How to Define Blue-Chip Stocks

When we look at blue-chip stocks, we look for large cap S&P 500 stocks that pay a dividend. Here we are looking for stocks that fit the basic criteria and that we rate as buy now.

We don’t pick the stock first and then try to provide evidence that our choice is correct.

Here’s a good example: IBM may be a good stock in general, but what we want to know is whether it is moving right now, so that it would show up through our proprietary filter.

This differs from the growth portfolio where we are looking for large cap stocks whose price has been beaten up and MAY be poised for a rebound.

For our growth portfolio, we’re looking for stocks already moving upwards. Also, the stocks in this portfolio tend to be the largest and steadiest movers. Thus we select a larger number of stocks and provide a larger trailing stop loss of 20%.

With this strategy, we’re able to still preserve our rule to not lose more than 2% of the portfolio (not 2% on the individual stock) on any trade.

One of the reasons our strategy is so successful is that our system removes any emotions from our buys and sells, which means that if a stock hits a target up or down, then it is sold.

Also, in our growth portfolio, if the stock changes its rating to a “sell”, we do so and don’t buy it back until we believe it is a good buy again

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