History

• The phrase "blue chip stock" is said to originate as far back as 1923 when referring to stocks that are of high-value. The name "blue chip" is thought to signify the color of high-value chips found in poker games. Since then, the name has become synonymous with the Dow Jones Industrial Average, which is often used as a gauge when assessing the stock market as a whole. Because the stock market may fluctuate in performance due to changes in only a few market niches, indices that list only blue chip stocks are seen as more reliable indicators.
  
  

Classification

• There is no official set of characteristics a stock must abide by in order to be classified as blue chip. However, most blue chip companies are relatively large, usually with a market capitalization (the price of a stock multiplied by the number of stocks issued) of more than $5 billion. Any blue chip company must also demonstrate a history of leadership in its market niche. Other characteristics may include a high rating by credit ratings agencies, quality management and a solid history of market performance.
  
  

Indices

• The most well known index for listing blue chip stocks is the Dow Jones Industrial Average. The DJIA lists 30 of the largest public companies in the United States. Other indices include the S&P 500, which lists the 500 largest companies in the United States. The CAC 40 index is similar to the DJIA, but lists the largest companies in France. The German version is the Deutscher Aktien IndeX 30, or DAX 30. Other blue chip indices include the Dow Jones India Titans 30, the S&P ASX 20 and the Mumbai Stock Exchange SENSEX indices.
  
  

Investing in Blue Chip Stocks

• As with any investment, caution should be exercised before investing in any financial instrument, including blue chip stocks. However, they are often seen as a more reliable source of investment as they are more stable, even if they are more expensive. Most blue chip companies have a large and diversified range of products and services which in turn lowers their susceptibility to large price fluctuations. Their higher price reflects both lower risk and high dividend payouts.