In his preface to The Sound Mind Investing Handbook, SMI founder Austin Pryor explains our view on the value of financial forecasts:
It’s one thing to help investors make more informed decisions by giving out economic data, corporate profiles, historical trends, and the like. But to use that information as the basis for market predictions is quite another.
The fact is that nobody knows for sure what’s coming next year, next month, next week, or even tomorrow. Forecasts from the brokerage community and investment media, at best, are conflicting and confusing. At their worst, they’re totally misleading and eventually will prove extremely expensive to any investor who takes them seriously.
As you might expect, then, I make no claim to knowing how the markets will behave the rest of this year, in 2022, or in any year thereafter. Neither does our executive editor Mark Biller, and as hard as it is to fathom, even Austin doesn’t know! Yet, strange as it may seem, this humble, honest acknowledgment of how much we don’t know is at the very heart of Sound Mind Investing’s value proposition.
We understand the limits of what’s knowable, and we camp on what we do know. For example, we know for certain how each asset class and all of the funds we track have performed in the recent past. And we know from numerous academic studies, our own research, as well as 30-plus years of experience that an investment’s recent performance tends to persist.
Our investment strategies, such as Fund Upgrading, Dynamic Asset Allocation, and Sector Rotation, are guided by mechanical rules based on that proven principle. In terms of investing decision-making, they’re our bread and butter.
That said, we’re not without opinions about the economy and markets. In these pages, and more commonly in the day-to-day posts on the SMI website, we offer our points of view and provide market commentary. Why? Because we want you to be a knowledgeable investor. Especially in light of all the fear-based and reactionary writing commonly found in the financial press, we consider it part of our mission to help you keep a steady hand on the wheel of your portfolio.
In a recent web post, for example, Mark wrote about how pessimistic many investors have become recently. A chart included in his piece seemed to suggest the likelihood of a near-term correction. However, Mark explained why he thinks that scenario may not play out. His intent wasn’t to try to predict the market’s direction but rather to add context to the scary headlines you may be seeing.
Similarly, we occasionally tackle topics in the newsletter that are somewhat complicated because we know you’ll likely hear about these matters elsewhere. For example, in this issue, Mark examines the implications of possible upcoming Federal Reserve Board action. It isn’t because we believe you should make any changes to your portfolio but because this topic will feature prominently in financial reporting in the months ahead and we want you to know our perspective. Another article this month discusses a counterintuitive idea concerning how to manage your stock/bond mix in retirement. We’re not suggesting you change your retirement plan. In fact, we explain why you don’t need to. But we want you to be informed if you come across this idea somewhere else.
There’s a ton of financial news “out there,” and a lot of financial “noise.” While it doesn’t affect our investment recommendations, we know it can affect individual investors’ hopes and fears. When we weigh in on the news, it’s to help you process the news as objectively as possible.
Think of SMI content as falling into two camps: “required reading” and “extra-credit assignments.” The required reading includes our investment recommendations and the biblically informed articles that expound on our core principles. The extra-credit content includes our commentary on market events and topics outside the scope of our core strategies.
Use the required reading to guide your investments. Do the extra-credit reading (if you wish) to understand a broader range of financial topics.
Every day, we all encounter a dizzying array of both facts and opinions. Your success as an investor depends largely on your ability to distinguish one from the other.