The Bottom Line: What is a blue chip stock?

U.S. automakers are in serious trouble and Ford building a new small car plant in Mexico won't help U.S. autoworkers. From newspapers to Starbucks, lots of workers are being laid off and lots of doors are closing.

Jennifer very interesting. I dont know very much about the stock market.

a bit technical for me, but a 10 for you~

Way too technical for me!

Now those are some interesting stats. I remember when Ford was down to $6 a share - a long time ago. Nothing is blue chip any more.

I was going to say, not GM or Ford, I see you covered that. But IBM, Wal-Mart, McDonalds are still doing fine sort of.

The oil services aren't on that list and those companies are also doing fine. Those would be Baker Hughes International, Halliburton, Smith International, and Schlumberger Limited (oh that's French)

Thanks for the list. I know I'll be re-evaluating my portfolio this weekend, but it's hard to know what may bounce back. I don't want to just sell in a panic and buy something else. Sometimes it's so hard to know what to do.

Research first I would suggest Amy. It's not a very good idea to blindly do what another might suggest.

I am afraid to look and see what our stock is doing.

I know the feeling Connie. But it's like not going to the doctor for fear they'll find something wrong. The longer you wait, the worse it could get. It's better to nip in the bud any downturns that will affect your long-term profits now. Granted, even I haven't been following that rule. It's been two weeks or so since I've realined my faux day-trading portfolios for the Portfolio Challenge. I've lost nearly 10 percent of the gains in one portfolio as a result. But, that's fake money, so I can do this and not have to pay for it in the long term....

Richard, you're so right about the need to research and not blindly follow others suggestions. I've made a few blind picks in my Challenge portfolio, based upon "expert" predictions without taking a look at the stock buy/sell patterns myself, and got into stocks that immediately started dropping.

Even oil -- which is at its height right now -- has its ups and downs. My first five weeks in Halliburton stock (which I included in my "Necessary Evils" portfolio on the MSN Challenge) saw losses nearly every day. Some a predicting an oil industry crash soon, while others say oil will go up to at least $150 a barrel before that happens. Fully researching the ins and outs, and having stop loss orders or a "sell at..." request to your broker in place, is the key to keeping your current oil stock profits.

Amy, you're also so right in pointing out that it's not a good thing to sell in a panic. First, this is your financial future we're talking about. Second, what goes down often comes up. However, you'll have to weigh that against the old adage of "buy low, sell high." Definately sit down with someone who can work with you on your portfolio, just to make sure its picks are keeping pace with how the market is doing.

Read up on The Economist magazine and the Wall Street Journal. If you're not well-versed in the market, you'll want someone knowledgable holding your hand. Make sure you're going with a licensed securities advisor who will provide impartial advice (they'll often do free consultations). Some get paid on a flat fee (watch for those who sit back on their larrels after taking your "retainer"), while others take commission on their sales to you (a potential conflict of interest if they only speak well of those products) and others get paid every time they make a move in your account (another potential conflict of interest, if they're buying and selling just to make themselves money, rather than to build your account). Watch for the warnings.

My original IRA portfolio was heavy on emerging market/technology stocks. It took me several years before starting it to go back and reevaluate the balance. It turns out that I would have done much better had I picked less-risky mutual fund alternatives. But, the situation could have been reversed too. I learned that it's all about just checking in with how you're doing, and doing a little research to make sure my hard-earned money is headed in the direction I want it to go.

The fall of GM is a vivid illustration of the fallicy of buy and hold. It is entirely possible to make money in the market regardless of the indexes rise and fall, but you have to be willing to look beyond the list of familiar names.
I am not saying to look at penny stocks, but the many listed stocks that are successful companies in growing industries that are making new highs even in this market.

Excellent insight Pat! Amen to that.

Jennifer,

Interesting blog. Even GE is floundering right now, along with so many others. I'm looking more at international growth stocks, such as steel, energy, metals, shipping companies that must move those staples, and stocks with decent dividends. Those companies that are contributing to building infrastructure in countries such as China, India, Latin America, Australia. The only American stocks that l feel secure with right now are those that have some international exposure.
Talia Murphy

Talia,
Be careful there with the steel, energy, metal and shipping companies. I am seeing strong evidence of sector rotation, and all those groups are due for a fall.
If you are in these crowded trades, be sure you have your stops set. If they continue to go up, you will be fine, if they fall further your stops should trigger and hopefully you will lock in some profits. The agriculture group also looks more risky in the last 2 weeks.

Money seems to be rotating into medical and biotech right now. Take a look at Merck, Genzyme, Celgene and even Genentech and others in those industries. Avoid the HMOs.

I don't know that buy and hold can hold true any more. We all need to be aware of the gains and risks in the stock market. Historically speaking, there have been some very rough years. However, over the long term, I think stocks do outweigh or balance safer investments or has that changed much? I'd trust your take on that a great deal.

Also, I think we need to look at money management and all financial decisions on an individual basis.

An example: My husband is in education. That is not a high income job. However, one benefit of that job is free tuition for some of our kids ( he had to be at the job for so long first) and I think that one can see how the yearly income, on paper, is far different when that free tuition is factored in. Things like this make money management, salaries, investing and how far one's money actually goes differ from person to person.

Believe me, on a tight budget we are ever grateful for the tuition perk!

This relates to investment because we would allocate our savings and investments differently - and have less to invest- if tuition had to be factored in.

RE: over the long term, I think stocks do outweigh or balance safer investments or has that changed much?

I understand how this all factors in Jo C. The tuition bonus is indeed a factor when considering job offers. My mother did the same thing, working at schools for their tuition bonuses for her seven children.

I'll answer your question with the Nobel Prize-winning philosophy of diversification. The broader the types of stock market investments, the greater the insulation from risk. Though the philosophy, at the time, was tested for stock market investments only, my personal viewpoint is that a portfolio must be diversified outside of the stock market as well. There will always be stocks that are going up in value, whether that be a start-up or a stock split or strong company earnings or the standard falls and recoveries. On the opposite spectrum, there will always be stocks that are going down.

My philosophy then remains the same, even with the current market falls. Invest only as much in the stock market as you can loose, follow protections like those laid out by Pat, pay close attention to how your stocks are fairing, and pay heed to proven advisors (of which, I would say, I'm not one ; ). And, of course, diversify -- in and outside the stock market.

Buy and hold is still a proven strategy, when the market is heading up like the bull. This market, a bear market, is indeed the time to consider if and how you should move on.

Talia, thank you for your thought-provoking comment to this post. I wish you well!!!

And Pat, thank you for stepping in with some well-headed words of advice. Being a day trader gives you first-hand perspective on the shifting segments within the stock market.

This was a fascinating discussion. I would love to see an article on small caps...and how they differ from blue chips. Those of us that are just getting our feet wet could use some basic help. I really appreciate seeing this list of blue chips. I always wonder just what companies were included. Also I wonder: why Coca-Cola and not Pepsico?

The dow is constructed to be representatives of the major US industries. Since there are only 30 stocks, there would not usually be two stocks in the same industry. Hence Coke is in but not pepsi, AIG but not Allstate, GM but not Ford,etc.

This is not good news for those of us who are drawing a pension from GM and have our personal retirement accounts mainly in GM stock. We received a letter from GM, warning us that having too much invested in GM now is dangerous. We probably paid $50-$60 per share and have a lot of shares, which today appear to be worth about $10. They waited until now to warn us?
I fear our next home will be a cardboard box.

Jan - The Enron thing was not enough warning for you?

To everyone that has company stock - CUT YOUR RISK!!!!!!!!!!!!!
You already rely on the company for your regular paycheck. DO NOT also put you future retirement in the same company's hands !!!!!
When I say this, people always object and say "what about Microsoft or Google?'
To this I say there are many Micorsoft and Google employees that have lost thousands on the declines in these stocks.
Early employees did well, but for every Google there is a Polaroid, and a United Airlines and an Enron where employee lost everything.

As Ms Meacham says, doiversify.

Christine, Jan and Pat, I'm delighted that you found this subject so compelling. You may be interested in the MSN coverage that came out today, "Bad Times for Good Companies." It addresses the "shares of iconic industrial stalwarts like Coca-Cola (KO), Safeway (SWY), Merck (MRK) and Intel (INTC) have followed banks into the abyss with half-year losses of 15% to 30%."

Remember that there's an upside to every down. Now may just be the time to get into the above stocks cheap. Even GM has had a bit of a rally of late (how can it now after hitting that low?).

There are no blue chips during a recession because the economy is underperforming. My pick would be to focus on companies like Proctor & Gamble which produces consumer commodities. You need soap and laundry detergent. You do not need the Neiman Marcus silk sundress and Ferragamo wallet.

Intersting!

Note to Carla,
P&G is considered a blue chip . . .

Another great piece Jenn, 10!

For me this is a buying opportunity, though I must say I've lost my taste for the US stock market, the only place making $$ in stocks right now is in the huge increase in profit margins reported by big oil. And I personally do not want to invest in an old and ill technology that leaves us beholden to Middle East religious nuts. So I'm looking further afield at stocks in other countries involved in infrastructure and future technologies.

As always, when the repugs are in office, our budget deficit spirals out of control and our stock market tanks. Just google back a few adminsistrations to read the numbers & the truth for yourselves. I knew this 7+ years ago when Bushco took office, I called that the Dow would go up and down on a wild ride but settle back around 10,000 or so at the end of his reign... and it looks like that's what happening. It doesn't make me happy, it just makes me even more wary of anything the future repugs might do.

Tell us Jenn, have you been investing in anything these past few years? And if so, what?

Okay - I know the questions was addressed to Jenn and not me, but I am jumping in here anyway.
There are so many opportunities outside of oil!!!!
(Besides, I think oil is getting risky here)

We are now in a bear market. Uptrends tend to go higher than expected, and downtrends tend to fall father than expected. Even if stocks stop falling, they are likely to thrash around at low levels for several months. In my opinion it is too early to buy.

The last time the market slipped into bear territory, the average investor's had no choice other than cash or bonds. This time is much different, I have had very good success with natural gas stocks, shipping stocks tankers, dry bulk shippers and railroads) and short ETFs.

The short ETFS have been great for my returns. These ETFs allow the average investor to BUY a short position.
If you think the S&P 500 will continue to fall, look at SDS. SDS is an ultashort S&P 500 find. That means for every dollar the SPY drops, SDS should go up 2. The ultrashorts can be very volatile, so if the sharp up and down bothers you, they may be too aggressive.
Two ETFs that short the Dow are DXD and DOG. QID is a short ETF for the Nasdaq.

There are also many many sector short ETFS, a few examples :
SKF for financials
DUG for energy
SRS for REITS


A quick search will show a list of over 50+ short ETFs.

Even if you are not comfortable going short, these ETFs are a good hedge if you hold stocks. A properly hedged portfolio can weather a bear market quite well.

No wonder... an economy such as we have nowadays is made to collapse. Foundations are based on debts and gambling.

Jess,
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Thanks all!