IBI Investment House Ltd. (TASE:IBI) founder and chairman David Weisberg is not ashamed to point out the anomaly in Israel’s financial markets and to criticize his colleagues’ optimism. In a special interview with “Globes”, he sums up the first half of 2007.
Weisberg says he does not know when the current upswing will come to an end, but notes that history teaches us that the end is not far off. His method, which responds to the anticipated weakness, is to diversify risk, especially regarding long-term public investment instruments because they are affected by stocks and are liable to deliver a painful blow to savers if the market turns bearish.
Weisberg says, “I’m looking at the proportion of stocks now held by provident for example, and see that their exposure to stocks is 30% or even 50%. That’s absurd in my view. Although it has contributed to the market’s momentum, the problem is that most of these investors do not have a particularly long-term perspective. True, investment managers have a problem because they’re chasing one yield after another, but the young managers forget that the primary goal in our profession is to preserve the value of the money. These young managers should understand that if you have to choose, it’s better to give the client 2% less on his yield and not take the risk, while simultaneously ensuring that the money’s value won’t be eroded.
“I’m an old broker, which has its disadvantages, such as the fact that I remember traumas, but the markets tend to repeat themselves and I still remember crises from the banks crisis in the 1980s through the crisis in 2000. For example, I have an acquaintance, a lecturer at the Harvard Law School, a very intelligent woman, who lost two thirds of her pension in the 2000 crisis because her pension fund invested too heavily in stocks. This woman is 67 and is still working because she can’t retire for financial reasons.
“The lesson of this story is that markets can correct downwards sharply and painfully. Young investment managers don’t realize this, which is why provident funds are too heavily invested in stocks at present, which jeopardizes the public’s savings. Such things have happened, and I’m talking about worst-case scenarios about which ordinary people often aren’t aware of. There are index-linked bonds that give reasonable interest. Although you won’t get rich from them, you’ll have the money when you need it. That’s something that people forget.”
“Globes”: Where are we now in the economic cycle?
Weisberg: “Nearer the end than the beginning. The clearest sign of this is the build-up of inflationary pressures, as well as the fact that people are beginning to talk about an interest rate hike. On the other hand, people forget that during previous cycles, Nasdaq rose hundreds of percent. Japan’s Nikki Index did the same during the 1980s, so it’s not certain that we’re too close to the end.
“In addition, the fact that the public hasn’t entered the TASE en masse yet, as happened towards the end of previous cycles, indicates that we’re not quite at the end yet. It can be said that the latest boom has mostly been borne by institutional investors.”
Have Israel’s economy and capital market really divorced themselves from the country’s political-security situation?
“I don’t think so. You should realize that the economy is like an big aircraft carrier; it takes time to turn around, but it will do so in the end, and in any case definitely cannot continue moving without a driver. No one is in the driver’s seat at the moment, and while the economy can continue to cruise along for a while, it will eventually hit the rocks. I hope that someone will grab the wheel before that happens.”
Published by Globes [online], Israel business news - www.globes.co.il - on July 2, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007