Comments on: Sound Mind Investing Newsletter Review

By: * Mutual Fund Historic Performance Isn’t All That Important

* Mutual Fund Historic Performance Isn’t All That Important — Tue, 06 Jul 2010 14:01:54 +0000

[...] most important criteria. I did follow the Dave Ramsey investing advice; however, with the help of Sound Mind Investing, I now place less emphasis on past [...]

By: Craig

Craig — Thu, 24 Jun 2010 22:37:44 +0000

Tim,
Thanks for the follow-up and the fantastic information. I think anyone who reads this post will find this information very helpful.

By: Tim

Tim — Thu, 24 Jun 2010 22:29:32 +0000

I linked to the review from your comparison of passive vs active so I intended to focus on passive(JtB) vs active(Upgrading).

Someone on SMI’s forum posted the results from 1996-2001 and I noticed a note on it saying that the previous results were listed in Feb 1999 newsletter so I emailed SMI and requested a copy of it.

Most companies provide information from fund (or newsletter) inception. At the risk of misstating SMI’s position they dropped the previous years because they changed the strategy in 1999. I tend to think the strategy change was a result of the underperformance therefore the underperformance was at least the indirect cause of dropping those years. Regardless of the reason it points out the difficulty active management has in beating passive management.

I would say the issue of how far back to look depends on what is being advertised. If I saw a mutual focusing on a 20 year history I would look at more recent history. If I saw one focused on a 3 year history I would look longer. If I saw one focused on 10 years I would look shorter and longer. By my calculations JtB and Upgrading are roughly equivalent over the last 2 years and over the last 19 years. So I think it’s very likely that Upgrading’s performance in the future will be closer to JtB that it is to beating it by 5%.

By: Craig

Craig — Thu, 24 Jun 2010 01:07:23 +0000

@Tim
Thanks for the comment.
I should mention that SMI has multiple strategies. I suspect it would be hard to argue that their “Just the Basics” strategy under-performs the market since it uses passive index funds. But, this article does focus on the upgrading strategy.
I’ve tried to find results from 1991-1998 and I’m having trouble. Can you pass along that data or a source? I do think that is very interesting if they completely ignore those years. I guess it is typical that companies only provide info from the previous 10 years.
Ultimately, the question I have is how far does one need to look into historical performance to get an idea of future performance? Does the further you look really become a better indicator of the future? Does the period form 1991-1998 give me a better idea or the period from 1999-2007? I feel like the more recent date indicates what they are currently doing.
In my case over the last two years my investment performance has been better than when I track my current investments with what I previously owned.

By: Tim

Tim — Thu, 24 Jun 2010 00:24:38 +0000

Craig,

I agree with Paul. Also, you have to be careful about how you pick the time period. SMI started publishing in 1991 and their results from 1991-1998 significantly underperformed the market.

Perhaps the years from 1991-1998 aren’t representative of their current strategy but I doubt that the years from 1999-2007 are going to be useful in predicting their performance in the future.

Tim

By: Active Vs. Passive Funds

Active Vs. Passive Funds — Tue, 15 Jun 2010 19:25:48 +0000

[...] For the privilege of picking stocks that may or may not perform at or above the market, I had to pay a royalty for that privilege. I’m feeling too lazy go back and look at 10+ years of statements, so I’m going to make some observations from my gut rather than my calculator. For a period of about seven years, each and every time I purchased a fund, I would pay 5% in a front end load fee. Today I’d take a passive fund with an automatic 5% head start instead of an active fund. I wasn’t comfortable handling my own investing until I discovered the Sound Mind Investing Newsletter. [...]

By: Paul Williams @ Provident Planning

Paul Williams @ Provident Planning — Mon, 23 Nov 2009 21:29:32 +0000

Craig,

I don’t know anything about their strategy. I wasn’t commenting on whether the theory behind their strategy will work. My point was that you need to look at more than 10 years of their results with their strategy in order to correctly conclude whether it has been successful because it works rather than pure luck. It is possible for an investment strategy or guru to have a 10 year streak and then absolutely bomb over the next several years (e.g., Bill Miller).
.-= Paul Williams @ Provident Planning´s last blog ..Tithing in the Bible: The Statute of Tithing (Numbers 18:20-32) =-.

By: Craig

Craig — Mon, 23 Nov 2009 20:34:20 +0000

Paul,
One other thing I should mention is that I had only been investing for five years and I was comparing my returns to those of the SMI returns. I did not have a larger time period to compare returns as I was limited by my investing time frame.

By: Craig

Craig — Mon, 23 Nov 2009 20:27:48 +0000

Paul,
Thanks for your comment.
Interestingly the SMI folks take a different stance. They feel as thought long-term results contribute little to today’s results.
They have an effective strategy (upgrading) that goes against what I always commonly believed about investing. Short term preformance is a better gauge to tell us how a fund will preform in the near future. For example, some funds are more agressive and others more conservative. As a result some will preform better in weak markets and others in stronger markets. Upgrading owns mutual funds that are out preforming their peers within the last year.
Again, it goes against conventional wisdom, but has outpreformed the market something like 10 of the last 11 years.

By: Paul Williams @ Provident Planning

Paul Williams @ Provident Planning — Mon, 23 Nov 2009 16:46:13 +0000

Craig,

I haven’t read or used the SMI newsletter, but it seems like you did a thorough review here.

I would caution you, however, against using 5 years or even 10 years as a long-term point of view when evaluating investment returns. It is very possible to encounter a lucky streak within those periods of time. In the investing world, 5 or 10 years is not long-term even though the financial media often touts it as such. Frankly, you can’t have a reasonable idea of the long-term success of any investment (or strategy) until you’ve got at least 20 (but preferably 30) years of history behind it. I have some data I can show you sometime to explain this logic.

Still, this is a great summary format and very helpful for your readers.
.-= Paul Williams @ Provident Planning´s last blog ..Tithing in the Bible: The Statute of Tithing (Numbers 18:20-32) =-.