What Are Big Stocks?
Big stocks are blue chip or leading companies in an industry that list shares on the stock exchange. These stocks often set the tone in a sector by which smaller companies tend to trade. If a big stock has record profits, investors tend to celebrate by rewarding other stocks in the sector.
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Indexes
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The largest securities trade in select stock market indexes, including the Dow Jones Industrial Average, a barometer of financial market activity. The Dow includes 30 of the largest companies in the U.S. If a company does not maintain a certain stock price, it can be replaced in the index.
Types
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Blue chip is another name for the largest and most stable companies that trade in the stock market. Named after the poker game, blue chip stocks are expected to have the most value, be less volatile and carry less risk than other equity investments, according to The Motley Fool.
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Effects
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Trading in a big stock can impact buying and selling activity throughout an entire sector. For instance, if a large computer maker misses profit expectations, fear spreads throughout the investment community that computer sales must be down industry wide. Investors might respond by selling big and small computer-related stocks.
History
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Although big stocks are mostly considered safe investments, there are risks associated with any investment. For instance, in 1955, automaker General Motors led the markets out of the doldrums when it split its stock in a three-for-one transaction. In 2009, GM was forced into bankruptcy after the stock price fell to its lowest price in 76 years, according to the (London) Telegraph.
Opportunity
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When big stocks decline in value, it might be seen as an opportunity for investors to purchase shares at a discount. If an investor is willing to hold a security for the long term, purchasing shares of high quality big stocks during a market downturn can lead to attractive gains for shareholders in the long run.
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References
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- Photo Credit Image by Flickr.com, courtesy of kevinzhengli
