indicators of the overall market, as it is believed that if the price of
shares of the largest companies increased, the shares of the second-tier companies also
increase. A fall in blue chip stock means lower stock prices of second-tier companies. Blue chip
shares are the most liquid securities market.

The list of blue chip stock changes periodically, but there are always those that manage to stay
on top for years. In some jurisdictions, such as Hungary, the shares of blue chips which have a
market capitalization exceeding $ 100 million are also sold in London. Example of such shares
include OTP, MOL, and Magyar Telekom.

In Russia blue chips occur mainly in the oil, gas, energy and telecommunications companies. In
particular, the blue chips include such companies as Gazprom, Lukoil, Norilsk Nickel, Rosneft,
Sberbank, Rostelecom, RusHydro, Polyus Gold, etc. These companies typically have leading
positions in the RTS and MICEX.

While in the United States, well known corporations such as Microsoft, IBM, Apple, Coca-cola
Company, Ford, Google, among others, are the usual culprits to claim the coveted status.

There is no generally accepted criteria for classification of shares or debentures of a company in
the category of "blue chips" or "second tier".
Blue chip stock tend to rise in the long run, but there are periods in which second tier stock
exhibit more dynamic growth and higher returns.

The advantage of the blue chips is their liquidity, it is possible to buy or sell a certain amount of
these shares at any time of the trading session on the stock exchange, without a significant loss
in value.

Characteristics of blue chips

a. Stable growth in a number of years, and not due to speculation, but including the real state of
affairs in the company. Reservation about the real situation is important for short time periods,
since it is sometimes difficult to distinguish whether the growth rate is due to the effective
operations of the company, not the work of speculators.

b. Greater economic power (the company could even be a monopoly), with a large measure of
capitalization (ie the market valuation of the company, which is obtained by multiplying the
current share price with the volume on the market).
c. High liquidity due to the large number of transactions.