What are blue chips and why are they needed?
“Blue chips” or, as they are often called, “first tier” shares are securities issued by the largest and most reliable companies. Striking examples of similar ones on the international stock market are Ford, Apple, Microsoft, The Coca-Cola Company. As for the Russian stock exchange, these are primarily commodity giants such as Gazprom, LUKOIL, Rosneft, as well as other large companies not associated with the extraction and sale of minerals, such as Sberbank, as well as retailers Magnit and Pyaterochka.
The term “blue chips” was coined by one of the successful American investors at the beginning of the last century and moved into trading slang from the vocabulary of poker players. The fact is that in those distant times, casino visitors and white collars from Wall Street were often the same people, so it was not difficult to migrate from one slang to another term. But why are these chips exactly blue? Everything is also simple here, the chips of the largest denomination were most often painted in blue or blue, and it was quite intuitive to draw an analogy between the most expensive shares of the largest companies and the chips mentioned above.
Why does an investor need blue chips?
First of all, first-tier stocks are quite an important financial instrument in the arsenal of any trader. The fact is that such securities show stable, but small growth and serve as an almost risk-free investment for an investor, along with government bonds. Thus, by investing in blue chips, you can not only be guaranteed to save your money from inflation, but also increase it a little.
That is why from 80 to 90 percent of the portfolio value of professional investors are OGZ and first-tier shares. The remaining 20-10 percent are more risky investments, such proportions are observed so that even in the most unfavorable conditions the investor has at least some profit, and also cannot lose all his investments at once.
In addition to stability, another important advantage of these securities is high liquidity, thanks to which the purchase and sale of first-tier shares is a fairly quick and painless process.
Also, blue chips, even if you don't have them, are an important indicator of stock market trends. It is generally accepted that the quotes of the first tier stocks rather sensitively show the state of the economy at the moment, and if blue chips fall in price, the same will happen with the shares of the second, third and further echelons. Roughly speaking, the state of the value of these securities can be used to predict the situation on the stock exchange as a whole.
It is on the basis of the so-called blue-chip index that many financiers often foreshadow global financial crises, as well as their end.
Blue chips are those securities that need to be monitored first, and it is much more enjoyable to do so if they are part of your portfolio.