To succeed in the long term, find the best blue chip stocks to buy and hold on to them.

The best blue chip stocks to buy and hold in your portfolio all have one thing in common: They give you reason to believe they might be worth holding on to indefinitely.

Most of these stocks have an established business and a history of sales gains, plus some earnings, if not dividends. To put it more simply: these stocks have a clear business plan that seems to be working.

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The best blue chip stocks to buy are the kind of investments we put in our clients’ portfolios

Although we think the best blue chip stocks are worth holding on to indefinitely, we keep an open mind. After all, they are subject to the usual risks. Competitors can overtake them. Expected contracts can fall through. They can lose key employees, run into union or regulatory problems, and so on.

Of course, nobody can predict the future. We’ll change our view and sell some as time passes. We’ll give up on some way too early, and hang on to others way too long. But if you focus on stocks like these, you improve your odds. The best of the bunch will more than overcome your losses and leave you with highly satisfactory long-term returns.

The best blue chip stocks to buy

As mentioned, blue chip stocks we recommend have a history of earnings and, in most cases, a history of sustainable dividends. They have established their value over the long term. Like all stocks, they can fluctuate widely and many suffer in a long-term market downturn, but they offer a higher probability of long-term gains.

We feel most investors should hold a substantial portion of their investment portfolios in securities from blue chip companies. These stocks should offer good “value”—that is, they should trade at reasonable multiples of earnings, cash flow, book value and so on. Ideally, they should also have above-average growth prospects, compared to alternative investments.

Common characteristics of the best blue chip stocks to buy

• These stocks are of high-quality companies.
• These stocks are outside the broker/media limelight.
• These stocks often have hidden assets.

The best blue chip stocks to buy have three financial factors in common

• 5 to 10 years of profits. Companies that make money regularly are safer than chronic or even occasional money losers.
• 5 to 10 years of dividends. Companies can fake earnings, but dividends are cash outlays.If you only buy dividend-paying stocks, you’ll avoid most frauds.
• Manageable debt. When bad times hit, debt-heavy companies often go broke first.

How the best blue chip stocks to buy can benefit your portfolio

We advise investors to look for blue chip companies that are likely to pay off if business and the stock market are good, but that won’t hurt them too much during those inevitable periods when business or the markets are bad.

If you follow our three-pronged approach—diversify across most if not all of the five main economic sectors, stick mainly to well-established companies and those outside the media limelight—then you can be almost certain of long-term gains in excess of what you’d get with any other investment approach.

In a deep or long-lasting market setback, your blue chip stocks will tend to go down, along with everybody else’s. But we think they will go down less and recover sooner.

Practice patience, not reactionary behaviour

It’s all too easy to sell a blue chip investment that looks like it’s headed for a downturn, only to buy another that is headed for a collapse. For that matter, if you make a habit of selling whenever you feel the market’s risk has gone up, you will wind up selling your best stocks way too early.

You can always find a rationale for selling. Market commentators are continually thinking up new ones, based on recent market strength or weakness, historical market patterns, political or economic predictions, changes in tax policies—the list is endless. This is a good thing. After all, you can only buy a stock if somebody who owns it wants to sell.

Before you act on a selling rationale, take a broader look. Consider facts about the blue chip investment, and about your investment goals and temperament. If the selling rationale makes sense and you find additional good reasons to sell, then selling may be the right thing to do. But it’s always a bad idea to sell a good stock for trivial or transitory reasons.

Have you ever sold a blue chip stock only to regret it later? When did you realize you made the wrong decision?