Blue chip
Encyclopedia
According to the New York Stock Exchange
, a blue chip is stock
in a corporation
with a national reputation for quality, reliability and the ability to operate profitably in good times and bad.
The most popular index which follows US blue chips is the Dow Jones Industrial Average
. The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
. The simplest sets of poker betting discs include white, red, and blue chips, with tradition dictating that the blues are highest in value. If a white chip is worth $
1, a red is usually worth $5, and a blue $10. The etymology may come from the color's royal lineage—an aristocrat is known as a "blue blood"
. Blue blood is a translation of the Spanish phrase sangre azul, which described the Spanish royal family and other high nobility who claimed to be of Visigothic descent, in contrast to the Moors
.
The phrase was coined by Oliver Gingold of Dow Jones sometime in 1923 or 1924. Company folklore recounts that the term apparently got its start when Gingold was standing by the stock ticker at the brokerage firm that later became Merrill Lynch
. Noticing several trades at USD$200 or USD$250 a share or more, he said to Lucien Hooper of W.E. Hutton & Co. that he intended to return to the office to "write about these blue-chip stocks." Thus the phrase was born. It has been in use ever since, originally in reference to high-priced stocks, more commonly used today to refer to high-quality stocks. In contemporary media, Blue Chips and their daily performances are frequently mentioned alongside other economic averages like the Dow Jones Industrial Average
.
Other terms that are often used in conjunction with blue chip include "bellwether
" and "Market Capitalization." Bellwether is a term used to describe a company that is recognized as the leader in its industry. For example, Microsoft would be considered a bellwether stock for computer software. Large cap is a reference to the size of a company in terms of total market capitalization. Market capitalization is simply calculated by taking the number of shares outstanding and multiplying by the stock's current price per share.
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
, a blue chip is stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
in a corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
with a national reputation for quality, reliability and the ability to operate profitably in good times and bad.
The most popular index which follows US blue chips is the Dow Jones Industrial Average
Dow Jones Industrial Average
The Dow Jones Industrial Average , also called the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow...
. The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Origination
As befits the high-risk nature of stock picking, "blue chip" derives from pokerPoker
Poker is a family of card games that share betting rules and usually hand rankings. Poker games differ in how the cards are dealt, how hands may be formed, whether the high or low hand wins the pot in a showdown , limits on bet sizes, and how many rounds of betting are allowed.In most modern poker...
. The simplest sets of poker betting discs include white, red, and blue chips, with tradition dictating that the blues are highest in value. If a white chip is worth $
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
1, a red is usually worth $5, and a blue $10. The etymology may come from the color's royal lineage—an aristocrat is known as a "blue blood"
Nobility
Nobility is a social class which possesses more acknowledged privileges or eminence than members of most other classes in a society, membership therein typically being hereditary. The privileges associated with nobility may constitute substantial advantages over or relative to non-nobles, or may be...
. Blue blood is a translation of the Spanish phrase sangre azul, which described the Spanish royal family and other high nobility who claimed to be of Visigothic descent, in contrast to the Moors
Moors
The description Moors has referred to several historic and modern populations of the Maghreb region who are predominately of Berber and Arab descent. They came to conquer and rule the Iberian Peninsula for nearly 800 years. At that time they were Muslim, although earlier the people had followed...
.
The phrase was coined by Oliver Gingold of Dow Jones sometime in 1923 or 1924. Company folklore recounts that the term apparently got its start when Gingold was standing by the stock ticker at the brokerage firm that later became Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
. Noticing several trades at USD$200 or USD$250 a share or more, he said to Lucien Hooper of W.E. Hutton & Co. that he intended to return to the office to "write about these blue-chip stocks." Thus the phrase was born. It has been in use ever since, originally in reference to high-priced stocks, more commonly used today to refer to high-quality stocks. In contemporary media, Blue Chips and their daily performances are frequently mentioned alongside other economic averages like the Dow Jones Industrial Average
Dow Jones Industrial Average
The Dow Jones Industrial Average , also called the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow...
.
Characteristics
UBS Financial Services, Inc. chose companies that have at least four of the six following characteristics to be considered a blue chip:- rated Buy by the Sponsor (See "UBS Investment Research Ratings System" in the prospectus);
- market capitalization in excess of $5 billion;
- financial strength, a record of profit growth and reputation for skilled management;
- established, well-known company considered to be stable and mature with a reputation for providing high quality goods and services; and
- leader in its market niche.
- In addition, companies are analyzed for their record of earnings over a relatively long period of time and future potential. Dividend payments, while not required, are considered.
Other terms that are often used in conjunction with blue chip include "bellwether
Bellwether
A bellwether is any entity in a given arena that serves to create or influence trends or to presage future happenings.The term is derived from the Middle English bellewether and refers to the practice of placing a bell around the neck of a castrated ram leading his flock of sheep.The movements of...
" and "Market Capitalization." Bellwether is a term used to describe a company that is recognized as the leader in its industry. For example, Microsoft would be considered a bellwether stock for computer software. Large cap is a reference to the size of a company in terms of total market capitalization. Market capitalization is simply calculated by taking the number of shares outstanding and multiplying by the stock's current price per share.