Wednesday, April 30, 2014

I-PRAY for Daled until Mem

This week we continue our in-depth analysis of the stocks in the I-PRAY index. It goes without saying that you can buy these stocks to get exposure to the Israeli stock market without the fear of Getting Eaten by PFIC. I certainly would not be mentioning this in order to provide more links for internet search engines to find.


דן מלונות. This is an important stock to own because when all your friends come to visit, you certainly won’t be able to fit them all in your mamad. Instead, just can just refer them to the nearest Dan Hotel, and it will be like putting money right into your own pocket.


הראל השקעות. Harel Group is one of Israel’s larger investment houses and insurance companies. This is a sector that is poised to take off just as soon as Investing by Accident is #1 in the search results for השקעה בקרן נאמנות אזרח ארה"ב.


וילי פוד. We have already been experts in Willi Food for at least the past couple of weeks. Oddly, the Investing by Accident bump has not yet kicked in for this stock. However, this is great news for our new loyal readers because it means you can still get in.


כיל. At first, I thought this company is called, “Kill,” which I thought was super-awesome. Sadly, it turns out they go by the acronym, ICL. They are a “global fertilizer and specialty chemicals company,” which basically means, “something to do with science.”

כפרית. Kafrit sounds like a restaurant, but is actually a manufacturer of “customized Masterbatches and Compounds for the plastic industry.” Basically, “יש!’.


לידר שוקי הון. Leader is a leader (ha!) in the financial services industry, which as you know is poised for explosive growth any minute now.


מגדל ביטוח. Migdal is another large financial services and insurance company. Judging just by the fees that I pay Migdal in my own pension, this company should be profitable for years to come.

מטריקס. In general, I have a negative subconscious bias against software companies. It may be because I can’t understand how there is any real value in software (isn’t it just computer code? why would someone buy that?). Or, maybe it is because I work for one. Either way, you can’t pretend to be an index on the TASE without a software company. After reading through their website, I can honestly say that I have no idea how they make money. However, I do see a lot of cars driving around with their logo which means that in the very least, they have a large corporate car leasing program.

מנדלסון תשת. This company operates subsidiaries in manufacturing of all sorts of things. My Friend who understands “things” and he told me that this company is a “premier manufacturer for plumbing and sprinkler parts.”

מנרב. Minrav is a commercial builder with a specialty in tunnels. The only downside of this company is that their specialty is limited to the summer time only. Or, at least that is what I assume because their tunnel for the train between Modiin and Tel Aviv was out of commission last winter for months after the big rain storm.

מעברות. Ma’aborot “engages in the development, manufacture and marketing of foods and nutritional supplements for people and animals.” Not only do they own the Materna brand of products for babies, they also make food for animals!

You can almost see how the innovation on the Ma’aborot kibbutz took place. Yaron comes home from a long day at the farm. His wife, Nurit, says, “oh no, I ran out of food for the baby Or.” Yaron thinks a moment and then realizes, “I have some left over goat food -- try that!”

If it works for the kids, it will work for the kids! (Ha!) If this company is not what Herzl was envisioning in the Jewish state, I don’t know what is. 

Wednesday, April 23, 2014

I-PRAY for Aleph until Gimmel

Despite what any competent expert would have predicted, after publishing my non-expert opinion on Willi Food, the market has responding by not doing much at all. However, I am not deterred. As I have learned from having children, when something doesn’t go your way at first, you should keep trying and trying because maybe things will suddenly change.

In that spirit, here is the first edition of my copious research on the companies in the I-PRAY index. The “PRAY” part of I-PRAY already takes care of all the pesky “quantitative” stuff like prices, ratios, assets and yields. This is great because it leaves my research for the more important “soft” qualities. Think of this as research by accident, which will be best appreciated by investors who wouldn’t even research on purpose.


אגוד. In general, I don’t like banks in Israel because they hate their customers, but I made an exception for Bank Igud because they give away magnets with Shabbat times every year before Rosh Hashanah. My thinking is that if this doesn’t work out as an investment, at least I’ve done my part to make sure everyone is on time for Street Ma’ariv.

איביאי בית השק. There are several financial companies in the I-PRAY index, but my favorite is IBI. I like them so much that I opened my Israeli brokerage account with them. I was a bit worried that when I bought shares in IBI from my IBI trading account that the world would come to an end, but it turned out to be perfectly alright. I think that investing in Israel could be on the rise, especially now that Investing by Accident’s is climbing higher and higher on the search result for השקעה בקרן נאמנות אזרח ארה"ב.

אימקו. IMCO is “a leading Israeli defense company, specializing in the development, design and production of mechanical, electro-mechanical, electrical and electronic products, assemblies and sub-assembles for airborne, land and naval applications.” This company is clearly the dream for the aliyah minded investor.

אמנת. Amanet is primary a “logistics” company. I have no idea what this means, but thankfully they explain on their website that they are a “multi disciplinary service and consultancy provider.” Phew! Glad we cleared that up!

אסם. Osem is one of our Israeli’s largest food companies and the makers of the finest croutons on earth. In addition to croutons, they also manufacture many nutritionally-challenged foods that you will recognize from your long car trips over Hol Hamoed. They also own many popular Israeli food brands, including טבעול, which has singlehandedly changed the nature of our dinner times by making it possible to feed people who otherwise are unaware of what food is supposed to be.

אפריקה תעשיות. This company is a serious looking manufacturer of metals and ceramics, which is based on the very serious looking pictures on their website. I wish I had as strong feels about metal manufacturing as I do for croutons, but frankly, I have no idea.

ארד. This company does fancy stuff with water management. I like water.


בזק. Bezek is Israel’s telephone company. Investors seem to be running away from this stock, maybe because no one uses telephones anymore. I like it because (a) it is cheap, (b) people still use telephones, and (c) people definitely still use the internet and Bezek has the best infrastructure for it.


גולד. This company (full name: Gold Bond Group, Inc.) operates through a company called Conterm (maybe because “Gold Bond” is really something else entirely). Here is what they do, and this is a real quote:

“Conterm Ltd. specializes in storage and handling services as well as providing logistic solutions to all types of cargo and containers. Conterm operates a cargo and container terminal which is itself a port, supplying a complete package of services to importers and exporters.”

Can you believe it? The cargo and container terminal is itself a port! I am not an expert on logistics, but with this kind of setup how could they possibly lose?

גולן פלסטיק. This company is a manufacturer of plastic products for heating and cooling systems. I am not an expert on plastics, but my Friend who is and he thinks PEX piping is the bomb.
גזית גלוב. Gazit is “one of the world’s leading multinational real estate companies engaged in the acquisition, development and management of income-producing properties.” This company is a nice addition because it gives the I-PRAY index exposure to the real estate sector with a low risk of Getting Eaten by a PFIC. This is because Gazit is also traded on the New York Stock Exchange (TSX), and based on their SEC filings, they seem to take special care to avoid become a PFIC, which would hurt their U.S. investors.

I think you can’t possibly go wrong with a real estate company. I know this because of what I learned from the honest real estate agent who I hired to sell my apartment for me in 2007. She sold it in 30 days when everything else was sitting on the market for months. Her secret was that she simply informed that buyers that “real estate only goes up; it never goes down.”

Wednesday, April 16, 2014

My First Tender

As a powerhouse investor on the Israeli financial scene, I am often asked to opine about big ticket acquisitions of publically traded companies on the TASE.

Of course, by “powerhouse investor,” I may be somewhat overstating my personal impact on the market. Technically speaking, “statically insignificant,” may be more accurate. But why mince words?

Also, I may not be “asked to opine” all that frequently. It may be more accurate to say that I opine by accident.

In this case, I happened to have received this actual email last week from my Israeli brokerage account provider:

נושא:  יביאי- הצעת רכש- וילי פוד

מצ"ב ההצעה
אי.בי.אי. - שירותי בורסה

Attached to the email was a personal letter written to look like a form letter from Emblaze Ltd., which is an investment holding company owned by Alexander Granovsky. If you don’t know who that is, you are obviously much like myself and do not keep up with the news about IDB Holdings.

In any case, Emblaze has entered into a deal to buy out the majority shareholders (and founders) of Willi Food. By Israeli securities law, Emblaze is required to offer a “tender” to buy a 4% stake in the company from ordinary shareholders like myself at the same price.

In the personal letter, Emblaze has offered to buy out my stake in Willi Food for 34.710353 shekel per share. (The people at Emblaze are nothing if not exacting in their arithmetic!) This would be an almost 35% premium on the current trading price of Willi Food at around NIS 25.45.

What does the internet’s foremost non-expert think of this deal?

Willi Food by Accident

Will Food comprises 3% of the I-PRAY index, which makes it one of the 30 most important companies in the Investing by Accident portfolio. To understand why it is there in the first place, I returned to the copious notes that I took when I researched Willi Food. Here is what I found:

וילי פוד. Despite what I originally thought, this company is called, “Willi Food,” and not “Villy Pood.” However, I still sometimes call them that way in my head. This small company produces/imports/exports all sorts of kosher foods. They are especially fond of canned foods, including sardines. I assume that people (especially Jewish people) will want to eat, so how could we lose on this one (except for the part about sardines)? Also, all of our American friends can get in on this company, as they are traded on the NASDAQ as WILC.

This still seems to me like a very reasonable case for investing in this company. Fortunately, because Willi Food is traded in the U.S., I can turn to the U.S. financial sites to find information in English about this sale.

I assume that anyone in the U.S. who is interested in an Israeli company worth around $100 million must have happened upon it by accident. If you don’t believe me, just check out this article analyzing the transaction. 

This is non-expert level writing, including analysis on market valuation, balance sheets and cash flows... using spreadsheets. Spreadsheets! In my home, our cash flow analysis is never done with spreadsheets. Mostly, it goes something like this:

Wife: Do you have a 20?
Me: No.
Wife: Ugh! Do you at least have two 10's?
Me: No.
Wife: Ugh, ugh!

The 10's and 20's are the most valued kind of money in our household. We will pay almost anything to get them.

To Sell or Not to Sell

I was very touched by the personal offer letter, and have therefore decided to respond with my own personalized letter:

Thank you for your kind offer to buy my ____ number of shares of Willi Food. Unfortunately, I have decided not to sell these shares at this time.

I am not an expert, but it seems to me that the offer is still well below the fair value of the company. Willi Food is currently trading at just 8x revenue from 2013. This is extremely low as compared to other Israeli food manufactures such as Maaborot and Osem which are trading at 23x and 24x.

With your offer, Willi Food would trading at around 11x, which still seems below value. Well, I guess that is why it makes sense to you to buy a controlling interest in the company at this price.

In any case, I do hope that you will be able to close the deal and help bring the value of the company more in line with where it should be.

I thought about selling and then buying the shares right back. That sounds like a pro move to me, but it’s a bit of a hassle. The money from the sale would be wired to my bank account, which would mean that I would need to wire it back to my brokerage account.

Maybe if they paid me in 20's I would be willing to do it.

Wednesday, April 9, 2014

I pray, you pray, we all pray for I-PRAY!

Today is a proud day in the history of Investing by Accident, as I am (finally!) announcing the newest index for the Tel Aviv Stock Exchange.

For Immediate Release
Investing by Accident’s Israel Price Ratio Asset Yield index is now available. The index is more popularly known by its acronym, I-PRAY, which happened to spell out that way completely by accident. Good luck, investors!

Equally important, today is a very exciting day for my portfolio. As soon as you read this blog, you will rush out and buy the stocks in the I-PRAY index. When you do this, my investments will rise drastically in value and instantly make me rich. Thank you in advance for your support.

What I-PRAY For

I created the I-PRAY index to solve two critical problems with investing in Israel.

First, I want my portfolio to perform well. In a traditional sense, this means that I want to beat an objective benchmark, such as the Tel Aviv 100 stock index. The trouble is that the experts say that the experts are very bad at out-performing the index.

This is why so many experts tell me that I should just invest in the index instead. However, if I do that, I certainly wouldn’t be able to beat the index. Instead, it would make much more sense to create my own index and invest in it. Since my index is not an expert, it should be able to consistently beat another index.

Let me just say that if agree with the logic of the last paragraph, then you clearly understand the “PRAY” part of I-PRAY.

Second, U.S. taxpayers cannot invest in foreign mutual funds without getting eaten by PFIC. One workaround would be to run away from a PFIC by buying an ETN. This is a viable option in terms of taxation (at least until it isn’t), but you may not want to do this because of the added credit risk involved.

In that case, the I-PRAY index is here for you. You can buy the companies in the I-PRAY index and not get eaten. Still better, you will reap the enjoyment of owning real bits of authentic Israeli companies. And, I mean authentic. Like, bamba-level authentic.
And also, I’m a geek.

Licensing Agreement

One of the things that I have learned as a professional geek is that “computers” and the “internet” can be used very effectively to help people. I hope the I-PRAY index will help you invest in Israel, whether or not you are a U.S. taxpayer. But also, I hope you will help me make it better by leaving your feedback on which companies you like, which ones you don’t and which ones you think are missing from the index.

In any case, please use the I-PRAY index however you like. Just don’t blame me for any returns you get from it. After all, you are following advice from a blog that calls itself an accident.


How did the internet’s foremost non-expert on investing select the stocks for inclusion in the I-PRAY index? By applying a rigorous methodology, of course:

Step #1: Sizing. The I-PRAY index is unique in that its goal is enable you to invest in a sufficiently broad range of stocks so that you are diversified, but also small enough that you can reasonable manage these investments yourself. My first step was to find the number of stocks that would achieve this goal. Fortunately, the people who understand math have shown that we only need 30 stocks to achieve diversity and that is actually fairly manageable. (Phew!)

Step #2: Copy an Index. Like any good index, the best way to create a new one is to copy an existing one. I evaluated the performance of the current Tel Aviv stock indexes and selected the Tel Div index as the starting point for I-PRAY for two reasons. First, “broad market value indexes” have historically performed the best, and the Tel Div is the closest to one of these that we have for the Tel Aviv Stock Exchange. Second, it only has 29 stocks in it which means I didn’t need to work as hard.

Step #4: Add the Experts. To ensure that we have broad market coverage, my next step was to shamelessly copy the investment choices from the expert managers. I selected two funds that have historical performance better than the Tel Div and ripped off their list of investments. The two funds were the “Yeter” fund from Altshuler Shaham and the “Yeter+Small Cap” fund from Tamir Fishman.

Step #5: Remove PFICs. After merging the list of stocks together, I sorted by highest overall allocation amount between all three lists and then reviewed the list to remove any PFICs. This actually removed a large number of stocks from the list, as most real estate companies and all investment holding companies could be considered PFICs.

However, even if you are not a U.S. taxpayer who is scared of getting eaten by a PFIC, it may be a good idea anyway to remove these companies. This would align with my investment philosophy which is to avoid investments in company that depend too much on people’s ability to think. I was greatly influenced in this approach to investing by Arthur Weasley who once said to Ginny, “Never trust anything that can think for itself if you can’t see where it keeps its brain.” 

Basically, what I’m saying is that this simple axiom will keep your portfolio clear of death eaters and PFICs at the same time.

Step #6: Price Ratio Asset Yield (PRAY). This was not a real step, but I need to include it because this is a serious blog and a serious index. For each stock in the list, I calculated a PRAY score by multiplying the stock’s price to earnings ratio by the average dividend yield of its asset class. For companies that are not profitable, I used a negative price to earnings ratio. If any stock did not have a score, I removed it from the list.

Step #7: Random Selection. The resulting list wasn’t so large, but still needed to be reduced to around 30. Mostly, this was done by random selection; however, I did have three distinct biases. First, I wanted stocks that represented a variety of industries. Second, I was biased toward any stocks that had a higher overall allocation in the lists that I shamelessly copied. Third, I like stocks from companies that are profitable and who have a strong dividend paying history even if they had a smaller allocation in the lists that I copied.

As part of this analysis, I also read the websites for each of the companies and took copious notes until I got bored. In an upcoming blog, I will publish these notes and you can read them until you get bored, or use them as a starting point for your own research.


Here is the I-PRAY index, sorted alphabetically. The allocation is evenly weighted with 3% to each company except for the three biotech companies, אבוגן, מזור טכנולוגיות and קמהדע, which each have 2% because I had trouble deciding between them.

איביאי בית השק
אפריקה תעשיות
Manufacturing & Technology
גולן פלסטיק
גזית גלוב
Real Estate
דן מלונות
הראל השקעות
וילי פוד
לידר שוקי הון
מגדל ביטוח
Finance & Insurance
מזור טכנולוגיות
מנדלסון תשת
Food & Agriculture
Household Products & Chemicals
רמי לוי
שיכון ובינוי

A Note on Performance

I started to invest in the I-PRAY index in last few weeks of December and the first few weeks of January. This makes it possible to compare the performance of I-PRAY to other indexes. In general, I think performance benchmarking over a short time period is not a helpful way manage your investing. There is too much short term price fluctuations for this to be meaningful.

However, in this case, I think it may be helpful because it shows that the I-PRAY index is really more-or-less as good as any index in terms of giving you the return of the Israel stock market. Also, I like making graphs:

I-PRAY Performance

Share it!

In honor the I-PRAY index – and because I finally got around to it – you can now easily share Investing by Accident blog postings by clicking on the “share” button. There is no greater way to celebrate this new feature than by sharing the I-PRAY index.

Of course, it is always a best practice to buy the stocks in the I-PRAY index before you share them with anyone else. This way you can become wealthy like me when all your friends start buying!