The Disadvantages of Blue Chip Investing

There are two kinds of drivers in crowded parking lots

The first tries to minimize walking. Even if the parking lot is busy, they are willing to wait to be near their destination. You'll see their cars stalled - hazard lights blinking, hoping someone nearby will leave.

The second kind of driver maximizes speed. They park farther from their destination, where there are more empty slots. They walk more, but they get to where they're going faster.

There are two kinds of companies in the stock market

Like the two drivers, there are two kinds of companies in the stock market.

The first is the popular kind. They're the blue chips and the hot picks of the month. People see them as safe.

Here are typical characteristics of popular companies:

• When you mention these companies in parties, people see them as smart investments.
• They're talked about a lot in finance circles. Many analysts follow them.
• They have huge trading volumes.
• They frequently make front-page news.

Examples of popular companies include ALI, MM, and BDO for the Philippines, and TSLA, WMT, and AAPL for the USA.

The second kind of company is the unpopular kind. They're small, unknown, or going through bad news. People think they're scary and not trustworthy.

Here are typical characteristics of unpopular companies:

• When you mention these investments in parties, people look at you funny.
• Analysts generally don't follow them.
• They usually have lower trading volumes, or their prices are falling.
• They either don't get mentioned in the news, or they're in the front page for bad reasons.

Examples of unpopular companies in the Philippines in 2021 include ABS, EW, SHNG, and most food companies during the COVID pandemic.

Most people think that the highest gains come from the popular companies. The opposite is true.

Why fame makes it hard to get fortune

The problem with popular companies is that everyone already thinks they're great.

Popular securities are always in high demand. And when many people buy a stock, it becomes more expensive.

This means it's rare to find popular companies at a discount.

The best deals are outside the mainstream

If you want to beat normal results, it will help to look at companies outside the normal selection.

Like finding a Picasso in a garage sale, you can find huge deals when you look for companies in unpopular places.

Let me be clear. Garage sales are filled with mostly garbage. Similarly, most unpopular companies are genuinely bad. If you want to get safe, steady results, stick to blue chips.

However, by looking where no one else is looking, you can sometimes find gems. If you learn to value and appraise companies, then you can sometimes find bargains among unpopular stocks.

Conclusion

Blue chip companies are great investments, and it's hard to beat their results. But it is possible.

If you want to beat the index, learn how to value and appraise companies - especially those outside the mainstream. Learn to do your own research, because the best deals are found in unpopular stocks that few are willing to study.