The show, presented with Emmanuelle Gave, the author's daughter, begins with a look back at the ideal portfolio according to Charles Gave, which can be found on the website of the Institute of Liberties, with an aggressive or offensive part and a defensive part, as well as graphics. This is an opportunity to look back on Gave's career in finance, with highlights such as the first oil crisis or the Ronald Reagan years (1911-2004). The goal is to understand, in inflationary or deflationary periods, what a financial expert can provide.

A model is a quick way to summarize reality. Where a model becomes more interesting than usual is when it no longer works, because a new element appears and we have to wonder what its impact is. The opposite is also valid: we can wonder if a given model will still work in a period of historical rupture, such as for example the subprime crisis of 2008. In March 2008, we had the impression that capitalism was definitively breaking apart. It was the moment when, according to an efficient model, you had to buy at the sound of the gun.

Gave has therefore constructed a typical portfolio, with two distinct parts: one aggressive or offensive, the other defensive. The aggressive or offensive part always includes: Accor, Air Liquide, Schneider, LVMH, L'Oréal, Pernod Ricard, Capgemini, Sodexo, TotalEnergies, Danone. These are the ten companies whose operation is independent of state policies. Remember that multinationals (like the companies mentioned) produce everywhere and sell everywhere, unlike transnationals (like Apple), which are more fragile than the previous ones.

To keep the same example, Apple has all its research centers in the United States and all its production centers in China, which is not viable from an anti-fragility point of view, because in the event of a war between the United States and China, Apple no longer produces anything and therefore no longer sells anything. Another form to avoid is that of domestic companies (like Fleury Michon), because their risk-taking is too high due to the fact that they only control a single market. Ventilation must also be taken into account. Carrefour, for example, sells mainly in France and European countries, while Danone is in a larger number of markets.

The defensive portion includes two-thirds Chinese bonds and one-third gold. Chinese bonds, in fact, have low volatility, unlike gold. You should always look at long-term profitability and short-term volatility. With a balance between the aggressive part and the defensive part, the risk is cushioned: if you are losing, at a given moment, with the stock market, you can buy some while they are falling and resell Chinese bonds or gold rising. We must therefore, according to Warren Buffett and other experts, do the opposite of what is done under the influence of emotion. In other words, you have to buy when prices fall.

Following a system that encourages you to buy when prices fall and to sell when prices rise allows you to escape from an atmosphere of fear and panic in the face of fluctuations. Automating portfolio management is the key to managing emotions in finance. We must also understand that, contrary to popular belief, the Paris Stock Exchange market does not owe its maintenance to the luxury sector alone. Evidence is provided through the fact that, among the ten companies cited, only one belongs to this sector. We can therefore improve our results while frequently reselling LVMH.

Unlike the French bond market, the Chinese bond market benefits from political decisions aimed at making it attractive. In France, we cannot ask bonds whose price has been manipulated to reach ridiculous prices to serve as protection. In China, there is a desire to ensure that bonds become a risk-free investment for the entire Asian region. We cannot therefore accuse Gave of working for the Chinese Communist Party: when we lose 23% with French bonds, we gain 19% with Chinese bonds.

For Max Weber (1864-1920), there are two ethics: an ethics of responsibility and a personal ethics. Gave's ethic of responsibility as a savings professional, in his interventions, consists of telling his listeners how they can maintain their savings. From this perspective, it appears that the best bond investment, in 2023, remains China. Any possible reluctance, moreover, against the Chinese political regime would come down to personal ethics. However, since the latter involves a personal decision, no one can, by definition, make such a decision in place of the person concerned. In other words: it’s up to you.

On the one hand, you have to look at finance with a cool eye to protect yourself from emotional danger and risk. On the other hand, it is necessary to understand the benefit that can be obtained from a mixed approach. To illustrate, let's take the example of a horse race: unlike those who seek to know who will be the winner and bet everything on the latter, which immediately reduces the probabilities of success, it is better, for increase your chances of always winning, eliminate, out of ten or twelve horses, the four or five who have no chance.

The question is: how to manage a portfolio outside of indexing? Today, portfolios in large institutions are all managed based on indexation, resulting in a high probability of overvaluation and significant losses in the event of a historical reversal. This is why, in order to avoid having problems with the competition, everyone tends to copy everyone else, and follow mathematical models. The contradiction is that 80% of wealth is produced outside the Organization for Economic Cooperation and Development (OECD), while 80% of stock market valuation comes from companies listed within the OECD.

Regarding the change in rules that may occur along the way, it is our experience in the markets that helps us make predictions. Gave had thus anticipated, with the advent of the euro, the destruction of the banking system and that of long-term savings. By maintaining the euro, politicians have maintained negative consequences across Europe. In 1971, after studying economics and then business school, Gave arrived at what was still called the Bank of Suez, at the time of the break in the link between the dollar and gold.

Before, there was a system of fixed exchange rates with the dollar. The United States determined the level of interest rates for the entire world. They then had the lowest interest rates in the world. In the market, you simply had to look at whether the shares were inexpensive relative to history. Then, suddenly, interest rates and exchange rates began to float freely, and managers no longer understood anything. A bear market began in January 1973 and ended in January 1974. The English market fell by 90%, inflation exploded (food, oil). The 1970s were a financial disaster. The stock market measuring the marginal profitability of invested capital, when it collapses it is because profitability is falling, hence unemployment and its rise.

Gave was already explaining the situation to the bank which employed him at the time, but the latter was not very attentive. He then met Swiss managers, an English stockbroker and a small Parisian bank, who agreed for Gave to create a research center. It should be remembered that, at the time (when management and finance mattered less than commercial loans), percentages were still calculated by hand, as were correlations, anticipation effects, and information was difficult to find. So it was artisanal work.

He therefore expected to have small banks in his client portfolio but, following his first publications, large groups began to take an interest. Moreover, small banks operated based on the information given to them by the large banks to which they were linked, and which had more money. From 1973 to 1980, there was only a core of a few people around Gave who did the research work with him and, always by hand, the graphics. By the early 1980s, they had three hundred customers worldwide.

In 1978, Gave bought his first computer, which cost 600,000 francs, the price of an apartment, allowing him to take care of the presentation of graphics. He realized that certain visual patterns were repeating themselves: when Japan's foreign exchange reserves rose, so did the yen's foreign exchange reserves. Liquidity was entering the Japanese economy, due to the purchase of yen, and the stock market tended to follow. It was first necessary to look at the exchange rate, then check whether foreign exchange reserves were rising sustainably or whether it was a short-term movement.

The phenomenon is comparable to the correlation that Gave established between the S&P 500 (from Standard & Poor's) and the price of gold over a hundred years. When, on the contrary, a value deviates considerably from the average, we can see it as an indicator of what to buy. 1981 arrived and the election of François Mitterrand (1916-1996). Not wanting to live in a country where some ministers are communists, Gave and his family go to London. England at the time, however, was not initially motivated by the search for profit. But the policies of Margaret Thatcher (1925-2013) did not take long to produce their effects, and it was the beginning of big finance.

Meanwhile, in France, Pierre Mauroy (1928-2013) applied exchange controls, price freezes and a protectionist policy. He is always hailed by Jacques Attali as "Mitterrand's best minister". The problem with this policy is that the profitability of the French industrial base (which, moreover, was not even the intended goal) was based on a comparative advantage in exports, because the franc was falling. Otherwise, French industry would already have been in difficulty. This is why we must be wary of the protectionist lever.

In 1983, Gave visited JPMorgan in New York. He goes to see his management department and tells them about the French rates of 17% on ten-year bonds. He returned then, three days later, received a call from JPMorgan asking him how to buy French bonds. There was, however, a JPMorgan agency in Paris, but the agencies did not communicate with each other like today, where you just press a button to buy any bond anywhere in the world. Everything remained to be done at this level, and Gave was a pioneer.

This is how, initially a simple analyst, he was then asked to, in addition, manage other people's money. His clients then entrust him with part of the money they have on deposit, which he takes care of with the help of another expert who is familiar with the IT tool. Despite the pressure of this heavy responsibility, the structure functioned until the years 1993-1994, when a series of circumstances led to the decision to sell, a decision made in 1997. Certainly, management was more profitable than analysis, but all the good management ideas came from analysis.

The creation of Gavekal, another research and management structure, took place just before the 2000s, in anticipation of the Asian boom that would follow. The basic idea would come to fruition through tense exchanges between Charles Gave and a Keynesian, Anatole Kalensky. One of the main difficulties of the company, making the job of manager intellectually demanding, would be, as before, the cumbersomeness of the decision-making process and its long-term consequences.

Gave therefore left London to go to Hong Kong. Today, Gavekal has more than a thousand customers in sixty-five countries. Returning to Paris after seven or eight years, Gave refocused on the subject that currently interests him most in finance: portfolio construction (while the first part of his professional life was more devoted to rates interest rates, exchange rates and currencies). Before, his analysis focused primarily on the fact that, as Asians became richer than Europeans, LVMH's clientele, for example, would shift to the Asian side; now his concern is more about what to balance LVMH with in a portfolio.

Portfolio construction is a branch of the future in the finance professions. The latter must, however, expect persistent difficulties, in particular because of unsuitable regulations, inspired by risk analysis tools (such as Value At Risk) which do not work but which JPMorgan nevertheless continues to use, because having invested too much in this direction to want to turn back. As a result, today a Dutch client may find himself in the situation of having to invest in a pension fund where he knows he will lose money, due to Central Bank regulations requiring quotas.

Merci de m'appeler Eric, c'est mon prénom d'usage.