According to the New York Stock Exchange, a blue chip is stock in a corporation with a national reputation for quality, reliability and the ability to operate profitably in good times and bad.[1] The most popular index which follows US blue chips is the Dow Jones Industrial Average. The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.[2]
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As befits the high-risk nature of stock picking, "blue chip" derives from poker. The simplest sets of poker betting discs include white, red, and blue chips, with tradition dictating that the blues are highest in value. If a white chip is worth $1, a red is usually worth $5, and a blue $10. The etymology may come from the color's royal lineage—an aristocrat is known as a "blue blood". Blue blood is a translation of the Spanish phrase sangre azul, which described the Spanish royal family and other high nobility who claimed to be of Visigothic descent, in contrast to the Moors.[3]
The phrase was coined by Oliver Gingold of Dow Jones sometime in 1923 or 1924. Company folklore recounts that the term apparently got its start when Gingold was standing by the stock ticker at the brokerage firm that later became Merrill Lynch. Noticing several trades at US$200 or US$250 a share or more, he said to Lucien Hooper of W.E. Hutton & Co. that he intended to return to the office to "write about these blue-chip stocks." Thus the phrase was born. It has been in use ever since, originally in reference to high-priced stocks, more commonly used today to refer to high-quality stocks.[4] In contemporary media, Blue Chips and their daily performances are frequently mentioned alongside other economic averages like the Dow Jones Industrial Average.
UBS Financial Services, Inc. chose companies that have at least four of the six following characteristics to be considered a blue chip:
Other terms that are often used in conjunction with blue chip include "bellwether" and "Market Capitalization." Bellwether is a term used to describe a company that is recognized as the leader in its industry. For example, Microsoft would be considered a bellwether stock for computer software. Large cap is a reference to the size of a company in terms of total market capitalization. Market capitalization is simply calculated by taking the number of shares outstanding and multiplying by the stock's current price per share.[6]