logo
  Join        Login             Stock Quote

Why I'm Bullish On The Vanguard Stock Market Index Fund

 January 07, 2013 01:59 AM


(By Patrick Larkin) The All-Cap Value model entered December with a cash position equal to almost 40% of the portfolio's total value. This large cash holding was a consequence of my inability to find suitable new investments in recent months to replace positions that I've recently exited.

I generally don't like cash as long-term holding. When it became clear on the last trading day of 2012 that Congress was going to pass a Fiscal Cliff deal that again defers hard choices about the nation's debt problem, I moved out of cash and into the Vanguard Total Stock Market Index Fund (VTI). VTI is essentially a proxy for the broad U.S. stock market.

[Related -Buffett's Market Indicator Flashes Red, Prepare To Sell]

My focus is on investing in high quality businesses that I understand when their stocks are cheap. The portfolio has the potential to be highly concentrated, as I will typically invest between 5% and 20% of the portfolio in a new holding.

Despite that, at times it still isn't possible to identify enough cheap, high quality businesses to fill out the portfolio. One alternative in that situation is to hold cash, and I am comfortable holding some cash for limited periods as I search for new opportunities.

However, unless the market is grossly overvalued, I believe that a low-cost, broadly diversified index fund such as VTI is preferable to cash as a "placeholder" within a portfolio of risky assets such as the All-Cap Value Portfolio.

To be clear, everyone needs to hold a reasonable amount of cash in his broad personal portfolio to meet both expected and unexpected short-term liquidity needs. But beyond that, there are almost always better alternatives for long-term investment than cash.

[Related -PBoC joins other major central banks with unconventional monetary policy action]

An ill-considered purchase of an overvalued, risky individual stock is not one of those alternatives, but in my view VTI and similar broad index funds currently are.

The investments discussed are held in client accounts as of December 31. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.

Certain information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. The manager believes that such statements, information and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.

iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageBuffett's Market Indicator Flashes Red, Prepare To Sell

With each passing month, it's becoming evident that the current bull market has slowed from a gallop to a read on...

article imagePBoC joins other major central banks with unconventional monetary policy action

Softer than expected economic growth in China (see discussion) has finally spurred the PBoC into action. read on...

article imageA Buyback Boost?

Are stock buybacks the only thing keeping this bull market read on...

article imageGold Slides On Perfect Storm For Dollar

For all the anticipation surrounding the delivery of the Fed’s statement in the run-up to the September read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center

Related Articles:

A Buyback Boost?
More Articles on: Index



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.