Is There Such A Thing As A Blue Chip Stock Anymore?

You can't throw out the idea that "blue chip" stocks are a safe haven based on 9 months of underperformance.

Wrong question, I think. The right one is "Is there even a such thing as a 'blue chip' stock?"

Which immediately leads into, "What timeframe are we talking about?" I might believe in a blue-chip classification on the time frame of five years as long as it isn't absolute, but there isn't a single company in existence anywhere (or anywhen) that I would guarantee will exist in fifty.

I think the entire idea of "blue chip" only works in a worldview raised not just before the 21st century, but in the earlier part of the 20th century (and before) where things generally moved more slowly and even a behemoth could take decades to fall. That's just not as true as it used to be, if for no other reason than in the 21st century said behemoth was likely to be leveraged to the hilt....

Stock prices are a function of future expectations on earnings. Not too much should be extrapolated. Depressions are rather defined by sorrier things: Selling hard assets for food, becoming migrant workers for food, surrendering morals for food, etc.

Modern efficiency being what it is, real depressions are probably impossible. Again, I recommend to anyone interested:

http://video.google.com/videoplay?docid=-9022016584178907197...

I think what we're seeing is a combination of over-leveraging/under-capitalization in addition to the usual resistance to change that happens naturally.

All businesses get accustomed to paying certain costs and acting in certain ways (just like people do) and it takes a cold splash of water for anything to change. It's not necessarily that their businesses are fundamentally flawed. It can simply be that they've built up cruft - like the $5 daily coffee and $150/mo cable bill that many of my friends racked up during fat years. In many cases, getting back to basics would release a lot of the pressure.

But there's also the unique situation of over-leverage. Businesses haven't been conservative with their capital - rather, hoping that they could provide better returns for increased risk and sometimes even just spending money on projects without enough regard to the value of those projects. In fact, management has often been criticized for acting conservatively in recent years since it leads to lower returns (at least in the short-run).

Warren Buffet once wrote, "I've never believed in risking what my family and friends have and need in order to pursue what they don’t have and don’t need." Businesses should make money - they good and services they produce advance our standard of living. However, it's a little clear that they need to concentrate on their foundations a little more so that bad times become lost potential and not lost businesses.

I really, really hate charts of the DJIA (or anything else, really) that make it look like we've just stumbled into the Great Depression by the simple expedient of not showing any of the Y axis below today's close.

"Stocks down 2% from last week" not sexy enough of a headline for you? Start the chart last week, end it today, rescale the Y axis -- CALAMITY STRIKES WALL STREET.