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?
By sudden crisis, I mean a terrorist attack like 9/11, tsunami or hurricane devastation, death of a leading political figure or outbreak of disease like bird flu or SARS.
Such incidents usually spark off wild panic and indiscriminate selling. People are abandoning ship like nobody’s business.
You might be tempted to jump too, or stay off the market, but hold on a second!
Warren Buffett once said, “Be fearful when others are greedy and be greedy when others are fearful.”
How apt!
When everyone is panicking and selling like crazy, now it is time for you to pick up stocks like a crazed greedy mad man who seemed like he had never eaten in years! Not just any stock, but fundamentally strong blue chip companies with a solid balance sheet.
Now we are talking!
You can be assured that that the price of these companies will drop due to the mad sell off and this will represent a fantastic chance to scoop them all up at a bargain price. You probably won’t get such a good deal at the annual great sale by your nearest shopping mall.
If you think long term, and am willing to look past the short term downward spiral, the price will definitely correct itself in due time when the market has stabilized and regain it’s lost head.
Better still, look at government-linked companies like banks. The government won’t allow them to fall, so it’s a pretty sure bet in this scenario.
Blue chips have never tasted this tasty.
This strategy has worked in the past and will work in future. Just that, do you dare to go against the emotional mass crowd and walk the road less traveled? That is the question.
[tags]random finance tips, blue chap stocks, Warren Buffett[/tags]
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