Stuart Fowler

Founder, goal-based wealth manager Fowler Drew. Author of 'No Monkey Business'. Book, firm, me: helping individuals make better financial choices.

[Stuart Fowler @fowlerdrew]

@paullewismoney @TheFCA ‘Lobbying’ is a loaded way of putting it. The consultation is the means by which the FCA is forced to be accountable. Challenge is a good thing. It’s very unlikely the FCA has got right in a few days even the broad outlines of a scheme that’s consistent with the SC judgement.

[Stuart Fowler @fowlerdrew]

@Sharpe_Actuary @JohnRalfe1 @JohannaMNoble I’d be interested in evidence for actual trades at long horizons. Buffet trades in American style options are known but are clearly not relevant here.
Incidentally, argument is about whether real wealth distribution expands more slowly than if real equity returns purely random.

[Stuart Fowler @fowlerdrew]

@Sharpe_Actuary @JohnRalfe1 @JohannaMNoble Interpolation isn’t an issue but extrapolation is, as the term lengthens to periods where trades are very unlikely and the volatility focus of the holder (@JohannaMNoble was talking about individuals) will be real wealth outcomes (and consequences) not nominal return paths.

[Stuart Fowler @fowlerdrew]

@JohnRalfe1 @Sharpe_Actuary @JohannaMNoble The distribution of real wealth outcomes is evidenced by a century more of real returns for indices in many countries. But that is not to say it can be relied on to persist. That remains a bet. Rejecting the bet has a clear market price in ILG yields.

[Stuart Fowler @fowlerdrew]

@JohnRalfe1 @Sharpe_Actuary @JohannaMNoble @JohannaMNoble did not in fact make any assertion about risk reducing with time. You assumed that. Her case for individuals bearing equity risk to meet long-horizon needs and wants is more likely to be based on the probable real returns relative to real risk free rates.

[Stuart Fowler @fowlerdrew]

@Sharpe_Actuary @Chuck_Actuary @JohnRalfe1 @MarkDampier @moneyandmore72 @JohannaMNoble 2/2 The cult of equity, as real asset, originates in beliefs about mean reversion in its underlying drivers, ie some form of equilibrium model of competition at level of corporate ROE, domestically and internationally. Also after inflation. But long cycles = few data points.

[Stuart Fowler @fowlerdrew]

@Sharpe_Actuary @Chuck_Actuary @JohnRalfe1 @MarkDampier @moneyandmore72 @JohannaMNoble 1/2 The relevant time series is cumulative real total returns from an index with Darwinian rebalancing from failing to succeeding companies. But you are still right: we don’t yet have enough history to disprove random walk with drift. But what about the drift?

[Stuart Fowler @fowlerdrew]

@moneyandmore72 @JohnRalfe1 @MarkDampier @JohannaMNoble Risk can mean different things depending on the context. The equity cult John mistrusts is not blind to nominal volatility. It accepts it as worth tolerating to satisfy long term real wants and needs. An expanding ‘funnel of doubt’ about future real wealth, with an upward bias.

[Stuart Fowler @fowlerdrew]

@JohnRalfe1 @MarkDampier @moneyandmore72 @JohannaMNoble 6/6 The data evidence for real outcomes, and the significance of the trend and deviations, cannot be proven. It must remain a wager, albeit one with theoretical support. But neither is it disproven by option prices. That doesn’t even begin to address the useful debate.

[Stuart Fowler @fowlerdrew]

@JohnRalfe1 @MarkDampier @moneyandmore72 @JohannaMNoble 5/n Much as I respect @JohnRalfe1 for his technical ability, he is here (and often) acting as the enemy of the good. @JohannaMNoble is not giving bad advice just because she has not made a clear distinction between volatility and real wealth outcomes.

[Stuart Fowler @fowlerdrew]

@JohnRalfe1 @timreay @JohannaMNoble 5/5 If individuals understand this they can learn to live with volatility. But there’s an important corollary. If the rationale is the probable distribution of real outcomes, there is no place for nominal bonds. These trade equity volatility for inflation risk - not a good trade.

[Stuart Fowler @fowlerdrew]

@JohnRalfe1 @timreay @JohannaMNoble 4/n Real outcomes denote success or failure in funding consumption needs and wants. The distribution of outcomes does expand with time but shortfall risk vs real fixed income (ILG) returns shrinks with time and eventually dissipates. But you need to be able to live with vol.