Nifty Fifty
What Is the Nifty Fifty?
The Nifty Fifty was a group of 50 large-cap stocks on the New York Stock Exchange that were generally favored by institutional investors during the 1960s and 1970s. Investment in these top 50 stocks — like blue-chip stocks of today — is said to have propelled the American economy to its bull market of the 1970s. Companies in this group were typically characterized by consistent earnings growth and high P/E ratios.
Understanding the Nifty Fifty
The Nifty 50 stocks got their notoriety in the bull markets of the 1960s and early 1970s. They became known as "one-decision" stocks because investors were told by people, for example, University of Pennsylvania professor Jeremy Siegel that they could buy and hold them forever. That wasn't generally the case. However nobody comprehensive rundown exists of the Nifty 50, examples of some of these stocks included General Electric (GE), Coca-Cola (KO), and IBM (IBM). However, part of this rundown included companies that have been troubled in the last decade, like Xerox and Polaroid.
Nifty Fifty Stocks and Price-to-Earnings (P/E) Ratios
Historically nifty-fifty stocks were favored in part due to their high price-to-earnings or P/E ratios. P/E ratios compare a stock's current market value (price) to its earnings-per-share. Earnings are the company's net profits, which the CEO and investor relations team announce each quarter on the company's earnings conference call. The P/E ratio indicates the dollar amount an investor ought to invest in a company to receive one dollar of that company's earnings. The P/E is consequently sometimes referred to as the price multiple.
Today high P/E ratios, for example, with numerous technology companies (i.e. Tesla's (TSLA) forward P/E of 1,076) can indicate volatility and a lack of stability. Assuming that the company's price is essentially higher than its real concrete earnings, this imbalance could suggest investors have over-hyped the company. In the event that the company neglects to generate profits, investors who have purchased the stock at a high valuation could see their holdings decline assuming that the market catches on and price drops in like manner.
Nifty Fifty and Today's Blue Chip Stocks
Today's blue-chip stocks in more than one way resemble the Nifty Fifty stocks of prior decades. Blue-chip stocks are nationally recognized, well-established, and monetarily sound companies like Coca-Cola, Disney, PepsiCo, Wal-Mart, General Electric, IBM, and Mcdonald's. Prevailing in their respective industries, a significant number of these names overlap with those in the Nifty Fifty. Blue-chip stocks represent highly reputable brands and have survived multiple slumps in the economy over the years.
Investors with a generally safe profile (i.e. more conservative or potentially older investors, nearing retirement and searching for stability) often place their assets in blue-chip stocks. These are excellent options for capital preservation. Steady dividend payments provide a stream of income in the event that the investor does not have a salary and furthermore protects the portfolio against inflation.
Highlights
- Examples of Nifty Fifty stocks included household names like General Electric, Coca-Cola, and IBM. However, part of this rundown additionally included now-battling or defunct companies like Xerox and Polaroid.
- Today's blue-chip stocks in more than one way resemble the Nifty Fifty stocks of prior decades.
- The Nifty Fifty was a group of 50 large-cap stocks on the New York Stock Exchange during the 1960s and 1970s, characterized by their consistent earnings growth and high P/E ratios.
