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Sound Mind Investing

Posted: Sat Sep 17, 2016 10:51 pm
by GMercier
No one in Bogleheads seems to talk about Sound Mind Investing. I can't find much when searching this site. Does anyone recommend them or are they too far away from Bogle financial worldview for your consideration?

Their "Basic Strategy" matches Bogle, but their "Upgrading" takes on a more managed approach with Mutual Funds and ETFs.
They have a 6 fund portfolio, one in each category (Large Cap, Large Value, Small Cap, Small Value, International, & Bonds).
You sell a fund once it drops out of the top 25% in the category, replacing with a leading fund they recommend.
So they say on average you sell and buy new mutual funds/ETF about every 9 months, and the portfolio is analyzed monthly.

They have the data that since they started this, they have beaten the market, and they have beaten their "Basic Strategy" as well.

What bothers me is that everything I read tends to tell me not to do what they do, and even they start off their book in saying not to do what they do, and then they try to beat the market with a strategy. Can anyone help me on how to think about these things?

Thanks.

Re: Sound Mind Investing

Posted: Sun Sep 18, 2016 12:34 am
by sport
GMercier wrote:You sell a fund once it drops out of the top 25% in the category, replacing with a leading fund they recommend.
Sell low, buy high?

Re: Sound Mind Investing

Posted: Sun Sep 18, 2016 12:38 am
by jjface
Sounds like performance chasing.

Re: Sound Mind Investing

Posted: Sun Sep 18, 2016 7:30 am
by stemikger
This sounds too slick for its own good. When all else fails fall back on simplicity.

Just hold two or three index funds and live a very happy investment life. It is the surest way you will stay the course.

If you want to exercise your animal spirits, do so with but with no more than 5% of the money you have to invest.

Good Luck

Re: Sound Mind Investing

Posted: Sun Sep 18, 2016 9:24 am
by dbr
The way to think about these things is to not imagine that there is a scheme to deliver a free lunch.

Re: Sound Mind Investing

Posted: Sun Sep 18, 2016 10:55 am
by BolderBoy
I'm curious about the results they tout. SMI was founded in 1990, yet they only show their results from 2000-

From 1990-now the VG S&P500 Index went up 1100%.

Is SMI cherry picking their dates?

Re: Sound Mind Investing

Posted: Mon Sep 19, 2016 3:10 am
by AlohaJoe
GMercier wrote:They have the data that since they started this, they have beaten the market, and they have beaten their "Basic Strategy" as well.
There are a lot of strategies out there, so it isn't a surprise that not every one gets discussed on Bogleheads. There is quite a lot of public research showing that most financial strategies fail the vast majority of the time. Weighed against that, Sound Mind don't make any of their strategies or data public. At least, not in any way that I could find. That makes it hard to verify any of their claims.

The most famous example of this kind of thing are the Beardstown Ladies, who said they had a strategy that earned them over 20% a year. They published four books in the early 90s. It wasn't until 1998 that external sources were given enough data to verify their claims. It was quickly discovered that they had made several fundamental mistakes with calculating their returns. They had underperformed the market, instead of outperforming it. The publisher of their books was sued in a class action lawsuit.

There are a lot of similar stories, so groups like Sound Mind need to (in my opinion) hold themselves to a higher bar if they expect anyone to take them seriously.

For what it is worth, the ETF SMIFX (Sound Mind Investing) which is run by the creators of Sound Mind Investing, has expenses of 2.03%, has over 200% turnover, and has returned 4% total (not annually) over the past decade. The S&P 500, by comparison, has returned over 67% over the same time period. That seems like a good indication of how their strategy works when you account for all costs.

Re: Sound Mind Investing

Posted: Mon Sep 19, 2016 4:08 am
by selters
jjface wrote:Sounds like performance chasing.
But so does momentum investing, doesn't it?

Re: Sound Mind Investing

Posted: Mon Sep 19, 2016 6:37 am
by in_reality
Wow, their stated results are 232%, 486%, or 735% of what the market returned****. Nice!

As for their six categories Large Cap, Large Value, Small Cap, Small Value, International, & Bonds ... why not Value and Small categories for International?

Why is the US market so special? I like my small int value, and large int value and won't be saying goodbye to it anytime soon or ever...promised returns**** be darned!

****2000-2014 Included some backtested data.

I mean if we can backtest data for our results, I bet I can hit 1000% easily!!!!!!!!!!!!

Re: Sound Mind Investing

Posted: Mon Sep 19, 2016 12:42 pm
by beammeupscotty
AlohaJoe wrote:For what it is worth, the ETF SMIFX (Sound Mind Investing) which is run by the creators of Sound Mind Investing, has expenses of 2.03%, has over 200% turnover, and has returned 4% total (not annually) over the past decade. The S&P 500, by comparison, has returned over 67% over the same time period. That seems like a good indication of how their strategy works when you account for all costs.
The difference isn't that large, but it didn't beat the market. Looks like 7.38% CAGR for total stock market vs. 5.78% for SMI. Unsurprisingly, this is fairly close to the difference in expense ratios (2.03% yikes!).

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Re: Sound Mind Investing

Posted: Mon Sep 19, 2016 9:30 pm
by AlohaJoe
beammeupscotty wrote:
AlohaJoe wrote:For what it is worth, the ETF SMIFX (Sound Mind Investing) which is run by the creators of Sound Mind Investing, has expenses of 2.03%, has over 200% turnover, and has returned 4% total (not annually) over the past decade. The S&P 500, by comparison, has returned over 67% over the same time period. That seems like a good indication of how their strategy works when you account for all costs.
The difference isn't that large, but it didn't beat the market. Looks like 7.38% CAGR for total stock market vs. 5.78% for SMI. Unsurprisingly, this is fairly close to the difference in expense ratios (2.03% yikes!).

Image
Interesting, my number came from Yahoo Finance

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I'm not sure where it shows something different.

Re: Sound Mind Investing

Posted: Wed Sep 21, 2016 5:33 am
by beammeupscotty
I was going to say that Yahoo shows price only, while Morningstar is total return (including dividends), but the difference in the charts suggests something else.

At any rate, the expense ratio alone should be enough to scare almost anyone away from this fund.