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 |
| 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 |
Apple (AAPL 1.27%) 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 (MSFT 0.37%) 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.
Meanwhile, Vanguard sold 23% of its position in Sirius XM (SIRI) (SIRI) 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.
