DO BLUE CHIP STOCKS REALLY EXIST ANYMORE?
First of all, what are blue chip stocks? There isn’t an exact definition for the term but “blue chip” generally means stocks of companies that are well established, have a reliable brand and product, are financially sound, and should hold up in both good times and bad. Because of these traits, it has often been thought that if you buy stocks that are blue chips it is less risky than other stocks that don’t have the same kind of track record.
The Dow Jones Industrial average is made up of 30 such stocks that are all considered to be blue chips. This is the index that is measured and thought to be a good gauge of the market overall. All the names in the Dow are large solid companies that most people have heard of before.
However, It seems to me that you used to hear a lot more about blue chips 20 to 30 years ago than you do today. In fact, while watching any one of the national finance shows on CNBC or Fox Business, I rarely ever hear the term anymore. This leads me to the question whether blue chip stocks really exist today?
I remember my father telling me when my uncle died 15 years ago that he had done well for himself because he had invested much of his money in blue chip stocks and let them sit. The old buy and hold strategy that used to work well if you bought solid, reliable companies. Today though, it is much harder to find such companies as the business world is changing at a much quicker pace. Buy and hold isn’t as reliable anymore either.
Look at Xerox (XRX): that used to be a big blue chip company that is now a small fraction of what it once was. How about Borders Group (BGP): a big reliable company for years that is now out of business. Citigroup (C) is another company with a big name and years of history that is now worth hardly anything compared to what it once was worth. Unfortunately I own some Citigroup stock.
There are lots more examples but my point is that it is harder today to build a company that you know will be around years from now because the world is changing so fast. Technology is largely responsible for that and none of us know what will become obsolete tomorrow. Kodak is an example of a blue chip company that had a great business but their technology was pushed aside for something better and they were unable to adapt. The result? Kodak is now near bankruptcy.
The whole “blue chip” definition seems to revolve around the thought that those companies are solid enough to stand the test of time. You can put your money in them and be able to sleep well at night because you know they will be around tomorrow. But I wonder whether any company really fits that bill anymore?
Companies that are doing well today seem to be vulnerable to competitors who might come up with a better or cheaper way of doing things. Computers, the Internet, and outsourcing are really changing the business world and every company has to be on it’s toes in order to stay ahead and not be over taken. Now more than ever before in history is this the case. New technologies are showing up in every industry and what seems to be a reliable business and a blue chip stock may not be in the future. That is why I think the era of blue chip stocks is dead.
