Buying and Selling Blue Chips

Affordability is the watchword when you are trading in blue chip shares. You are out to deal with some of the top companies that are always in limelight. They are usually listed amongst the top 20 companies, in the exchange. They have the capacity to impact the overall trading in the market. These shares have a long trading history, return excellent profits; the shareholders get high dividends and bonus/right shares at regular intervals.

Normally, the blue chips perform well in ‘all weather conditions’ in the market. Whether the market is volatile, moving up or sliding down, blue chips hold on to their grounds, and as such the investor feels safe in dealing with them. These shares are not cheap. They may quote between 15-20 times of their issue price or even more! You may also need to buy a minimum number of shares to get into the threshold of the blue chip companies. Thus, it becomes the play of the big investors!

No cut and dry formula exists to identify a blue chip share. It is a subjective issue. Some of the important characteristics of such companies are: Proven record of good and stable earnings for some decades, uninterrupted dividend payment, steady increase in the percentage of dividends, less debt burden and strong balance sheets, high credit rating, diversified product lines and geographical location, good procedures of cost efficiencies and distribution control and all such positive qualities that make the business flourish.

Is dealing in blue chips without risk? Not exactly! The usual safeguards for trading apply to such shares as well. Just because they command the highest market value, you can not afford to relax your guards. The technological advances and severe competition in business can give jitters to blue chip companies. Those that fail to absorb unusually intense shocks of market may fail. Roll-Royce, once a blue chip company in UK, collapsed in 1971.

While investing in blue chips too, you need to diversify. Believing that you are on a firm platform is an unfussiness-like approach. Investing in one or two big companies of the same segment is not a bright idea. Safety is the name of the game you are playing!

Be an expert-in blue chips!

When you are dealing in this category, naturally your capital outlay for equity investment is more than average. Therefore your care about servicing the equity should also be more than average. Make a thorough research. Take time to study the real information, beginning with the annual reports, industry trend data, and the current economic policy of the government as for incentives in this segment. Employ a broker or a financial planner for blue-chip investments. This is very important.

The Strategy: Generally those who invest in blue chips understand the world investment scenario. After forming the strategy, you buy the equities of the company that you are interested in, regularly by weekly or monthly debits, for which you have given standing instructions to your banker. Review the portfolio at periodical intervals, you may like to drop or increase the percentage of shares of companies in a particular country. The role of your financial planner is important while taking decisions regarding foreign markets, taking into consideration the fluctuating exchange rates, apart from other considerations.

Blue chips are the best bets for conservative individuals, those not willing to take risks at all and yet wish to be partners in the share trade. Non-governmental, non-profit organizations and retirees prefer such shares. This is an area of share trading without the usual excitement of trade and volatility of the market.

Good industry position, excellent credit ratings put such companies in a place to borrow money and raise capital at a lower cost than their competitors. The sales advantage is–these days, the consumer goes by the brand name. This enables the companies to put a slightly higher price tag for the products.