What is a blue chip stock?
A blue chip stock is a stock that has a demonstrated history of earning money and avoiding rapid changes in value over a long period of time. Often, blue chip stocks belong to long established companies like IBM, Microsoft and General Motors: companies that are relatively stable and are likely to show a modest profit at the end of next year. Over the past few years, many energy and oil companies have become respected blue chip stocks since they present the opportunity for investors to turn a tidy profit with a smaller risk than most stocks have.
No matter how long a company has been considered blue chip, there is always the chance that things could end badly. For instance, General Motors and Ford, long time blue chip stock companies have been hemorrhaging money over the past few years and their stock prices have tumbled. The same can be said for many major airlines like Delta, which was once considered a rock solid blue chip stock and is now considered a very risky investment due to the cost of fuel and many other reasons. No matter how stable or secure a blue chip stock is, you must always remember that at any time, the stock could end up going belly up.
Even energy stocks, long considered the most stable of all, aren't immune to rapid price changes. During the Exxon Valdez oil spill, prices in Exxon stock tanked and millions of investors lost billions of dollars. Of course, now, Exxon and many other oil companies are considered just about the safest investment you can make. The same cycle happened for one time stock market darling Enron, which went from the penthouse to the dog house so quickly that it caught the entire industry off guard.
The secret to staying on top of what companies are solid blue chip investments is simply staying current on the world of finance. This is why it is so important to learn what you can about investing, even if you have a stock broker looking out for your best interests. It is possible that your broker has hundreds of clients to look out for and by the time he or she can call you and let you know that one of your secure investments are tanking, it could be too late. No matter how comprehensive your broker is, it is up to you to stay on top of your investments to avoid any possible collapse that might happen, even if you invest solely in blue chip stocks.
As you can see, it is possible to beat the world of investing at its own game, but it isn't easy, and it takes a degree of dedication that many people aren't willing to put forth. If you are looking at a way to maximize your profits and minimize your risk, follow these steps, and you will be well on your way.
