Archive for: 2005

06 Nov 2005

Trackers: winning the long game

An FT letter writer recently described tracking a stockmarket index as ‘a race in which the athletes absurdly strive for an average performance’. This is a common misconception, arising from extrapolating short-period relative returns (where the description fits) to long periods. In fact, at some time horizon the lowest-cost trackers are bound to achieve significantly better returns than the average actively managed fund.

read more Commentary by Stuart Fowler
02 Oct 2005

House prices: the message is in the level, not the rate of change

I sent this letter to the FT, not necessarily to be published but to provoke some policy thinking about how to report conditions in the housing market. The typical focus on changes in the rate of change in nominal house prices is not a substitute for a compass of long term house price levels stripped of the ‘money illusion’ that distorts all long term UK data. Financial writers should be helping us to see the wood as well as the trees.

read more Commentary by Stuart Fowler
24 Aug 2005

How the industry exploits our poor grasp of probabilities

FT columnist Professor John Kay has recently written two columns devoted to the notion that people have a poor grasp of probabilities. The first prompted several letters debating a particular reasoning problem: the Monty Hall Show contest. In his second column on probabilities Prof. Kay points to these letters as proof people really are confused.

read more Commentary by Stuart Fowler
03 Aug 2005

The lifetime challenge of funding your own retirement

It is changes in society and government policy rather than economics or financial asset performance that make lifetime financial planning different for today’s generation of young people. For those with expectations of near-average lifetime earnings, the challenges are not necessarily so different. But for young people with higher expectations, the changes are pretty dramatic. Almost regardless of how entrepreneurial are their expected income sources, they are likely to have to plan their earnings and retirement income as if they were running a business.

read more Commentary by Stuart Fowler
02 Jul 2005

What (little) pension trustees should know about investment

In the continuing debate about how to strengthen the effectiveness of trustees of salary-related ‘defined benefit’ pension funds, and particularly their investment understanding, the essential point seems to have been overlooked. Logically, trustees in this case should have nothing to do with investment decisions, only investment arrangements. Otherwise they are acting as if the consequences of investment decisions only impacted the scheme members when in reality, as intended by a series of legislative and regulatory changes, they impact the fund’s sponsor and, when a compensation pool exists, the sponsors of all funds collectively. Following these changes, the conventional hope that sponsors and members share common risk utility functions looks wildly unrealistic.

read more Commentary by Stuart Fowler
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