What is Blue-chip Stock?
Blue-chip is a word derived from the types of money exchange cards when playing poker at casinos. In particular, chips are for plastic cards that exchange money with the conversion value depending on the color of blue, red, yellow, and white. Usually, the blue card has the highest conversion value and later the term blue-chip was used to call high-quality stocks issued by large companies.
Blue-chip shares are stocks issued by large companies in terms of market capitalization and reputation in the market. They are, “Blue-chip” companies, well-known, nationally recognized companies, often the largest companies and the backbone of every economy. The shares they issue will bring good returns to investors, even in the face of market changes or downturns, Blue-chip stocks will still grow more steadily than other types of stocks.
Pros and cons of Blue-chip stock
What qualifies a corporation to issue Blue-chip shares?
They are major enterprises with a long history, along with good financial performance (leading a field and not a phenomenon) and their market capitalization usually of $5 billion or more, according to experts.
As a result, the most significant benefit of Blue-chip stocks is their investment safety. The business model of the company is very sustainable, has little volatility and is less affected by the market. Moreover, these businesses are usually managed by the most experienced and competent professionals, they will run the development organization, maintaining the long-term growth rate. Even if there is an economic downturn, huge corporations can balance themselves, and if the share price falls, it will not drop as much as small and medium-sized businesses. The risk of default is unlikely, so investors are assured of the profits received and are not afraid of losing their capital. Blue-chip stock prices are usually bullish for long periods of time. The longer you hold, the more profitable the investor will be.
Despite the fact that the safety benefit is significant, many individuals are still hesitant to invest in this form of stock because it has a disadvantage. Blue-chip returns, on the other hand, are frequently lower than those of other stock categories.
In comparison to the market, the prices of these stocks sometimes move relatively slowly. Because it is a massive corporation, growth will be sluggish, particularly during the saturation phase. As a result, if you're seeking a high-yielding investment, Blue-chip stock isn't the best option.
Penny Stock
In contrast to Blue-chip stock we have Penny stock, which is a type of cheap stock, usually with a very low par value (under 5 USD/share, under 10,000 VND/share in Vietnam) issued by small companies, newly listed on the market.
The main advantage of this stock is its low price. However, Penny stock is very illiquid, which means it is very difficult to find a buyback of penny stock. In addition, there is very little information about the company's financial position or monitoring reports, so there is a high probability of fraud and bankruptcy of the company.
There are quite a few stock investment strategies out there and each one comes with pros and cons. In order to be considered successful in investing , you should find yourself a strategy that suits you best for your goal and your comfort.
Sources:
Nhung, N. (2018, October 24). Cổ phiếu blue chip là gì? Và những điều cần biết. shbs. http://shbs.com.vn/co-phieu-blue-chip-la-gi/
Team Finhay. (2021. June 8). Cổ phiếu Blue chip là gì? Có nên đầu tư vào cổ phiếu Blue chip? Finhay. https://www.finhay.com.vn/co-phieu-blue-chip/
Mai Hương. (2020, February 19). Cổ phiếu Bluechip là gì? Đầu tư Việt Nam. https://dautuvietnam.com.vn/dau-tu/chung-khoan/co-phieu-bluechip-la-gi-a175.html
Đức,T. (2021, September 24). Cổ phiếu Penny là gì? Cách chơi Penny an toàn MONEY24H. https://money24h.vn/blog/penny-la-gi-cach-choi-penny-an-toan/
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