Is Coca Cola a blue chip inventory

Blue chips

The term Blue chips denotes - contrary to what one might think - no special form of investment or specially constructed form of shares (see preferred shares). Instead, this term is used for Shares that have normal rights and represent an entrepreneurial participation. In contrast to the shares of smaller companies, they have one major difference: Blue chips are always the shares of the largest, worst-performing stocks.

Why the color "blue" was chosen can no longer be precisely understood, according to the prevailing opinion this was the color of the largest chips in a traditional casino in Monaco. If this term were to be re-coined today, the euro area would perhaps be referred to as a color analogy to the 500 euro note.

If you want to get closer to the concept of blue chips, you should look at the effects of the stock markets and, in particular, the publication of price movements.

Every stock market has its own indices and blue chips

The concept of blue chips is best understood when you open the daily newspaper or look at an Internet portal with stock market information. An index is usually used as a measure of value for the development of the overall market. Anyone who describes the Frankfurt market will very often name the value of the DAX30: This DAX 30 consists of the three major stocks (= blue chips) that are considered to be the most important.

These are determined on the basis of market capitalization, free float and, ultimately, future prospects. For the development of the New York index, one looks at the Dow Jones 30 Indes - which in turn consists of 30 blue chips from the local stock exchange.

Characteristics of the blue chips and consequences for the investment strategy

With a few exceptions, the blue chips are Large corporations that have achieved their market position through long and hard work and are active in several product fields and regions. In contrast to medium-sized companies, for example, they are much less susceptible to crises due to the diversification of risk and their own market power. This is why many pension funds also rely largely on blue chips in order to achieve a higher return than with fixed-income securities with a manageable risk at the same time.

The blue chip products are often even known worldwide: The brand names of Coke (a blue chip from the New York Stock Exchange), from Nestlé (the Swiss Exchange) or the Siemens AG stand for a worldwide presence. This is why these stocks are often quoted above their intrinsic value or have a higher P / E ratio, as they are associated with considerable future prospects.

Can a value lose its "blue chip" designation?

The designation as a blue chip is more a question of economic reporting and communication. It is also not accepted as part of the official security designation and therefore does not appear in the account statements. Similar terms are "standard values" or "first row values".

If an earlier blue chip is then downgraded to a lower, more widely diversified index (such as the MDAX), it is often said that it would now be in the second tier. This very often leads to reallocations in the portfolios of all those who want to replicate the index when investing. For this reason, when a value moves back into the second row, it can also lead to a price setback in the short term.

The following are important for classification as a blue chip:

  • Membership in a large stock index
  • Excellent market position, sales and intrinsic value
  • The free float