New Category

Introducing a new category:  the Family Foresight Thought Experiment

Suppose you're a family patriarch who just sold the business you've founded and nurtured, leaving you with proceeds of $1 billion or so.  One night as you dream you're visited by a sentinel from the future.  He informs you that one hundred years hence things are very bad: a dreaded virus threatens to kill a huge number of people.  Your granddaughter, as yet unborn, will be the only one who can develop the cure to save civilization.  She will be born with the brains, thanks to the genes you will pass down.  She will develop the sense of virtue and duty, thanks to the values you will pass down.  The only thing she will lack is the money needed to manufacture and distribute the cure, which will cost in the neighborhood of $5 billion in today's dollars.

Your task is simply to invest your current $1 billion such that in one hundred years its real value grows five-fold, an annual real return of only 1.6%.  Suppose you are going to live another 50 years, during which you can actively oversee your portfolio, and then your handpicked successor will live another 50 years after he takes over. 

The idea is not to earn the highest return, but to more or less preserve the value of the portfolio against whatever comes: war, revolution, taxes, inflation, etc.  You must think of every possible calamity and take steps to avoid it.  Like a modern Knight Templar guarding the Holy Grail, you must safeguard this vital pool capital through the years until it can save civilization.

Everything is on the table, including:

1)  What companies do you invest in?
2)  In which domicile do you hold your capital?  What is the world's safest country in which to hold capital?
3)  Who will be the custodian of your capital?  Is there such thing as the world's safest bank?
4)  In what form do you hold your capital?  Do you trust paper money?  Do you trust stock certificates?  Do you trust the electronic system that we all rely on to tell us what we own?  Or do you feel you have to invest in hard assets?

How hard is it to succeed at this task?  Consider that if you'd started this experiment in 1908, you would most likely have failed if:

a) You held your capital in Germany, then probably the most scientifically advanced nation in the world.
b) You had your capital in British pounds, then the strongest currency in the world.
c) You were a member of any of the most noble families of Europe.
d) You had the equivalent of $10 billion and lived in Russia or what was then the Austro-Hungarian empire.

Comments

[pcc]

e) You were living in China, which was (is) the most populous country in the world. If you were randomly placed, you had roughly a 25% chance China was your home country.

[Nick Gogerty]

sounds like a good time to use gott's theorom.

In the absence of "knowledge" or the risk of localized biases, it would help.

Nick

[larry macdonald]

Great post. Benjamin Franklin did something like this over a 2 century period. His estate set up two funds to lend money to help apprentices start their own businesses at 5% over 10 years. Costs kept low by having volunteer administrators. Worked out well -- is the lesson to skip indirect channels -- e.g. financial markets?
http://fintrend.com/ftf/Articles/Franklin_Compound_interest.asp

[NateCarrFan]

Given how laughably unpredictable the the events of 100 years are in the Modern Era, it would seem that the best thing to do is diversify your portfolio as much as possible. Although as I write this, it occurs to me that we can expect a calamity or two to occur over the next hundred years - whether it's a pandemic, a nuclear war, runaway global warming, who knows for sure - and so there should be a special emphasis in the portfolio on industries such as weapons, medicine, etc. that could actually benefit from a global disaster.

[cd]

If memory serves, Bismarck invested in forest land and did well. Perhaps diversified agricultural land. Keep in mind global warming for both.A savage enemy of wealth has been expropriation via inflation, taxation, and nationalization- these (land) might be far enough removed from attention to avoid these threats.

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