6. Blue-Chip Stocks

in this episode, Josh explains blue chipstocks, why they are so reliable and yet how they can rise and fall over thelongterm. He also discusses the new blue chips we are seeing most recently inthe age of digitization. A blue chip stock historically has been a stock thatinvestors look at as something they can count on forever.

[00:00:29] And historically, there are veryfew companies that you can really do that with over the long, long, long term,but over any 10 year period, a stock can be seen by. A given generation ishaving blue chip like qualities, 80 and T is a great example of a blue chip.It's over a hundred years old, it's paid a dividend for most of that period oftime.

[00:00:52] It's never gone away. It's neverlost relevance. It's something that people have relied on their parents. Theirgrandparents have passed down the stock to them. That's a good example of ablue chip, but not all blue chips. They blue chips and general electric is areally great example of that. GE was a blue chip for a hundred years.

[00:01:11] It's founding goes back toThomas Edison, right? It's origin as a company in the 1950s, sixties,seventies, eighties, 1990s. It was one of the most dominant companies on earthinvolved in so many industries. Now it's a $6 stock and there are analystsquestioning whether or not it could even survive. So that's an example of astock that six generations worth of investors could have looked at and said, GEis a blue chip.

[00:01:39] Somebody starting as an investortoday would look at this company and say, Oh my God, is it going out ofbusiness? So it's very important not to think about blue chips in terms ofeternity, because there were very few companies that. Can last long enoughthink about how hard that is to have a company remain at its size and qualityand relevance over a span of a hundred years.

[00:02:02] Very, very hard. For every bluechip that fades away a new one takes place because that's the nature of theeconomy. We have a very dynamic economy and the same forces that were importantto the economy in the 1930s, forties and fifties may no longer be applicable in2020 and beyond. So Intel and Microsoft were added to the Dow Jones, thusbecoming defacto blue-chip stocks back in 1999, they were the first toexplicitly quote tech companies, attitude, the Dow Jones.

[00:02:38] And now of course, Apple is inthere as well. There are people who think that alphabet, which is the parentcompany of Google might someday be in the Dow Jones or even Facebook, Facebookdidn't exist 15 years ago. So IBM was considered the tech blue chip of the Daobefore Intel, before Microsoft. And certainly before Apple.

[00:02:57] So fortunes of companies changeand the size and influence of industries change weeks ago, they kicked ExxonMobil out of the Dow. Just to give you an idea of how ancient Exxon mobile isand how important it was. It was 20 years ago, the largest company in theworld. For much of the two thousands decade.

[00:03:19] Uh, it was the largest companyin America. It had been in the Dow for as long as I can remember its roots, goback to John D Rockefeller. When they forced standard oil to break up, Exxonbecame one of the companies and mobile was the other, and then they merged. Butyou know, one of them was standard oil of, I think California.

[00:03:38] One of them was standard oil ofNew York or New Jersey. And then they merged, there's a largest oil company inthe world. It's now tiny. It's a fraction of its valuation. Having been thelargest company in the world 20 years ago. So that process happens in theworld's weans itself off of oil and gas and the value of the oil and gas thatthey can sell lessons, new companies come along and take the place of those oldblue chips.

[00:04:01] So we should never think about astock and look even Apple. Even Facebook, Netflix. I know it seems outrageousright now to imagine a world without these companies whose products andservices we use all day, but this has happened to almost every large, importantcompany throughout history. Almost all of them have risen and fallen over time.

[00:04:29] In name and indeed, these arecompanies that are household names for people all over the world. They makeproducts and services that you cannot get through your whole day without using.Um, it's very likely if you alive and living in the current world's economy,that at some point throughout the course of the day, you don't touch somethingfrom Google, whether it's Gmail, YouTube, whatever Facebook.

[00:04:54] Whether it's Instagram orWhatsApp. So these companies are ubiquitous. They check every box, they meetevery definition of a blue chip or what a blue chip has meant throughout time.They are every bit as important now as companies in the past, like. Kodak orCampbell soup were in their day or Ford motor, which by the way is also asingle digit stock or general motors.

[00:05:19] So we have companies rise andfall in importance and ubiquity over.

[00:05:29] New blue chips are beinganointed by new generations of investors all the time. It's an endlesslyrecurring process. I think Facebook, Apple, Microsoft alphabet, and Amazon areprobably the five most important companies in the world. Right now. And it'sbeen that way for a while now. It's just become exacerbated by the pandemic.

[00:05:50] Unlike other quote, unquote bluechips, they have been able to operate not only as usual during the lockdownsall over the world, but actually more and more of our activities have migratedonline and they have been sitting there waiting. So I think it's reasonable tosay that the pandemic has accelerated trends that were already in place.

[00:06:12] And may have taken five to 10years to play out. They played out in the month and now you've got 80 year oldmen and women who normally would have never bought groceries online, literallybeing forced to explore buying groceries online. And once they've adopted thattechnology, they probably don't stop using it ever again.

[00:06:31] So that's the type of adoptionthat may not have even ever happened. Absent the pandemic. You may have neverhad this wave of seniors ordering groceries online. And that's one example of athousand that we could come up with right now. So I think these trends towarddigitization have always favored those five stocks that I mentioned.

[00:06:50] And I think the pandemic hassped up the adoption and in some cases created new forms of that adoption thatwe never could have imagined. .