Where do "blue chip" stocks come from?

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May 28 2003 4:07 PM

Where Do "Blue Chip" Stocks Come From?

The Canadian panic over mad cow disease has been a Wall Street bummer for McDonald's, whose stock price slipped 5 percent in a single day last week. The slide dragged down the Dow Jones industrial average, which includes the Golden Arches and 29 other "blue chip" stocks. Where does the phrase "blue chip" come from?

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As befits the high-risk nature of stock picking, "blue chip" derives from poker. The simplest sets of poker betting discs include white, red, and blue chips, with tradition dictating that the blues are highest in value. If a white chip is worth $1, a red is usually worth $5, and a blue $10. No one's quite sure why blue chips were accorded such exalted status, but it may have something to do with the color's royal lineage—an aristocrat, after all, is known as a "blue blood." And blue-dyed cloth was a privilege of ancient and Medieval kings.

Since established blue chip stocks are considered relatively valuable, not to mention pricey, the phrase is appropriate. Most etymologists believe it was first used around 1900, perhaps in 1904, the year the Dow industrial average first broke 100. (That year's Dow included such bygone companies as American Smelting & Refining, Colorado Fuel & Iron, and U.S. Leather.) A few sources date the usage to the 1920s, but this seems dubious. The popularity of poker during Prohibition, and an attendant upswing in the amounts being wagered, led to the manufacture of a rainbow of new betting discs, all ostensibly higher valued than the old blues. One common color scheme from this era fixed black as the highest value chip, while others employed brown as the Mother of All Chips. Had Wall Street slang-talkers affixed the term during the Hoover years, then, we'd likely be talking about "brown chip" stocks nowadays.

Bonus Explainer: The hierarchy of colored chips is also much discussed among devotees of Alcoholics Anonymous. Newly recovering alcoholics are rewarded with chips for each month of sobriety, typically starting with a white chip when they begin attending meetings. Practices vary widely from chapter to chapter, but a blue chip is often used to mark two months of sobriety; a clear, silver, or golden chip is a traditional gift for the one-year anniversary.

Explainer thanks Nolan Altman and Robert Pardue from the Casino Chips & Gaming Tokens Collectors Club.

Brendan I. Koerner is a contributing editor at Wired and a columnist for Gizmodo. His first book, Now the Hell Will Start, is out now.

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