Blue Chip companies are normally large companies possessing a history of stability and profitability. Shares issued by such companies are also referred to as ‘blue chip’..
The term is borrowed from gambling, where the highest value chips are the blue ones. Blue chip companies are normally characterized by financial stability and strength and have large market capitalisation.
Blue chip shares are viewed as being less risky investments than small-company stock. However, there have been plenty of examples of blue chip companies, and their shares, underperforming. In the UK, Rolls Royce was considered a blue chip up to 1971, when it crumbled. Other examples are found during the dot com era, when telecommunication companies generated heavy losses.
One can normally find blue chips in indices such as the UK’s FTSE100 and Dow Jones Industrial Average, while in Australia they can be found in Standard & Poor’s ASX 20. The prices of blue chip stocks usually follow the S&P500..
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