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Mark Biller

Mark Biller

Executive Editor

Mark joined SMI in 2000. He leads SMI’s overall content strategy, managing the editorial direction and writing many articles. He led the company’s efforts to create its first web site, helped develop several of SMI’s investment strategies, and has been a contributing author to the Sound Mind Investing Handbook. 

In addition, Mark helped design and launch the three Sound Mind Investing mutual funds. He has served as the Senior Portfolio Manager since the original SMI Fund was launched in 2005.

Prior to joining SMI, Mark worked at Tax and Accounting Software Corporation. 

Mark received an undergraduate degree in Finance from Oral Roberts University.   

Mark and his wife, Cindy, have three children at home.

Most Recent Articles

Investors Don’t Experience “Average” Returns

Much of our focus the first six weeks of this year has revolved around financial planning — specifically the MoneyGuidePro® offer recently extended to SMI Premium Members by SMI Advisory Services. The cover article of our upcoming March issue, scheduled to be released at the end of next week, details some of the valuable new features Members will have access to in the full version of MoneyGuidePro®. Among those is the ability to project their plans using any rate of return they want. This is important for good planning, as the future may not look like the past, and wise planners will want to know what their financial future might look like if the high returns of the past are harder to come by in the future.

While planning tools that rely to at least some degree on historical returns are helpful and necessary, there's an inherent danger in focusing on average rates of return. Investors who stay invested over the long haul may, in fact, earn returns close to the stock market's long-term average (which has been 9.8% over the past 113 years). But they'll rarely feel like they're earning that type of average return, because the market doesn't plod along steadily. Rather, it races ahead, producing dizzying gains during bull markets, then crashes back to earth during bear markets. When it all comes out in the wash, it may look like a steady 9.8% per year. But along the way, an investor's returns are nothing of the sort. Which explains why most investors wind up with substantially inferior returns — the emotional swings of the journey cause them to make counterproductive moves at both the highs and lows of the cycle.

This is illustrated beautifully by Justin Sibears of Newfound Research in the article Anatomy of a Bull Market. Altering the view of average annual returns to map them by bull and bear markets, we see the market's "zoom/crash" dynamic at work:

Only one of the 23 market cycles since 1903 has averaged returns close to the market's long-term average, and that one ended 100 years ago in 1916.

Mr. Sibears points out:

Consider this: since 1903, there has not been a market cycle with a single digit annualized return.

Ten of the twelve bull markets had annualized gains greater than 15%.  Similarly, annualized losses exceeded 15% in ten of the eleven bear markets.

In other words, the market is typically surging ahead or plunging lower. Rarely does it "cruise" along at a comfortable speed.

So while effective planning dictates that we use some sort of "normal" long-term rate of return for our calculations, it's important that emotionally we're prepared for a very different kind of investing experience. Creating a portfolio that enables you to stay invested through the market's emotional ups and downs is a crucial — and vastly underrated — element of actually earning those long-term rates of return.

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Beware Party-Tinted Glasses

Investing based on your political beliefs/expectations is a terrible idea. We've touched on this theme a few times since the election, but I continue to see comments and questions that relate to it, so I'm briefly delving in again today.

It's such a strong impulse to project our political feelings onto the economy and the markets. But it's a bad idea, as the financial markets are impacted by so many factors that boiling their performance down to one is rarely wise. That's especially true when most of us tend to see the world through rose-colored — excuse me, party-colored glasses.

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DAA — February 2017 Update

There are no changes to the DAA lineup for February. Read on for the full details.

DAA is a core portfolio strategy that is designed to help SMI readers share in some of a bull market’s gains, while minimizing (or even preventing) losses during bear markets. The strategy involves using exchange-traded funds to rotate among six asset classes, holding three at any one time. DAA is a defensive, low-volatility strategy that nonetheless has generated impressive back-tested results, demonstrating the power of “winning by not losing.”

The recommended categories/ETFs for February remain (in order of current momentum):

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Sector Rotation - February 2017 Update

Sector Rotation is a high-risk/high-volatility strategy. While its peaks and valleys have been more extreme than SMI's other strategies, it has generated especially impressive long-term returns, as discussed in Sector Rotation is Risky, But Highly Rewarding.

Sector Rotation was a great performer in 2016, gaining 16.8%, and is off to a great start in 2017.

There is no change being made to Sector Rotation for February. Here are the details.

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An Exciting New Opportunity for SMI Members: Personal Financial Planning via MoneyGuidePro®

Personalized financial planning offers tremendous benefits. Understandably, those benefits haven’t come cheap. But thanks to our friends at SMI Advisory Services and an arrangement they’ve negotiated with MoneyGuidePro®, such planning is now within the reach of more people. Read on to learn how to access the planning software rated number one by financial advisors for the past eight years in a row—at a price nearly anyone can afford.
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2016 Year In Review: Final Gains Mask an Emotionally Trying Year

When investors look back on 2016 a few years from now, they’ll see solid investment returns from most asset classes. But as is often the case, the story of the trying year that produced those gains will largely be forgotten.

Last year began with a sharp six-week stock-market correction that quickly drove stocks down 12%. Coming so quickly on the heels of another 10%+ correction just a few months earlier, fear was high, with many believing the long bull market had either ended or was about to. But they were wrong—a spirited rally soon carried the market to a new all-time high.

The gloom would return soon though, as British voters shocked the world in June by voting to leave the European Union. In the days immediately following the surprise results, stocks fell enough that they showed year-to-date losses with 2016 nearly half over. But once again, stocks rebounded in surprisingly sharp fashion.

After a brief respite, the U.S. election (among other factors) began to weigh on investors’ minds. By November 4, just days ahead of the election, the S&P 500 index stood only 2% higher than it had begun the year. But from that point forward, stocks were off to the races, rocketing to new highs to close out 2016 and generating impressive overall gains for the year.

Unfortunately, for trend-following strategies like the ones we use at SMI, this down-up-down-up-down-up pattern—with each move measured in mere weeks—is the worst possible environment. In fact, if this were the market’s normal historical pattern, trend-following strategies wouldn’t exist. Yet despite the unfavorable market environment, several of SMI’s strategies were able to post new all-time highs along with the market in 2016. This is a good reminder that the most profitable path for SMI readers has almost always been to tune out the noise and stick with their long-term plans.


(Click chart to enlarge)

Just-the-Basics (JtB) & Stock Upgrading

Both JtB and Stock Upgrading managed solid double-digit returns in 2016, helping investors in those strategies reach new all-time portfolio highs. Both trailed the Wilshire 5000, the domestic stock index we use as their benchmark. This isn’t surprising, given the 20% allocation both strategies give to foreign stocks. The MSCI-EAFE, which is the most commonly referenced foreign stock index, gained only 1% in 2016, well below the gains of U.S. stocks.

While our foreign allocation hurt our results, our higher-than-market-weight allocations to smaller stocks helped. In fact, JtB’s domestic holdings outperformed the U.S. market. And Stock Upgrading, despite the stop-start nature of the stock market that created an unusually challenging environment, would have nearly matched the Wilshire 5000 were it not for its foreign holdings.

Bond Upgrading

Stocks weren’t the only asset class strongly impacted by November’s surprise election results.

Bond yields spiked higher following the Trump victory (though they’ve receded some in early 2017). The prospect of tax cuts and a more business-friendly environment spurring greater economic growth, coupled with increased borrowing for infrastructure spending, caused lenders to start thinking about future inflation for the first time in quite a while. The benchmark 10-year Treasury yield rose from +1.88% on election day to a high of +2.60% in mid-December. And, as always, as those bond yields rose, bond prices declined.

Thankfully, SMI’s Bond Upgrading strategy didn’t suffer much in the way of late-year losses. In fact, for the year as a whole, Bond Upgrading’s gain of +3.6% was considerably better than the +2.5% gain of the Barclay’s U.S. Aggregate Bond Index.

That result should bring some comfort to investors who have been concerned about rising interest rates. Despite interest rates climbing slightly in 2016 (the 10-year Treasury started 2016 at +2.24% and ended at +2.45%), Bond Upgrading still delivered decent returns. There’s considerable research to support the idea that the best predictor of future bond returns is current bond yields. While that isn’t especially encouraging given today’s low yields, 2016 provides some hope that SMI’s Bond Upgrading process may be able to improve slightly on that outcome.

Dynamic Asset Allocation (DAA)

There’s no way to sugarcoat the fact that DAA’s 2016 performance, a loss of -0.5%, was disappointing. In 2015, DAA lost money, but the stock market itself was only barely positive that year. But last year there was money to be made in the asset classes DAA follows, yet the strategy’s timing triggers kept that from happening. That stings.

Unfortunately, that happens sometimes when following a mechanical system. Sometimes events arrive in a particular order and interval that gives a system trouble. That was the case for DAA in 2016, as every time it adjusted to the latest trend, the trends would abruptly reverse. Again, down-up-down-up-down-up isn’t a normal pattern for the stock market—thankfully.

That said, it’s crucial to maintain perspective about DAA’s value within your portfolio at this late stage of the current bull market. It’s not unusual for DAA to trail the market by a considerable margin late in bull markets. It’s also not unusual for DAA to make up all of that gap—and then some—in the subsequent bear market. Make no mistake, eventually a bear market will follow this long bull market. And our back-testing has been absolutely clear about the portfolio-saving protection DAA has provided during past bear markets.

To make this a bit more tangible, consider the impact of a -40% bear-market loss on a portfolio that has earned the market’s return over the past four years, versus its impact on a DAA portfolio. From 2013 when DAA was introduced through 2016, the market portfolio has a huge lead. But if DAA limited its bear-market loss to only -8% while the market fell -40%, the gains since 2013 for the DAA portfolio would be +12% compared to +2.8% for the market portfolio. All of the relative superiority for the market portfolio over the DAA portfolio going back to DAA’s launch would be quickly reversed. (And this example assumes a loss for DAA, which hasn’t happened in past bear markets, but we’re trying to be conservative in the illustration.)

Some have questioned the DAA’s “winning by not losing” tagline, given that DAA has produced small losses the past two years. But it’s really not small annual losses that DAA is designed to avoid. Rather, it’s the large, course-altering losses that happen to stock investors during bear markets. It’s by deftly avoiding those that DAA has been able to win by not losing. DAA’s performance relative to the stock market (and other stock investment strategies) has soared during past bear markets, and there’s no reason to think next time will be any different.

Sector Rotation (SR)

For the fourth time in the past five years, SR posted a return in excess of +15% and beat the market handily. After gaining +16.8% in 2016, SR’s 5-year average annualized return now stands at +26.4%. That means $10,000 invested in SR at the beginning of 2012 would have been worth $32,265 at the end of 2016! SR’s 10- and 15-year annualized returns are each hovering around +15%, periods during which the broad stock market has returned less than half that. SR’s simplicity and consistency continue to amaze, as they have since SMI introduced this strategy way back in 2003.

50/40/10

This portfolio refers to the specific blend of SMI strategies—50% DAA, 40% Upgrading, 10% Sector Rotation—examined in detail in our May 2014 cover article, Higher Returns With Less Risk: The Best Combinations of SMI’s Most Popular Strategies. It’s a great example of the type of diversified portfolio we encourage most SMI readers to consider. The markets can shift suddenly between rewarding risk-taking and punishing it, so a blend of higher-risk and lower-risk strategies can help smooth your long-term path and promote the type of emotional stability that is so important to sustained investing success.

With DAA suffering through a subpar year, the overall return of a 50-40-10 portfolio was +5.6%. That’s not great, but looks a little better in light of the fact that a 50-40-10 portfolio held considerable insurance against downside risk throughout the year.

Whether you’re using this specific 50/40/10 blend or a different allocation combination tailored to your specific risk preferences, we think most SMI readers can benefit from combining these strategies in some fashion.


(Click chart to enlarge)
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Dow 20,000

The Dow Jones Industrial Average finally broke through the 20,000 mark this morning, after flirting with that level for over a month. That makes now as good a time as ever to take a closer look at this quirky index, as well as to examine if this milestone has any particular significance for investors.

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A Helpful DAA Visual

As the old saying goes, a picture is worth a thousand words. One of my SMI Advisory partners came up with the following chart, which helps visually convey some of the important Dynamic Asset Allocation principles we've written about often.

This chart simply takes the rolling 12-month return of the S&P 500 stock index and subtracts the rolling 12-month return of DAA. It vividly illustrates how when the stock market is doing well (the upward spikes), DAA tends to lag the market. But when the stock market isn't doing well (downward spikes), DAA has tended to massively outperform.

A few additional observations about this chart:

Note how there are more upward spikes than downward. But when the downward spikes occur, they tend to be of significantly greater magnitude. This shows the tendency for the market to be advancing more frequently than declining. However, when declines (bear markets) do come, they tend to be fierce.

It's the greater severity of the downward moves that allows DAA to make up so much ground relative to the market so quickly during bear markets.

The recent period of stock market outperformance relative to DAA roughly matches the previous longest period of stock market outperformance ('94-2000). Obviously, what followed would have made investors want to have had DAA in their portfolios as that leadership switched swiftly and sharply to DAA.

It's worth noting that the excellent overall performance we reported in our January 2013 DAA introductory article ony included the period from 1982-2012. Looking at the chart, it's very clear that DAA's long-term performance (relative to the market) would have been substantially enhanced had we added the prior decade. We didn't primarily because some of the data sets we had to use to backtest pre-1982 weren't the same as what we used post-1982. Plus the results from 1982-present were convincing enough.

Most people use DAA within a portfolio that also includes other stock market investments (Just-the-Basics/indexing, Upgrading, Sector Rotation, etc.). Another way of looking at this chart is to think of the upward spikes as the times when those strategies have outperformed DAA, and the downward spikes as the times when DAA has outperformed those strategies. Thinking in terms of total portfolio returns is going to help us not get frustrated with the performance of the individual strategies, which is important because when we get frustrated, we tend to make emotional decisions.

The chart makes it really clear that there has never been a period in the past 45 years when stocks have outperformed DAA longer than the period we're in right now. That doesn't mean it won't happen this time — we're only looking at 45 years of data, after all, not 450 years. But it does give a pretty good idea of the length of past market cycles and when they've tended to reverse. If that pattern holds true, the protective aspects of DAA are likely to be needed before much longer.

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New Year, Same Concerns About This Market

If I had to write everything I think I understand about stock market cycles on an index card, this would be it:

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DAA — New Recommendations For January 2017 (Part 2)

There is a second change to make to DAA for January. Read on for the full details.

DAA is a core portfolio strategy that is designed to help SMI readers share in some of a bull market’s gains, while minimizing (or even preventing) losses during bear markets. The strategy involves using exchange-traded funds to rotate among six asset classes, holding three at any one time. DAA is a defensive, low-volatility strategy that nonetheless has generated impressive back-tested results, demonstrating the power of “winning by not losing.”

The recommended categories/ETFs for January are (in order of current momentum):

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