One of the most common advice we often heard when for people who are just starting out investing:
“Invest in blue chips and you won’t go wrong.”
If you’re just starting out, you may find this advice all too familiar. And for those who are in this industry for long, you may have realized by now how wrong this is.
In this episode of #AskDrWealth, we're going to explain why this advice is just another common misconception . We will go in deep about why blue chips stocks are like all other investments, risky. And what you should do instead.
Why Are Blue Chips Deemed Safe?
A reason why people believe that blue chips are great investments is because of their shiny reputation. They come from huge companies and have been around for so long.
But just because this is the case, these stocks are not necessarily safe. In fact, it is very dangerous to assume that blue chip stocks are such.
Blue Chips or Bruised Chip?
So here is the thing:
“Blue chips can turn into bruised chips.”
Giving some credit to those people who impart such misconception, we acknowledge why so many think that blue chips are safe and that is because we come into touch with these brands everyday.
For example, in the morning, you begin by receiving a Straits Times Paper and reading it. Later on in the day, you may go to the mall to do some banking with DBS. And all throughout, you may even use Singtel services to communicate.
Therefore, when these stocks are listed in the stock market, we feel strong familiarity with them.
But just because they are huge and well-established, it doesn’t mean that they are safe. They are also exposed to the same business and financial risks as with any other stocks.
If they have lost their competitive advantage, these investments can also turn sour.
Here are some examples:
- SPH - $6.20 to $2.64
- StarHub - $4.70 to $1.77
- Noble Group - $17 to $0.054
- Creative - $64 to $5.86
- Hyflux - $2.50 to $0.21 (still suspended)
Ultimately, blue chips are like any other stocks. No one is safe from all of the risks that constantly evolve in the stock market. So they shouldn’t be treated any different from each other.
Misconceptions often lead us to create poor decisions, which could take a toll in our lives. Before believing any advice, always keep your thinking hats. Don’t be vulnerable to these no matter who the person telling you is.
The lesson is that you must do your homework whenever you buy your stock regardless if it is a blue chip or not. It’s always bad to dive in directly without being inquisitive. You must take the time to learn and gather facts.
So what do you think? Have blue chip investments work for you? Share with us in the comment section below.