Do You Sincerely Want To Be Rich? (32 page)

    

    
In which the salesmen find the last great market. Under the remarkable Eli Wallitt, the sales force becomes a kind of chainletter game, and it multiples like the amoeba.

    It was in Germany that the sales operation finally stood revealed in its pure essence: as an elaborate system for enriching the salesmen - or rather specifically the sales managers - advertised as a crusade to bring capitalism to the masses.

    For a time the German operation was a triumph. Within three years from 1966 to 1969, it shot up from being no more than one among a couple of dozen territories around the world, until it was virtually half of IOS: almost half the clients, fully half the salesmen, and almost half of the face volume of sales.

    But the expansion in Germany was bought at a cost which contributed substantially to the sales operation's overall loss. To compensate for that loss, management was driven to more and more speculative expedients. The discovery of those expedients caused the share price to collapse, and brought on the apocalypse. And to a very great extent that fuse of causation led back to Germany.

    There is a quality about those last extravagant years of IOS in Germany which reminds one of one of the great religious revivals, IOS was not spoken of there simply as an investment company among others, more or less successful. Both its supporters and its opponents discussed it in terms of ideology, as if Cornfeld's vague rhetoric about 'people's capitalism' really added a new thesis to Marx's dialectic.

    The IOS salesmen, one German IOS executive wrote, 'did not

    simply offer a product or a service. They offered a
Weltanschauung'.
That is the word Germans use for an all-embracing philosophical view of the universe.

    Eli Wallitt, who actually devised and controlled the German miracle, put it a little differently to us. Salesmen, he said sadly, are 'fantasy oriented'. Their motivation lies in the future. It is a dream, but a dream that keeps them working. Most of them, he conceded, made only a 'marginal' living. A few - and Wallitt was one of them - made a fortune. Nowhere was the fantasy richer or more effective, for a while, than in Germany.

    There were several reasons why IOS should have taken root in Germany with the vigour of an idea whose time has come.

    In the middle 1960s, Germany was almost completely unfettered with any regulations to hamper the foreign mutual fund salesman. The West German mark, for a start, was freely convertible. 'There is nothing to stop any German putting all his capital into ioodm notes, getting into his car, driving across into Switzerland, and changing it all into Swiss francs,' said a leading West German banker. 'It's a
Ganovenwunderland -
a hoodlum's paradise.

    German domestic mutual funds were carefully regulated by a law of 1957, in some respects more strictly than the sec regulates American funds. But foreign and offshore funds in Germany were not regulated at all until 1969. So long as they did not distribute their profits as dividend, they were not even taxed, for no income was due when dividends were automatically reinvested to buy additional units.

    West Germany is, as everyone knows, one of the wealthiest countries in Europe. What is not so widely known is that the habit of owning stocks and shares is less widespread in Germany than in any comparably wealthy country. In 1960, for example, fewer than one million West Germans owned any shares, as against three and a half million people who did in Britain, a less wealthy country. Two world wars, with revolution at the end of the first, and the destruction of the economy after the second, and above all the traumatic inflation of the 1920s, have made the older half of the German middle class ultra-wary of the stock market.

    The character of the German markets has reinforced this attitude. There are no brokers in Germany, as such. The banks act as brokers, and operate the markets between them. In the late 1950s, both the Christian Democratic government and the big banks tried to encourage small investors. The government denationalized Volkswagen on terms favourable to the small shareholder. The banks started their own mutual funds.

    But in the 1960s, though the economy, by and large, went from strength to strength, the stock market emphatically did not. The new investors who had come gingerly into the market in the late 1950s burned their ringers when the market fell by more than 50% in 1960-1.

    The economy, however, continued to flourish, and by the middle 1960s, more and more people had money burning a hole in their pockets, or at least deposited in 4% savings accounts. The net result was that by the beginning of 1967 IOS was ideally poised for a successful sales campaign.

    More than one of the German bankers, officials and journalists we talked to about the IOS phenomenon reminded us of another factor which cannot be ignored: the extraordinary trust in, and admiration for, all things American of the generation of Germans who had been young in 1945 - which was the generation who had money saved by the 1960s.

    More than anywhere else in Europe, the old values had been discredited in Germany. Germans turned to America and identified American ways with everything that was modern, democratic, progressive. Mutual funds were new, they were modern, they were American. Hundreds of thousands of Germans in the young-middle-aged generation were ready to believe that if mutual funds were criticized by the bankers, then that just showed how frowsty or self-interested the bankers were.

    Why was IOS so slow to realize that this huge market was waiting for it in Germany? It had after all been very active in Germany since 1957. Most of the leading individuals in the sales management - from Bernie Cornfeld down through Allen Cantor, Victor Herbert, Jack Himes, Eli Wallitt - knew Germany well from having sold programmes to the American military there themselves for years.

    The truth is that for seven years Cornfeld was in the position of a man who doesn't realize he is sitting on a goldmine. It was not, for example, until mid-1963 that the first IOS sales material

    

 

    
    By 1969, eight of Kunkler's most successful salesmen of five years before had become managers. Several of them had worked up to the title, and the override, of a general manager.