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Lesson 5. The Five Types of Stock > Stock Characteristics - Pg. 24

The Five Types of Stock 24 Blue Chip Stocks Blue chip stocks are stocks in companies that historically have exhibited unparalleled and unques- tionable strength; such companies are the stalwarts of American business. Stocks of this type in- clude companies such as IBM, AT&T, and General Motors. These are the stocks whose long-term success is guaranteed. These are not stocks in any one particular industry, computers for example, but rather the most stable and solid stocks on the market regardless of the products they produce or services they offer. The focus here is on the behavior of the stock. For example, IBM and General Motors produce vastly different products but, regardless of their production, the stocks of both are very stable as the companies are such behemoths that very little can cause their corresponding stock to fluctuate much. As a general rule, these companies tend to have been in business a very long time, although Intel, for example, is considered a blue chip stock and has been in business a short time, relatively speaking. Blue chips almost guarantee that novice investors will not lose money while enabling them to learn and practice their investment strategies with real stock. In addition, blue chip profits are based on investors purchasing the stock and holding on to it for an extended period of time, a highly desirable strategy for novice investors. Secondary Stocks Secondary stocks are still up there in investor confidence--they simply are not in the blue chip league. The easiest distinction of this is through a complicated financial area known as market capitalization by which financiers determine how much money would be required to bring such a company to the market today. This is often determined by what the company actually came to the market with, regardless of when it happened. Suffice it to say for our purposes that stocks of this