Risks on Investing in Bluechips Financial Management PDF

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Risks on investing in Blue-chips PCBET-22-702a / Group V

Abstract A well-established, financially sound, and nationally recognized company is called”Blue-chips”. Bluechips are known and generally identified as sellers or producers of premium-quality, vastly patronized output of products and necessary services. Business organizations that are branded as Blue-chips are identified and trusted to survive during low points and still operates to produce profitably in the presence of harsh and low economic down positions, which help to adds to their vast record and statistics of reliable and stable improvement of their organizations. Terminology of the "blue-chip" was inspired from a famous gambling game, the game of Poker, in which the

one

with

the

highest

and

greatest

price-value

are

called

Blue-chips.

In the year of 1923, Mr. Gingold, Oliver, regular worker at Dow Jones, used the term “blue chip” when he identified and learned that specific stocks are valuing at $200 or above per share. In the game of Poker, a participant chooses to gamble their money in the colors of blue chips, white chips, and red chips. And with the blue-chips pricing and valuing greater price-value than white and red chips. As of the present times, Blue-chip stocks does not necessarily mean stocks with a expensive tag price, but precisely referring to stocks of premium-quality business organizations that have survived the hardships of time. These colossal business organizations or companies are also multi-international profitable organization that has been operating for a number of years. Gigantic international organization in the names of McDonalds, Pepsi Co., Disney, IBM, Wal-Mart, General Electric, and Coca-Cola are the dominating alphas in their respective market industries. Blue-chip organizations also have constructed a wellrespected type of branding over the centuries they existed, and the truth that they have withstood multiple down-positions and harsh events in the economical places they existed, causes those wellgrounded profitable organization to have in a portfolio of a potential investor. Introduction

An investor can be in the ‘less risk – less profit’ type or ‘high-risk – high profit’ type of investor. Profit accumulation is based on the risk they decide to take, the most common rule in corporate world, “The higher the risk, the higher the return”. But that doesn’t mean that an investor must take the high risk investments in order to gain profit in their investments. Investors normally invest in a company that despite high-priced stocks and low-profit gain, can withstand most of the economic setbacks and market down positions. They prefer the slow-yet-safe process in terms of investments. They invest on Blue-chips. But risks are inevitable in everyone’s life especially in the world of investments. Even investing in business entity with a great market position and high-quality standing in the market world is susceptible to risks. Investments on Blue chips are also subjected to different kinds of risks. Though the risk is low and minimal, in some cases, those small risks turned out to be the reason why investors lose such amount of money through their investment.

Statement of the problem The main reason why investors invest in companies whether it is a small company or it is the power house of its respective industry is because of investment sustainability and investment profitability. They want to maximize the use of their surplus funds in the long run and at the same time, for it to gain profit. Determining and handling the risks involved in investing through such organization is very vital in order to mitigate or minimize the losses that an investor can encounter as well as the possible challenges that might arise in the long or short run of the investment. Objective:  To know what is Blue-chips.  To understand that despite being in a good market position, Investing in Blue-chips has risks.  To identify the risk and challenges on investing in Blue-chips.  To be knowledgeable in determining and handling the risks involved or associated on investing in Blue-chips

Research Method

For us to identify the answers of our research objective, qualitative research method was done. The review of related literature was employed using the results of other data gathered that are carefully organized and analyzed by other researchers and web bloggers to systematically support the objective of this study. The target of the research is to gain knowledge and information about the potential risks that Blue-chip investors are involved in, and the problems that may arise and that they might encounter. For us to identify and determine the possible precautionary actions that can be done to avoid or at least mitigate and minimize the risk in investing. Qualitative research method is primarily investigative in nature. It is applied to gain knowledge, opinions, and underlying reasons for a phenomenon. It is also used to discover trends in view and thoughts for particular problems. (Wyse, 2011) The Thematic-analysis is a step-by-step process of identifying and reporting outlines in those data gathered. (Braun & Clarke, 2006)

Review of related literature

Investing in Blue-chips is still susceptible to risks A quiet number of individuals think that stocks issued by a Blue-chip company are the fortress of longlife investments. Large organization producing colossal profits – Nothing wrong could happen. Well, not so much like the famous downfall of the business elite, Lehman Brothers, but The Motley-Fool contains a number of tips and lessons that must be learned by any individual in terms of putting all your hopes and dreams of profitability on just any stocks that Blue-chip organizations produces:

It is in the setting of the great stock market of Singapore, the Straits Times Index (SGX: STI) consists of 30 profitable large organization often positively labelled as the ‘Blue-chips’. The 30 existing power houses are some of the biggest publicly listed business organizations in the country of Singapore, and by the name of that truth within, it is quiet often that a bright and good description and label comes along within them. But, it is not necessarily the situation where a company identified as Blue-chip would produce lower potential risks and problems to the individuals who are interested in investing.

The cargo business organization, Neptune Orient Lines, which in the earlier years was still considered as a business organization that produces premium quality share in the lists of the Straits Times Index until the sad day of September 24, year 2012. The time it was taken over by IHH Healthcare Berhad. This case presents a solid example of why that Blue-chip is not exempted to risks. Poor number of individuals, who unpremeditatedly poured in their investments in business of Neptune Orient Lines while it was a dominating Blue-chip company, thought it was stable and deliberately safe to put their investments since it was one of the reputable and respected business organizations in Straits Times Index. No one expected it would experience financial agony and some serious profit losses while missing many positive market chances along its tragic journey. In some instances, Neptune Orient Lines stocks were having a price trade at S$2.18 a piece in the early beginning of the year 2011, just for the poor investors to witness it crush downhill to a whooping 55 % in its present times (From $2,18, it drastically dropped to $0.975). In the contrary, the vastly consumer, as shown and reported by the STI (Straits Times Index), had only shrunk by 3 percent to 3,085 points at the same period of time. The vast difference in terms of Neptune Orient Lines and the price movement of its statistical market would not be much of a financial mysterious puzzle. In which when we revaluate the past of how Neptune Orient Line’s business has handled and executed its operations, could perhaps be suitably reflected by an announcement that the cargo business organization had constructed after the downfall.

Neptune Orients Line’s Business On the cold evening of February 25, 2014 in Singapore, The shipping business organization Neptune Orient Lines claimed that it has a potential to be listed on a watch-list of profitable business organizations that the country’s stock exchange operator (Singapore Exchange) handles. Inside its listing laws, business organizations gets listed and included under its watch-list if it records: 1) Losses during pre-taxation not including one-off events for three of its most updated complete financial years; and 2) Over the last 120 market days, businesses that have an average day-today market capitalization of lower than $40 million. Neptune Orient Lines recently uncovered its complete annual data results for the year 2013 on February 20, 2014 and according to S&P Capital IQ, though witnessing great changes and refinement in its regular business operations, Neptune Orient Lines still badly injured after a loss of $208 million during pre-

taxation, while not including its one-off gains. That was preceded by losses before pre-taxation (once again, not including the non-recurrent events) of $261 million and $412 million in the years of 2011 and 2012 as there are quite a surplus in terms of number of supply of the ships within the business line and market industry of shipping had affected the business organization really bad. With these gain figures, the shipping company, Neptune Orient Lines had found itself inadvertently complying with the first criterion of the SGX’s rules for a potential subject to be included into their unwanted organizational watch-list. Though even with Neptune Orient Line’s present market capitalization of $2,530,000,000+ expounds the troubled cargo business is still miles away from completing nor accomplishing the second criteria set by SGX, the cargo business, Neptune Orient Line still has the legitimate risk of potentially being under the watch-list of SGX’ – A list composed of different business organizations facing extremely harsh business atmosphere and obstacles. SGX performs an examination every quarter of the list of potential subjects into the unwanted list (During the beginning of the months March, June, September, and December every year) and Neptune Orient Lines would only identify its watch-list-status when SGX, the country’s stock-exchange main operator accomplishes its full detailed study and examination on the shipping company. To wrap it all up, the dilemma that the Neptune Orient Line has experienced shows the highlights of how critical it is for investors to concentrate and prioritize on what’s really vital and essential – the value we are paying per piece (of share) and the potential long-term outcome of the share’s corporate results – and never pay attention to the over-exaggeration of brandings like how “a company’s stocks must be stable and withstanding just by the reason it’s a Blue-chip that is one of those necessary and vital index in the market”. SINGAPORE – Piling personal portfolio with companies that issues premium-quality stocks, as a head manager of their employers operations, Mr. Ruy Teoh’s actions does suddenly perceive a value of a choice as it once did. Various improvements and revisions in the environment of the Singapore Exchange must result on purchasing these power-houses issued stocks a lot easier, on which Ruy Teoh must undoubtedly fancy. The perceptive manager got every share purchasers here, vast and wide options of around 800 business organizations to pick from, but Mr. Teoh keeps an intense but calculated focus on about thirty (30) sturdy companies only or so. The listed 30 business organizations are the companies that produce premium-quality stocks, the bluechips. They owned the highest valued shares on the market-trade and often proudly carry prestigious names with miles of operational past and histories, good statistics & positive recorded tracks. “The names

that I am familiar with are the Blue-chip stocks, and those business organizations that have been standing and existing for a long period of time. Those businesses are well-founded and in general, sturdier in comparison with tinier business organization," "As far as it is concerned, there is a particular stage of confidence and at the same time, comfort. I am assured; I will have the calmness of mind on pouring my investments in great and well-founded business organization." Operation manager, Mr. Ruy Teoh, 32, has begun saving and pouring his investments in the year of 2010 and had just registered for a regular plan in investing. The program of regular investment was given and promoted none other by the OCBC Bank. The program of the financial institution permits the consumers to set down heavily a sum on a monthly basis. Although systematically, the banking product permits consumers to freely pick from a vast range of businesses that are currently in the top ranks. Mr. Ruy Teoh confidently is giving in all his Five-hundred dollar ($500.00) monthly investment in business stocks produced by the financial institution, OCBC Bank. – And also at the same the financial institution that is providing and aiding him the investment program he has invested to. "It is presently one of the banks that is stable and safe in the world after all," he claimed. Keen individuals that pour out their surplus funds in investments like Mr Ruy Teoh may in the future discover Blue-chips much easier to acquire for the under the proposal and revision of the country’s stock exchange operator, SGX to lower down the minimum bulk-size of traded pieces of stocks. Shares of stocks of every Blue-chip organization that are being trade in bulk of a thousand units. (1,000+ shares of stocks) And given that the minimum investment set by a firm with a share price of five dollars ($5.0) the whole thousand units of share will pinch you back at least five thousand dollars ($5,000). Estimated that about forty percent (40%) of the thirty (30) Blue-chips in the list of Straits Times Index are priced and valued at that standard or sometimes higher, so small retail individuals that pour their moneys in investments have to encounter a high-steeped outlay. And all of those things in the past will all change in the future under the Singapore Exchange’s (SGX) plan to lower down the standard bulk-sizes to a hundred pieces (100)of shares by the first four months of the upcoming year. A great example is when you put your money on investing in United Overseas Bank (UOB) business share, at $20.88 which it closed on Friday. A thousand pieces (1000) of shares will drive you a whooping twenty thousand eight hundred eighty-eight dollars ($20,880). But after the application of the new law, you’ll be able to purchase a ton of just a hundred pieces (100). It means you can dive your inner investors’ spirit into the business of United Overseas Bank for just two thousand and eighty-eight US dollars ($2,088). A lot of difference right? "Top rank businesses or Blue-chip companies are gigantic organizations that possesses high financial standing and a good respected attributes for their premium standards in terms of business management and meticulous government in terms of their organization," according Mr. Lam Brandon, the

leader of the department in Consumer Investment and Insurance Products at DBS Bank."These business organizations typically possess sturdy ground of foundation and have the required experience to dash forward through the statistical Highs and lows of the market economy better. "They usually issue premium shares of stock and produce more well founded returns in the investments compare to those of tinier business organizations over period of time." “The suggested idea of SGX about smaller lot-size means "high-value shares of Blue-chip companies would be much easier to acquire for the small retail individual that has the passion to pour out their surplus funds in investment.", according to the Head in Consumers Investment and Insurance Products. “But still, decreasing down the bulk-size doesn’t mean that the potential risks associated with investment in the particular stock will also be lower, he adds.” Experienced economical observers say that the possibilities of risks in investment are vastly close related in picking the wrong options of stock, or purchasing it the worst time.

Picking out the wrong share Even though the good shape and historical records of operations of top ranked business organizations lowers the probabilities of the organization in crumbling down, this probability will not be excluded out. Especially if such case of a humongous controversy pops out along the way, chances are a number of poor individuals who have whole heartedly poured out their monetary funds in investment may lose their monetary assets. They might also experience suffering if the certain business entity out of nowhere faces harsher operational atmosphere, down-falling gains and gains and more related challenges. The investors’ part in the company might still somehow regain or acquire some of its value, though inevitably, it might lower its price and value. A great example is the Transport operator SMRT Corp. The SMRT Corp.’s stock has sunken from the high of $2.33 in 2010 to the low of $1.365 during the fifth day of the week Basically the $2,330 of an investor poured for investment in one lot in the year of 2010 would be worth only $1,365, the price value decreased for about 40 percent. The share of the transport operator had been inside the Singapore Trade Index (STI) but was excluded out in the year of 2011 as the share price sunken due to the organizations very poor production of the Circle Line Operations. Gains and the profitability have also drastically decreased a huge margin just recently as breakdown of their rails outshined the emergency necessity to spend more on their development and sustainability. Purchasing at its peak There exists other potential problems that may arise even if you poured out your investments in Exchange-Traded Funds or even through a number of companies if your chosen business organization does not experience hardships and challenges from any market and industry slowdowns or declining

profits and gains. The Stock Markets in a regular basis moves and changes in huge repeated process, in which most of the cases have no relationship of how well or awfully the specific share of stock is performing. And though you will surely lose the partiality of those invested monetary assets if you purchase or acquire stocks inside the stock market at its price peak and unfortunately price drops later. In the past, the Singapore Trade Index (STI) was at three thousand four hundred fifty-four points (3,554) but was reduced to a whooping three thousand and eighty-nine points (3,089) on the fifth day of the week. If an individual had invested in three thousand four hundred fifty-four US dollars ($3,454) into a Singapore Trade Index (STI) Exchange-Trade Fund in the colourful month of May, that individual might have lost three hundred sixty-five US dollars ($365) in his or her investment. At this time-period, the outward appearance for company index hasn't moved much - the partial loss in investment was caused purely to the fluctuations or movements in the stock market. Another great example is the stock of United Overseas Bank (UOB). Its value was about twenty-two US dollars ($22) in the month of May, but during the present time, its value has drastically fallen into only twenty point eighty-eight dollars ($20.88). Basically, a twenty-two thousand US dollar ($22,000) monetary fund poured in investment during the month of May would suffer the loss of $1,000 at the moment. Small retail individuals who invest their excess monetary funds would perform well and achieve positive outcome if they will never remove this in their mind during their premeditation in regards of their investment. Even though the lot-sizes for shares of stocks (even blue-chips) decreases, people who invests are sill exposed to market risks, it doesn’t change ...