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Mark Biller

Mark Biller

Executive Editor

Mark joined SMI in 2000. He leads SMI newsletter’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. Mark also serves as Senior Portfolio Manager to SMI Advisory Service’s Private Client managed account program.

Mark earned his undergraduate degree in Finance from Oral Roberts University.   

Mark and his wife, Cindy, have three children.

Most Recent Articles

Sector Rotation – December 2020 Update

There is no change to the official SR recommendation for December. Read on for the details.

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.

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No Changes to Stock or Bond Upgrading For December 2020

There are no changes to Stock or Bond Upgrading this month.

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Choosing the Right Type of Order for Your ETF Trades

Over the past two decades, ETFs (exchange-traded funds) have grown from “tiny upstart” to the fund industry’s dominant force. Each of the past several years has seen a net outflow of money from traditional mutual funds and a corresponding inflow to ETFs. This shift has been reflected in the SMI strategies, which increasingly utilize these ETFs that act like mutual funds but trade like stocks.

This trading aspect introduces a new challenge for investors who aren’t used to trading individual stocks. Because ETFs and stocks trade throughout the day (unlike mutual funds, which are priced only once a day at the market’s close), there are a variety of order types available to make trading convenient.

To accomplish this, brokers offer automated buy/sell instructions (“Buy at this price, sell at that price”). In many cases, ahead-of-time orders can help you (1) buy at better prices and (2) protect your profits. But it’s imperative that you understand how these order types work so you can protect yourself because these automated orders can also introduce risk.

The plain-vanilla “market” order

To illustrate the basic concepts, let’s start with a simple “market” order, using an ETF as an example. Assume you want to buy 100 shares of a promising new tech ETF with the ticker symbol WOW-E. Shares are trading around $20. If your priority is simply to purchase 100 shares as quickly as possible, you would enter a market order. You’re willing to pay the current market price, whatever that is at the moment your trade is executed.

For heavily traded stocks and ETFs, this usually means you will buy within a few cents of the price currently being quoted. But there is no guarantee that is the price you’ll pay. It’s possible that just as you’re entering your order, the price could move up or down. In an extreme example, if the price moved sharply as you were entering your order, you could end up paying more, perhaps $20.50 or $21 — whatever the new “best price” available is when your order hits the system.

Other types of orders

If you want more control over your buy/sell prices, several options are available. Understand, however, that none of these order types is required to follow any of SMI’s strategies — simple market orders will work fine. Venture out to use the orders described below only if you think they will help in your specific situation.

  • A “Limit” Order
    This type of order places a ceiling on what you’re willing to pay for WOW-E shares. If you enter a “limit” order at $20, that is the most you will pay, period. The advantage is that you will never pay more than you want; the disadvantage is that your order might never be filled. It’s possible that WOW-E will trade for days, never going below $20.25, and then rocket to $30. When this happens, you’ll cry and ask yourself, “Why did I let WOW-E get away from me for a lousy 25 cents?!”

    It’s easier to see the advantages of limit orders when you approach them from the sell-side. Say your WOW-E shares have risen to $28 and you decide you’d be willing to sell them if they were to reach $30. Rather than trying to continually monitor the ETF throughout the day, you could enter a limit order. If WOW-E trades at $30 or higher, your limit order will execute. The risk is that the stock could advance to $29.99 and then fall, and you’d still own it. But with a limit order you know that you’ll at least get the price you specified, or you’ll continue to own the stock. It won’t ever get sold at a price that surprises you in a negative way.
     
  • A “Stop” Order
    You bought WOW-E at $20 and it has moved up to $28. This time, however, instead of wanting to sell soon, you’d like to hold on and ride it higher. However, you know there’s a risk the price could fall. To protect your original investment, you could enter a “stop” order to sell at $21.

    This order type does nothing unless WOW-E falls to $21, then immediately converts your order to a “market” order — the first type we discussed. At that point, your shares are going to be sold immediately at the best price then available. Because stop orders typically are used to limit the damage if the market moves into a downturn, they’re often called “stop loss” orders.

    Stop loss orders have been used for a long time, but the changing nature of the market has exposed hidden dangers in recent years. With so much trading now done by computer programs that can initiate—and withdraw—orders in milliseconds, liquidity can dry up instantly.

    These events are rare, but there have been a few extreme cases (such as the 2010 “flash crash”) where, as prices fell rapidly, many automated stop orders were triggered, converting those orders into market orders. But with all of the potential buyers temporarily stepping aside, the next available buy orders were often at prices well below the price attached to the stop orders.

    That’s why it’s crucial to understand a stop order doesn’t guarantee any particular price — just that you’ll get the next available price. Rather than getting $21 per share for WOW-E, you might have received $15 or $10 or $1...whatever the next highest available bid was. (See Recent Market Correction Exposes ETF Vulnerabilities for more detail.)
     
  • A “Stop-Limit” Order
    To avoid this danger of automatically selling at a drastically lower price than intended, some brokers allow you to enter “stop-limit” orders. This combines the benefits of both stop and limit orders. The stop feature says, “take action only if this price point is hit” while the limit feature says, “and at that point, accept a sale only if it’s at least as good as the price specified.” In our previous example, a stop-limit order to sell would mean no action would be taken until WOW-E dropped to $21, at which point the order would transform into a limit order to sell at $21 or higher, but not below.

    This solves one problem — the possibility that you’ll receive a much lower price for your ETF than you anticipated. But it creates another — what if WOW-E drops to $21 and keeps falling? Your trade would never fill, and you could ride the stock much lower without selling. Stop-limit orders are useful in “normal” trading conditions where prices are moving forward and back by a few pennies at a time. They can’t be counted on to get you out during a sharp selloff, but they do offer decent protection against “normal” declines in a stock or ETF price.
     
  • A “Trailing Stop” Order
    Let’s suppose WOW-E continues to move up into the $30-plus range. In that case, you may want to move your “stop” up as well — to lock-in a certain level of profit. You can do this manually by deleting your old stop order and entering a new one at a higher price. Or, some brokers will allow you to enter a “trailing stop” order, with either a price interval (for example, $5 below the current high) or a percentage (example, 15% below the current high) specified. These orders continually adjust upward as the stock rises, allowing investors to lock in a certain level of profit (at least in theory, providing they execute near the level at which they are set).

    But beware — trailing stop orders are subject to the same shortcomings as regular stop orders: they become market orders when their thresholds are hit. To avoid this issue, some brokers allow you to enter “trailing stop-limit” orders.

Practical application

Again, these advanced order types aren’t required for the SMI strategies. We normally recommend liquid ETFs that trade with a small “spread” of just a few cents between the quoted bid and ask price. For these ETFs, simple market orders are sufficient to get you close to the quoted price.

If you ever notice an ETF you are buying or selling has a large gap (10 cents or more) between the quoted bid and ask prices, entering a limit order within that price range can provide more price certainty, although there’s a chance the trade won’t execute because your limit price isn’t reached. If that happens, you’ll have to “chase” the stock higher (if buying) or lower (selling). The larger the amount of the trade, the more likely using a limit order will be worthwhile.

We recommend against using regular stop or trailing stop orders on ETFs — they’re too risky when markets hit periods of unusual volatility. If you need to use automated sell orders, stop-limit orders (trailing or otherwise) are safer. Assuming your order gets filled, they at least guarantee you’ll get an outcome close to what you’re expecting.

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An Upgrading Overview: Easy as 1-2-3

Why Upgrade?

SMI offers two primary investing strategies for “basic” members. They are different in philosophy, the amount of attention they require, and the rate of return expected from each. Our preferred investing strategy is called Fund Upgrading, and is based on the idea that if you are willing to regularly monitor your mutual-fund holdings and replace laggards periodically, you can improve your returns. While Upgrading is relatively low-maintenance, it does require you to check your fund holdings each month and replace funds occasionally. If you don’t wish to do this yourself, a professionally managed version of Upgrading is available.

SMI also offers an investing strategy based on index funds called Just-the-Basics (JtB). JtB requires attention only once per year. The returns expected from JtB are lower over time than what we expect (and have received) from Upgrading. JtB makes the most sense for those in 401(k) plans that lack a sufficient number of quality fund options to make successful Upgrading within the plan possible. Here are the funds and percentage allocations we recommend for our Just-the-Basics indexing strategy.

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Vaccine Announcement Sparks Significant Market Changes

Yesterday, we finally got the news everyone has been waiting for since February: a COVID vaccine is apparently on the way.

Pfizer announced positive phase 3 trial data that suggests its vaccine is roughly as effective as the other "big" vaccines many Americans take — measles, chickenpox, etc. — and at 90%, significantly more effective than the ~60% effectiveness we're used to with seasonal flu vaccines. These are preliminary trial results and this isn't a sure thing, but it's a very significant step forward.

The financial markets responded immediately and with force — though not necessarily the way one might suspect. It's worth taking a few minutes to unpack the big moves and what they signal moving forward.

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Politics & Investing

While we still don't know for sure how this election is going to ultimately shake out, one important point has been hammered home by the market today: Trying to invest based on predicting political outcomes is foolish.

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DAA – New Recommendation for November 2020

There is one change to the DAA lineup for November. 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 when evaluated over full market cycles, demonstrating the power of "winning by not losing."

The recommended categories/ETFs for November are:

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Sector Rotation – November 2020 Update

There is no change to the official SR recommendation for November. Read on for the details.

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.

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Stock Upgrading – New Fund Recommendation for November 2020

Stock Upgrading is a mechanical strategy that typically involves owning recommended funds until they fall out of the top quartile of their peer group, at which point they are replaced by new top-performing funds. However, special defensive protocols are triggered occasionally, which cause the Upgrading portfolio to gradually “de-risk’ by temporarily shifting some holdings to cash. See the January 2018 cover article for more details regarding Upgrading 2.0. The simplest method for picking new funds is to refer to our 1-3 rankings on the Recommended Funds page and invest in the highest-ranked fund in each risk category that is available through your broker.
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3rd Quarter Report: Two Steps Forward, One Step Back

After closing the second quarter with a brief June stumble, the stock market resumed its rapid climb in July and August. By September 2, the S&P 500 had set another new all-time high and was up a rather shocking +15.85% for the quarter. But as often happens after such a sharp move, the market quickly reversed course and flirted with a -10% correction over the next few weeks before trimming its losses to close out the quarter.

Despite the brief September swoon, overall it was a great quarter for stocks. The Wilshire 5000 index finished with a gain of +9.1%, while the tech-focused Nasdaq index gained +11.0%.

SMI investors enjoyed a strong quarter as well. Except for Sector Rotation, all of SMI’s strategies set new all-time highs during the third quarter. (SR narrowly missed a new high but still gained +17.2%!).

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