For all the reminders and reports on the December distribution season, mutual fund investors still don’t seem to get it, freaking out about fund prices that seem to drop like a rock from one day to the next. As I told many of my subscribers today, Vanguard Health Care Fund (VGHCX) did not lose 6.7% of its value on Tuesday and Vanguard Explorer Fund (VEXPX) did not drop 9.8%. Vanguard Primecap Fund (VPMCX) did not lose 5.2% either. All of these price moves — and more — are distributions.
By the way, if you want to see how huge numbers of investors are going to react, wait until tonight (or maybe tomorrow). Vanguard Total Stock Market Fund (VTSMX) will go ex-dividend tonight. And while the $332 billion behemoth will only be paying out about 0.5% of its NAV in a dividend (or about $1.66 billion for those who are counting), you can be sure that there will be plenty of shareholders lighting up Vanguard’s phones in the morning.
So, fund price changes aren’t crazy after all. And while crazier things have happened, the fact that the “taper” has been announced — though it won’t start until January — apparently gave Wall Street such a shot of optimism that traders sent stocks on a tear on Wednesday with the Dow hitting a new, all-time high — its first since Nov. 27 — up 293 points or 1.8%. Thursday the Dow closed, once again, at a new high while other indices back-tracked marginally.
Remember all those “experts” and I use the term advisedly, who said that the only reason the stock market was rising was because of all that Fed money fueling markets? Well, why is it that pulling back on that money caused stocks to go up further? Yes, Wall Street is bi-polar. Luckily you and I can take a chill-pill and ignore the histrionics that marks the traders’ day-to-day.
Senior Editor Dan Wiener and Editor/Research Director Jeffrey DeMaso publish The Independent Adviser for Vanguard Investors, a monthly newsletter that keeps abreast of recent developments at Vanguard, and the annual FFSA Independent Guide to the Vanguard Funds.