There is no legal definition of blue chip stock, but generally speaking the companies referred to as blue chip stock companies are large and well-established with a stock price that isn’t very volatile. If we take a look at history, we will see that blue chip companies have been good at weathering out periods of rough economic conditions. Their stock price tend to follow the S&P 500 stock market index.
An investor will typically purchase blue chip stock to add stability to an investment portfolio. This doesn’t mean that blue chip stock is a risk-free investment. Any stock company can fail and face bankruptcy or a dropping share price, regardless of how great it performed in the past. Sometimes it is even the same inertia that makes a company stable that will prove fatal when the company fails to adapt to new conditions and keep up with world developments. Eastman Kodak Co. is one famous example of a blue chip company that failed to adapt to changing technologies and consumer behavior.
When the term blue chip stock was coined in New York back in the 1920’s it simply meant high-priced stock selling for $200 or more. The blue colored chip was the most valuable chip in many U.S. casinos. Today, being high priced isn’t enough for a stock to be considered blue chip stock. A stock that is introduced to the stock market and immediately sky rockets in price will not be seen as blue chip even if it reaches super high prices within a week, because it has no history of retaining a high price over time.
If you want to add blue chip stocks to your investment portfolio, the Dow Jones Industrial Average index is a good place to start looking. There, you will find 30 stock companies widely seen as blue chip stock companies. Some of them, such as United Technologies, DuPont, and Procter & Gamble, have been included in the index for over 75 years. General Electric holds the time record; it entered the index in 1907. ExxonMobil has been included since 1928, but back then the company name was Standard Oil of New Jersey.