By Rebecca Ellis
MON 02 AUG, 2021-theGBJournal- Wouldn’t it be fantastic to turn back the clock? Maybe start again and with hindsight select better alternatives to life’s major decisions? What if you could apply hindsight to your investment decisions? A pipedream? Yes, probably for most of us, except for Max-Hervé George.
When he was seven years old, Max-Hervé George received a magical ticket from his father. It makes him turn back the clock to invest week after week with perfect hindsight and steadily accumulate a fortune. However, there is no secret to the financial magic. Instead, it is a story of great stupidity by a French insurer that wrote the worst contract in the world and sold it to thousands of its customers. The company was L’Abeille Vie, which was later integrated into Aviva.
In 1987, it began to make its wealthy customers a special offer, a fixed-price arbitrage life insurance contract. Life insurance is a popular savings product in France, and usually the customer directs his money to various mutual funds offered by the insurer. This contract was not typical: the prices for the funds were published every Friday, and clients were allowed to switch funds at these prices at any time before the publication of the next price one week later, even if the markets moved in the meantime.
In a world where the price of everything is just a click away, it seems suicidal, to offer a retrospective investment service. But thirty years ago, the prices for funds were rarely published. Trading involved calling your broker, visiting them in person, or perhaps sending a fax. It could take days for the trade to be processed, during which time the market could move again.
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Each week Max-Hervé would switch his money into the best fund. At the beginning he would send the document by fax, but soon the insurer required the orders by letter only. To make sure nothing goes wrong in the mail, Max-Hervé sends a court appointed bailiff to deliver each set of instructions. Week after week.
Expect Aviva France to robustly contest all claims made. The George family, however, won their first court ruling in 2007, confirming the validity of their contracts. In the meantime, the courts have rendered no less than 64 decisions in favor of the clients. A Paris district court sanctioned an expert’s calculation of an increase in value of the investments by 68.6% per year for a decade starting in 1997. This means that by the time of the court ruling, the gift his father had given to young Max-Hervé had grown from about EUR 8K to EUR 1.4 million.
Estimating the size of his total current windfall is an illustration of exponential growth. Suppose the growth rate of 68.6% per year had continued after the court ruling, and there is no doubt of a similar performance, Max-Hervé’s insurance policy would be worth more than EUR 3 bn. Imagine what you could have done investing with perfect hindsight during and after the crash of 2009 and then in 2020. Max-Hervé will be a happy and very wealthy man when he finally gets his hands on his assets.
We at Pomona do not have such a magic contract, and neither do rewind the clock, nor do we have 100% hindsight. Instead, we rely on our long experience in the financial markets, our skill at picking individual stocks, and our ability to structure portfolios. We have years when we can post similar results as Max-Hervé but we humbly must recognize that they will never be as steady as his.
Rebecca Ellis is a Personal investment advisor, based in Zurich–rebecca.ellis@pomonawealth.com| pascal.crepin@pomonawealth.com
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