Wednesday, June 25, 2014

Hybrid Investments

I have fielded several accidental questions recently about cars. I don’t know why people are asking me. I think cars are terrible investments. They are expensive and lose value constantly.

My philosophy with cars is similar to my philosophy with Israeli bank accounts: try to have the absolute minimum that you need for the lowest price that you can find. 

Ideally, you should have no bank accounts and no cars.

Hybrid or Regular?

When I am in the market to purchase a car, I always want to buy a hybrid. Maybe it’s because I am somewhat of a hybrid myself. On the one hand, I sprout wisdom like a cedar of Lebanon. On the other hand, I read leftover People magazines that my wife hasn’t yet passed on to the next reader in the ex-pat Sisterhood of the Travelling Magazines.

Also, I really want to save money on gasoline. The trouble is that saving money on gasoline with hybrids seems to be very expensive.
Hybrid Economics

The most popular hybrid is the Toyota Prius. I want to buy one because I want to save the environment, but I can never justify the purchase. The best comparison vehicle to the Prius would be the Corolla. It is also made by Toyota and is similar in size and popularity. Here are the economics:
List Price
155,000 NIS
129,990 NIS
25,010 NIS

The Prius demands a premium of 25,000 shekel, but offers superior gas mileage: 25 km/liter versus 17 km/liter for the Corolla.

Here is the payback for gas at 8 shekel per liter:

10,000 km
15,000 km
20,000 km
16 Years
11 Years
8 Years

In other words, this is a very expensive way to save money on gasoline.

A Call for Hybrids

I thought that perhaps the Prius is an exception and other hybrid vehicles make more economic sense. I ran the numbers with the Prius+ versus the Toyota Verso, but I found the payback to be about the same.

At first, the hybrid version of the Toyota Yaris seemed like a good possibility. It is 12,800 shekel more expensive than the non-hybrid version but gets 27 km/liter versus 18.9 km/liter for the gas. Here is the payback:

10,000 km
15,000 km
20,000 km
Yaris Hybrid
8 Years
5 Years
4 Years

If you drive a lot, this level of savings looks like it could theoretically makes sense. The trouble is that people report on blogs that you can trust (just like this one) that they cannot even get close to the reported gas mileage for the hybrid. Adjusting for a more realistic gas mileage of around 22 km/liter, the payback may never materialize.

But, I am crazy and kept looking until I found the hybrid Toyota Auris. It costs only 5,910 shekel more than the gas version of the same car and claims gas mileage of 26.3 km/liter versus 17.5 for the gas version.

Here is the payback:

10,000 km
15,000 km
20,000 km
Auris Hybrid
4 Years
3 Years
2 Years

However, whether you can actually get 26.3 km/liter is questionable. According to most opinions, you only get the posted gas mileage for hybrids if you drive long distances at less than 30 mph.

In other words, a hybrid is a good buy if you drive a cab in New York City.

If so, why are people buying hybrids?

To figure this out, I asked at least two of them. Here is what they told me:

“I had one before and I liked it so I got another one. Why? Is there something cheaper?”

“I like trees.”

These answers make me think that people are not buying hybrids to save money on gasoline.


I ran the hybrid calculations by my Friend. He is an engineer and understands “energy” which makes him an expert on this topic. He told me that it is highly doubtful that a hybrid will save you money as the technology is very expensive, both initially and to maintain over time. In fact, he doubts that even the Auris hybrid will have an overall lower cost of ownership as compared to the gas version.

My Friend suggested that this is an excellent opportunity to open a new consulting business, which can turn any gasoline powered car into a hybrid. We can call our new business, Frius.

Frius will offer a personalized energy saving consultation service, or the Frius Orderly Energy Lifetime Deployment Usage Program (“FUEL UP”). You will pay us just 25,000 shekel, and we will come to your home and perform a comprehensive energy audit.

You can trust us, just like you trust all auditors, because we will be independent and objective. At the end of your audit, we will present you with a customized plan on how you can save more trees. All you will need to do is click “I Accept” at the bottom of the form. By doing so, you have saved trees.

To demonstrate your commitment to our energy program, we will provide you with bumper stickers that read, “Approved to FUEL UP!” which you can place on all of your cars, effectively converting them to hybrid vehicles.

Call now and we will give you a special discount of 20% off your audit.

Wednesday, June 18, 2014

My 5th Grade IPO

This past Friday, I visited my daughter’s class as part a lecture series on financial matters delivered each week by a parent volunteer. As a foremost self-published commentator on financial matters, it was only natural that I would volunteer. As a non-expert, it only made sense that I would discuss the topic of the Tel Aviv Stock Exchange (“the bursa”).

I’m not sure where we are going wrong with our education system, but it apparently happens sometime after the 5th grade.


To describe the purpose of a stock exchange, I asked the class to come up with an idea for a business. Most of the girls did not have one, but many did. Most of the ideas were for hi-tech start-ups. I take this as evidence that girls are definitely interested in business and engineering as professions. In fact, one girl said that she wants to make a start-up and doesn’t care what it does as long as it makes “billions of dollars.”  

It was also very heartwarming to hear from two girls in the class who are planning to create a company that will help sick people. They have given this a lot of thought; but unfortunately, I did not catch all of the details. From what I could understand, a key part of their strategy involves something to do with making sweaters.

In any case, we spent the session brainstorming about our start-up and how to raise money for it. These girls thought of everything, which makes me wonder at exactly what point in their lives people stop thinking. I’ve run similar brainstorming sessions with adults and can barely get half as many good ideas.

We decided that our start-up is going to make shoes that help people jump really high AND run really fast. We thought of everything you need, both the obvious (springs, factories, machinery), as well some of the less obvious, including: a good design team for both the shoes and for our corporate logo.


We discussed how to raise money to get our company started, which led us to the discussion of how we could sell shares of the company on the stock exchange.

Now, this is a fairly complicated concept and I wasn’t sure how it would go over. Actually, several of the girls made it quite clear that it really doesn’t make sense to own a “part” of a company. Which part, exactly, do you own?

However, as we elaborated on how once you own a “part” of a company, you also get “part” of the profit that the company makes, things really clicked. They were especially interested to know which companies I personally owned, and I promised to send them a link to the I-PRAY index.

The conversation around buying and selling stock became quite intricate, and we discussed how the price will go up and down when more or less people want to buy shares in the company. Here are two actual questions raised by the 5th graders:
  • Once you have shares, anyone can buy them. This is just like the Chinese who bought Tnuva. Why did they do that?
  • The amount of money that you get back from owning Bezeq doesn’t sounds worthwhile. Why don’t you sell it?
These are very good questions, and you may be wondering about the answers. I certainly am. Unfortunately, they were asked on purpose which makes it impossible for me to answer them.

In any case, this is your fair warning. If you see a 5th grade girl in Modiin, she probably knows more about the stock exchange than you do.

Wednesday, June 11, 2014

Real Estate on Purpose

Two weeks ago, I published a groundbreaking blog entitled Real Accidental Estate. In this posting, I proved beyond any doubt that I have no idea why real estate prices are the way they are. My case was so convincing because it used extensive conjecture about how much my apartment in Modiin would rent for.

This blog left us with two unanswered questions.

#1: Are there real estate investments in Israel which do not appear to be over-priced?

To answer this question, I conducted a man-on-the-street interview one day during lunch at work. My conclusion is that the answer to this question is: maybe.

One friend at work told me about beach front property that he bought in Haifa in which the rental yield is 10%. He thinks the reason the properties are undervalued is that the maintenance fees are fantastically high (10 shekel per square meter!) which makes only the smallest apartments affordable. Because they are so small, people tend not to want to buy them for fear that they will outgrow them quickly. However, they are willing to rent them for a few years at a time.

Investment opportunities may very well be out there. If you think you found one, please let me know. I would be happy to provide you an accidental analysis and write about you on my blog. Contact me by posting in the comments or directly by emailing me: donny ‘at’ investingbyaccident ‘dot’ com.

However, more importantly, the blog raised this question:

#2: So what? Shouldn’t I just buy real estate anyway?

This is actually quite an insightful question, and the answer depends on how much money you have and how much you already have invested in real estate.
One of my highly intelligent friends is making aliyah this next summer and astutely observed that his second highest financial risk with aliyah is that he will not be able to afford a home if real estate prices continue to increase at the rates we have seen in recent years (10%+).  

Actually, he is very highly intelligent. I know this because he is the same friend who is hedging his currency risk before aliyah to mitigate his greatest financial risk.

He is looking to buy an apartment in Israel as soon as he sells his house in Canada (“Not America”). However, because prices are so high, he cannot afford to buy an apartment he wants to live in. His highly intelligent solution is to buy an apartment solely as an investment while he rents an apartment to live in.

This approach is highly intelligent and applies to you if you don’t already own property in Israel but want to live here. Had I been highly intelligent when I made aliyah, I would have much more money right now.
Allocation, Allocation, Allocation

If you already own property, it may still be a good idea to invest in real estate even at these prices. Or, it may be a very bad idea. I think it depends on how much money you have and how much you want to allocate to real estate.

We did not address real estate in the Order of Allocation, but the basic principles apply. You do not want to have all of your money in any single type of investment. This may be more obvious when you think about “bonds” and “stocks”, but it is equally true when you think about other types of investments, including real estate.

Although I believe that the real estate market is overvalued, I also believe that I have no idea when (or even if) it will decline. As a result, the best approach is to allocate a portion of your assets to real estate. In the current environment, it would seem prudent to adjust the allocation in consideration of the market appearing to be somewhat overvalued, but I would not drastically alter it.

I think that allocating between 15% and 25% of all of your assets is a highly reasonable target. After writing this last sentence, I computed how much of my assets are allocated in real estate. It came out to about 50%, which could only mean one thing. 

You should do what I say and not what I do.

Or maybe, it means that home prices have become so expensive that many of us are already over-invested in real estate. If that has also happened to you, now would not be the best time to buy more real estate.

Tuesday, June 3, 2014

לא יתקיים מסחר

Markets are closed today and tomorrow for Shavuot. Obviously, I cannot possibly write a blog without the inspiration of the live ticker of the Tel Aviv Stock Exchange floating on the bottom of my screen.

Enjoy the cheesecake!