Virtues of Major Stocks (Blue Chips)

- Blue chip companies are not likely to go bankrupt.

- They have their troubles, but they are big enough to hire a CEO who can bring them back to life. Among the 30 companies in the DJIA, for instance, such companies as IBM, Eastman Kodak, AT&T, Sears, United Technologies, and Allied Signal were restructured in recent years by a few dynamic executives.

- Major corporations are also found in most institutional portfolios such as mutual funds, pension plans, bank trust departments, and insurance companies. One reason they like these big-capitalization stocks is liquidity.

• Since institutions have huge amounts of cash to invest, they feel comfortable with these stocks. The reason: The number of shares outstanding is huge, which means they won't disturb the market when they buy or sell.
• By contrast, if a major institution tries to invest a million dollars in a tiny Nasdaq company, the stock will shoot up several points before they complete their investing. It could be just as disruptive when they try to get out.
• As a consequence, major companies are in demand and are not left to drift.
• On the other hand, there are thousands of small companies that no one ever heard of. The only investors who can push them up are individuals - not institutions.

- Big companies can afford to hire top-notch executives and they have the resources to allocate to research and marketing.

- Also, their new products, acquisitions, management changes, and strategies are discussed frequently in such publications as the Wall Street Journal, the New York Times, Barron's, Fortune, Forbes, and Business Week, all of which are easily available.