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The $3 Trillion Portfolio

Have you ever dreamed of hitting the perfect combination of stocks -- all winners and no losers? If so, then it's likely that reality soon set in, leaving you feeling lost amid a sea of thousands of companies that may or may not be promising investments. Many investors give up and buy mutual funds to diversify and lower their risk. But the next step toward creating your own portfolio is to pick stocks that are winners while weeding out the losers.

First, find a successful fund and study what it does, dismissing the riskier stocks based on your personal investment knowledge and research. This is what led the Vanguard Group to become one of the most successful mutual funds. Stop the speculation and "buy widely and hold for life" -- that was the basis of the first index fund that Vanguard founder John C. Bogle created amid heavy criticism for such a simplistic approach.

However, the critics have been silenced. When January 2013 rolled around, Vanguard's current chairman and CEO, Bill McNabb, very quietly issued a thank-you letter to its investors for helping the company surpass $2 trillion in U.S. assets. There was little fanfare or press. However, Marketwatch has reported that the number is probably closer to $3 trillion if you include foreign assets -- there are only 10 nations with a GDP that size. So our goal is to emulate the fund's success. In other words, "Let's have what they're having." According to NASDAQ, these are the top positions held by Vanguard Group:

Company Class

Value of Shares (thousands)

Change in Value (thousands) Change Shares Held
Apple COM $21,403,915 $604,306 2.91% 44,504,335
ExxonMobil COM $18,995,081 $141,076 0.75% 222,138,704
Microsoft COM $11,815,800 $127,485 1.09% 357,946,067
Chevron COM $11,651,490 $207,216 1.81% 99,815,732
General Electric COM $11,517,408 $132,873 1.17% 486,582,514
Johnson & Johnson COM $11,351,597 $347,184 3.16% 132,596,620
Google CL A $10,946,102 $487,224 4.66% 12,822,404
Procter & Gamble COM $10,698,456 $264,935 2.54% 140,160,566
International Business Machines COM $9,759,685 $399,923 4.27% 54,608,801
Wells Fargo COM $9,699,992 $428,621 4.62% 241,053,484
JPMorgan Chase COM $9,101,280 $111,070 1.24% 178,912,530
Pfizer COM $8,972,276 ($535,495) (5.63%) 317,715,155
AT&T COM $8,432,534 ($104,375) (1.22%) 254,682,385
Berkshire Hathaway CL B NEW $8,232,495 $1,544,957 23.1% 73,920,219
Coca Cola COM $7,915,534 261,757 3.42% 212,326,552
Merck COM $6,825,399 100,312 1.49% 142,940,287
Philip Morris COM $6,725,307 ($56,898) (0.84%) 78,255,847
Bank of America COM $6,663,077 101,206 1.54% 486,711,237
PepsiCo COM $6,623,114 170,821 2.65% 83,911,234
Wal-Mart COM $6,425,024 ($119,292) (1.82%) 88,134,754
Earnings will be announced later this month despite the government budget crisis. So now is the time to find the good companies that Vanguard likes -- and the ones that might also surprise Wall Street at the end of the month.

Apple (NASDAQ: AAPL  ) is Vanguard's largest investment. When the new 5s and 5c iPhones were first launched, consumers gobbled up 9 million of them, which will add a possible $2 billion in revenue to estimates for the September quarter. One Raymond James analyst predicts that loyal iPhone users will upgrade as the two-year anniversary of the iPhone 4 approaches. He is forecasting that 56 million phones will be sold in the December quarter, and he gave the company a new price target of $675. If Apple institutes a share buyback program -- hedge fund investor Carl Icahn has pushed for a $150 billion buyback plan -- shareholders will reap the rewards. What if the next earnings report for Apple is a miss? It will be a great buying opportunity.

Microsoft (NASDAQ: MSFT  ) has jumped into the No. 3 spot in the fund's holdings. The company is expected to introduce Windows Phone 8.1 in 2014, and it is hosting several midnight parties to unveil the new Surface 2 and Surface Pro 2. The company has taken a lot of chances by entering the hardware business, and investors have remained lukewarm. But the search for a new CEO has become a priority that could give the price a pop. Microsoft may be appealing to income investors with its 3.3% dividend yield.

Chart forSIRIUS XM Radio Inc. (SIRI)

Meanwhile, Vanguard sold 23% of its position in Sirius XM (NASDAQ: SIRI  ) (NASDAQ: SIRI  ) (NASDAQ: LMCA  ) Some analysts are worried that Apple's free iTunes Radio will take a bite out of the Sirius-controlled dashboard in many cars. Why pay for a subscription when iTunes Radio is free? But the company broadcasts many types of programs besides music. These include news, sports, and talk shows like Howard Stern, which can't be found on iTunes Radio. There is also a lot of talk about Sirius going global in connected cars, and CEO James Meyer sees this as a real opportunity. Another $2 billion buyback was just announced, which will reward Sirius shareholders. Even though Vanguard reduced its position in Sirius, it remains the top fund owner of the company.

Just because a fund owns a stock does not mean that it will perform well. As a matter of fact, many funds underperform the broader market. However, this can be a great place to look for investment ideas.

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Read/Post Comments (7) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 10, 2013, at 3:08 PM, bottomfisherman wrote:

    "Why pay for a subscription when itunes is free." Getting boorish, could not resist that dig on SIRI could you? MF and its writers have been wrong on SIRI from the start (with the sole exception of Rick.) If getting radio for free was a killer, Pandora and for that matter, terrestial radio would have put SIRI out of business by now but that has not happened. No they are making money hand over fist. They are also rewarding their shareholders but unfortunately reality and articles on MF seem to be mutually exclusive.

  • Report this Comment On October 10, 2013, at 3:14 PM, constructive wrote:

    "If Apple institutes a share buyback program -- hedge fund investor Carl Icahn has pushed for a $150 million buyback plan"

    Only off by a factor of 1000.

  • Report this Comment On October 10, 2013, at 3:16 PM, Varchild2008 wrote:

    I wouldn't except Rick, when he wrote a very negative article on Siri suggesting that the trend in America is that youngsters aren't driving cars anymore.

    Therefore, according to Rick Munarriz in that article of his, SIRI was in trouble.

  • Report this Comment On October 10, 2013, at 4:20 PM, BAOwens wrote:


    I own Sirius XM stock -- and did not mean that as a dig! I was pointing to why Vanguard MAY have sold some of their shares.

    And MegaShort you are so right! I have submitted a correction.


    I love Rick's articles and have been following them for years! He usually is very positive about Sirius.

  • Report this Comment On October 10, 2013, at 4:29 PM, TMFKris wrote:

    @MegaShort. We have corrected that error.

  • Report this Comment On October 15, 2013, at 3:41 PM, nofoolingforme wrote:

    Sirius recently spent alot of money on a purchase that will expand their possibilities dramatically. They also announced another share buyback of $2 billion dollars. Would they be spending like that if their management did not feel very positive about continued subscription growth and increasing cash flow? I think not. The quarterly report will be very positive- just look at how car sales have been booming. I think that Vanguard regrets selling off their shares and will not be selling the other 77 percent of their holdings in Sirius for some time to come.

  • Report this Comment On October 16, 2013, at 2:09 PM, BAOwens wrote:


    I agree with you. I think the subs will be way up with all of the new car sales this Q-- when earnings are announced. And I agree that Vanguard should have held. But who knows why they did what they did. They may have bought more recently. As I said in the article, they are still the top fund owner of Sirius-- so Vanguard remains very bullish on the company.

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