War? Buy shares, say the brokers. Why?
Twelve years have passed since February 1994, when economist Yaakov Sheinin handed down his famous tidbit of advice: "The stock market is dangerous. Sell everything and get out," he suggested, triggering the second-biggest crash in Israeli history.
Never since has anybody spoken with such crystal clarity: Sell your stocks, period. Nobody has said it.
Nor has anybody said so this week, though we had hoped somebody would. Last Wednesday, as the northern border erupted in flames, the press talked with top brokers, who were actually quite reassuring in their assessments, by and large.
On Wednesday stocks fell 4% and Zvi Stepak of Meitav said the market's reaction had been excessive. "In the information age, investors tend to react sharply, and to think later," he said. "As an investment manager - I'm increasing holdings in local stocks."
Stepak wasn't the only one to sound an all-clear. Vered Bar, the chief economist at Israel's biggest investments firm, Psagot-Ofek, called the market's reaction on Wednesday "emotional". For all the pain, she said, if one analyzes the situation coolly, there is no reason for bonds to tank.
Kobi Navon, the deputy manager over at Clal Finance Batucha, even complained that people who had sold that day had been "panicky". He said the local bodies had been seized by panic while foreign investors stayed calm and reacted moderately.
I read all the quotes from brokers that day and couldn't find so much as one who stood tall and said clearly, "This is the time to sell. It is much safer outside the stock market at this point in time."
When Nasrallah says...
The only ones who so much as approached Sheinin's clarity were Adam Reuter, the chief executive of Financial Immunities, who said investors should stay on the fence.
And - Zeev Milbauer of Israel Brokerage & Investments. That day he told a newspaper: "There is a rationality behind the market's reaction. The market is interpreting the event as war," Milbauer explained. "Share prices in the market are not low. They have room to drop. A fund manager who sells today at 4% will profit tomorrow, because in my opinion there's a good chance that the indexes will continue to fall."
Milbauer was the one who came closest, using the peculiar market argot of our area, to saying it straight: Sell. Now. But even he only hinted at it.
It is not easy to be a broker. They have to make predictions and can't assure accuracy. Yet investment decisions are based on projections, regarding the economy and specific shares. Anybody making predictions will inevitably get some wrong. It is pointless to judge brokers for their wrong calls, but we have to judge them; and when the crunch comes it's very hard to find any standing tall and saying: Sell.
The brokers mentioned above are the top of their field. They spend their entire day analyzing economic events, local and foreign, and they all have the qualifications to risk making predictions. What none have is strategic or military knowledge: none could have predicted whether the Hezbollah attack on Wednesday would be an isolated incident, or the start of a sweeping regional war whose outcome nobody could tell. Brokers are experts on interpreting the body language of central bankers, not Hassan Nasrallah.
Modesty should have required then to admit as much. Given their helplessness at predicting what may come, they should have advised their customers to adopt extreme caution. And that means, to reduce their holdings in shares, to sell their long-term bonds, and to defend their portfolios against spiking uncertainty. Uncertainty so extreme, in fact, that a reasonable investor would prefer to pay the "insurance premium" (which means that he discovers after the fact that he took fright and sold too soon) - but not risk heavy losses on his investments.
But the brokers didn't do that. Instead they continued to soothe and caress, propelled by habit to urge investors to buy, buy, buy. Brokers will almost never recommend selling, even with Israel embroiled in a mini-war, it seems. One has to wonder if they are simply in error, or whether it is actual dishonesty: they make their living from the stock market, and will they defend it at almost any price? Such as, the price of providing dishonest advice to their customers?