Random Finance Tip #2

This post is sort of inspired by the Blue Chip stock entry by my friend Robin, of FortuneWatch.com.

I left a comment on it, and I thought I reproduce it here.

Without further ado, the second tip of this series is

“In times of sudden crisis, buy blue chip stocks”

Just in case you are wondering what the heck are blue chip stocks, let me first clarify. Nope they are not potato chips that are blue in color (Sounds yucky to me).

Blue chip companies are generally defined as big, safe, fundamentally strong companies with a market capitalization in excess of billions.

Blue chip stocks are good if you want to add some balance and diversification into your portfolio, but don’t expect any extraordinary gains. They are as safe (some people say boring which is a good thing actually) as can be. If you are looking for wild fluctuations, gyrations and excitement, you gotta look elsewhere.

So why buy in times of sudden crisis?

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Some market rules to look out for

I wrote this in a forum about two years ago. While searching for inspiration on what to write today, I thought I will just reproduce the whole piece for your reading pleasure. Do note, I’m an advocate of marrying both fundamental and technical aspect of investing together, but what I’m going to highlight here are rules from a technical perspective. So here goes:

The market is quite an unforgiving yet fascinating and challenging place. It rewards handsomely when one is right, and dishes out stern punishments when one is careless and underestimates it. Quite like the principal in school ain’t it?

It can be indeed a humbling experience. Don’t despair if you make mistakes and make losses. No one can make money all the time. Not even Warren Buffett if that is a consolation.

Taking this into perspective, even institutional fund managers, floor traders and professionals make mistakes too. You are not alone in this challenge. Important thing is to not focus on how much you make, but rather on how much you don’t lose. Capital preservation should be your no. 1 priority. After all, you need to make 100% just to break even from a 50% loss.

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