Vanguard mutual fund

[billwald]

The guy who started Vanguard was on PBS last night. He claimed that in the LONG run, a fund that invests in every stock across the board can't lose. In my mind, a fund that invests across the board can't do better than the inflation rate in the LONG run. Why am I wrong?

He said the safe (best?) technique was for a fund to keep a small percentage of the fund in small companies and a large percentage in large companies . . . proportionally across the board. In my mind, that doesn't compute because one Microsoft balances lots of losers. Why am I wrong?

He said that all investing schemes ultimately fail - I agree - but fails to admit that his is a "scheme" as much as technical trading is. Why am I wrong?

Seems to me that even Soros and Buffet will eventually blow it and knowing when to pull out of an investment company is as important as knowing when to sell a stock. Our money guy is a "my computer is faster than their computers" guy and for the last 10 years has beaten the market. We know that eventually he will blow it but Lord willing and the creek don't rise, (turning 70 next year), we won't live long enough to see it. Don't need the money, anyway, but it is fun to be able to spoil the grandkids.

 

[TomVols]

Full disclosure: I own three different holdings from Vanguard, including some funds of funds.

Now, to your questions:

He claimed that in the LONG run, a fund that invests in every stock across the board can't lose. In my mind, a fund that invests across the board can't do better than the inflation rate in the LONG run. Why am I wrong?

Historically, the stock market across the board bests inflation. Profits, stock valuation, dividends, etc., are not strictly tied to inflation but are always influenced by them.

He said the safe (best?) technique was for a fund to keep a small percentage of the fund in small companies and a large percentage in large companies . . . proportionally across the board. In my mind, that doesn't compute because one Microsoft balances lots of losers. Why am I wrong?

As one fund manager I know says, most of the time Goliath kicks David's butt. Small caps are good for runs, but the steady consistent historical growth tends to come from large and mid caps. I prefer a diversified approach with large, mid, small cap growth and value stocks with some emerging markets and international stocks for those willing to take risks. Age and risk appropriate holdings across the bond spectrum isn't a bad idea either.

He said that all investing schemes ultimately fail - I agree - but fails to admit that his is a "scheme" as much as technical trading is. Why am I wrong?

Not knowing context, I'd say you aren't wrong. But if by scheme you mean shorting, lack of a diversified strategy, fetishing, that sort of thing, then I'd agree with what he says.

Seems to me that even Soros and Buffet will eventually blow it and knowing when to pull out of an investment company is as important as knowing when to sell a stock.

Buffet has been taking it on the chin for some time. But I disagree in that I think you can stick with investment companies that practice good principles, don't charge too much, and have good holdings. The key is to be flexible and diversified. My personal stock portfolio has beaten an overwhelming majority of the time (I don't want to quote a pct), and I have beaten the market since 2006 consecutively. But it's not about beating the market. It's about the long haul. That's Vanguard's approach, and one worth having.

Vanguard's chief recently said he prefers a nationalized RSV (similar to Canada). So I don't like his philosophy there. But that doesn't mean he doesn't know how to run a brokerage.

 

[billwald]

Thanks for the reply. If I cared about the long run I would be with Vanguard. As Keynes said, "In the long run, we are all dead." Next year I get my "three score and ten."

 

[TomVols]

If you're at that point, you can still benefit from sage advice about preservation and mild growth of what you have accumulated through the years.