Wry & Dry

Blue chip? As misleading as an election promise.

W&D is an affable man.  A very gentle man.  Even tempered and good-natured, whom you never hear complain.  Who has the milk of human kindness by the quart in every vein [1].

But, when people speak of investing in so-called 'blue chip' [2] stocks, W&D's serenity is through.

Blue chip stocks are spoken of in the same vein as the Twenty Leaders i.e. the 20 largest companies on the ASX.  As you can see from the below chart, the performance of the surviving 18 of the Twenty Leaders over the past decade has been nothing if not hum-drum.

Blue chip

Only CSL can hold its head high, as possibly might Transurban.  Rio, BHP and Woodside might seek W&D's forgiveness on the basis of each being in highly cyclical businesses (which begs the question as to why they might be considered 'blue chip'). 

W&D can only conclude that the quality of directors and senior executives of these companies is humdrum at best.  And shameful at worst.  And just think of the massive compensation those business leaders took from the shareholders.

W&D's aim is not to undertake a witch hunt.  But instead to consider the outcome of such indifferent performance on investors who bought the 'blue chip' story and who indeed did invest in a basket of these companies, either by an index fund or directly.  Certainly, investors received dividends.  But W&D remembers that over that decade banks cut their dividends by 25% when there wasn't even a recession and that the dividends were not enough to drag returns to an acceptable level.

W&D's message is that there is no point investing in a stock just because it is a 'blue chip'.  Better to choose stocks that have an outlook of good profit growth and good dividend growth, regardless of size.