Kiplinger's Personal Finance
We asked some Wall Street wizards to reveal the strategies they use themselves.
What was the best investment you ever made?
I started buying Apple for Contrafund, among others, at about $10 in 2003 and 2004, when the iPod and refreshed Macs [PowerBooks] were driving sales and earnings higher. I didn't sell after the stock first doubled in late 2005, because the company kept introducing new, popular products and expanding successfully overseas. Many people sold then, but I added to my position. Earnings ultimately exploded and the stock peaked in 2012 at about $700! [Contrafund still holds shares in Apple.]
Liz Ann Sonders, chief investment strategist for Charles Schwab:
How do you know when the stock market has topped out?
If there were any one thing, we'd all be very wealthy. There's no bell that rings. But there are warning signs of a pullback, things we've seen in the past that suggest an elevated risk. One is that interest rates, after adjusting for inflation, are rising. This is the only sign that you could argue is in place right now, and the reason why it's happening now is that inflation has been falling -- you could even argue that inflation-adjusted rates are going up for a good reason, not a bad reason. Also, you tend to see a significant pickup in initial public offerings and a real surge in mergers and acquisitions. You often see an inverted yield curve, which is when short-term rates are higher than longer-term yields. And you typically see excessive enthusiasm among individual investors.
John Bogle, creator of the first index mutual fund and founder of the Vanguard Group:
Are there any circumstances in which you'd own an actively managed fund?
Yes, although they are extremely rare. I own shares in Vanguard Wellington (symbol VWELX), a fund with about a 98-percent correlation with a balanced index fund. So if this is a departure from my belief in index funds, it's only a 2-percent departure. I started investing in the fund in 1951, when I went to work for Wellington. Now I have a significant holding in it, and it has been a great fund since 1978, when we modified the investment strategy and recommitted to running a conservative balanced fund. Number two, when my son started his Bogle Small Cap Growth Fund (BOGLX), I decided I would support him by making a reasonably modest investment. He has done a good job. There have been some bad years along the way, but over time, the fund has done well. I feel that it's not the worst idea in the world for a father to support his son.
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