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!


  1. Is the a loaded fund with fees pre or post purchase? What are the annual fees that should be factored in? Do you get a commission for people that pray that this fund will help their retirement goals become real?

    1. Thanks for asking. The performance numbers are all before fees. My commission is the satisfaction in knowing that I helped people (... and that my stock will go way up when you buy the I-PRAY index, of course).

  2. Is the I-Pray index going to be published in the Jerusalem Post?

    1. Maybe :) ... contact me offline and we'll discuss: donny 'at' investingbyaccident 'dot' com

  3. Is Rafeal in one of the sectors? You don't have a defense industry sector?

    1. Hmmm... you are right that we are weak on the defense industry. Rafeal is not publicly traded, but IMCO (אמקו) is in the I-PRAY index.

  4. Who owns Rafeal? Who is making all the shekels when the IDF asks them to design and build nuclear warheads with higher yields with a smaller size so they can be mounted on missles that can fly farther?

  5. the plutonium enrichment plant down in Dimona in the Defense sector? Is that a publicly traded firm?

    1. I just read in Bloomberg News that the global uranium prices have fallen since the accident in Japan, so I am not sure that would be a good investment sector. Donny, what do you think?

    2. I think platinum is a better investment than plutonium. Just because it has more protons in the nucleus does not mean it is a better investment long term.

  6. Isn't the defense sector a growth area in Israel?

  7. Stop asking questions - it is Passover. Happy Passover! :-)

  8. A little late, but curious nonetheless: Why wouldn't those Finance companies be considered PFICs? Because their revenue is derived from the fees they charge?

    1. Great question! The answer is that the PFIC rules explicitly allow for an "active banking exemption"; meaning that a financial company whose business is banking would not be considered a PFIC.