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Until 1992, the TA-100 index was called the Mishtanim index. The Yeter broad market index had been dubbed Karam, short for karoz m'mukhshav - computerized announcer. The methods have changed, and computerization isn't cause for comment any more, so the index doesn't have to be named after it. But the indexes are the same old indexes, enabling us to look back through history to judge their performance.

Since 1990, the TA-100 index has generated a real average annual yield of 9.76 percent, according to the Tel Aviv Stock Exchange figures. However, that average is highly misleading. In practice, the index climbed a record 79 percent in 1992, and in 1999 and 2003, it rose by more than 60 percent. But in 1994, it sank 39 percent, and in 2002 it lost 30 percent.

Intensifying volatility

During the last 14 years, the TA-100 index has experienced eight years of gains and five years of drops (it ended 2000 unchanged). Throughout, the index zigzagged wildly, with the exception of 2001 and 2002, when it sunk, sunk and sunk. And in 2002 and 2003, the degree of fluctuation was extraordinary: The gap between the 30 percent drop in 2002 and 63 percent gain in 2003 works out to the biggest biannual fluctuation in the index's history.

That brief history demonstrates that the market has not matured or stabilized. On the contrary, its volatility has been intensifying. Israelis have to have nerves of steel to invest in the stock market, as well as patience and unwavering faith. But if they have all that, their faith may pay.

Factoring in 2003, the index's multiannual yield has reached about 10 percent in real terms. One could apparently achieve higher yields by directly investing in foreign stocks. Yet an annual yield of 9.76 percent cannot be considered disappointing, especially when the risk-free yield (the index of CPI-linked bonds) rose by only 1.8 percent in the same period.

Dreaming dreams of high-tech

The yield of the latter-day Karam, or the Yeter broad market index, is more disappointing. The rule of thumb is that the more risk you take, the sweeter the potential returns over time. But that hasn't worked for Israel's smallcap stocks. Over the last 14 years, the Yeter generated a mere average yield of 6.4 percent a year. That is disappointing compared with the returns from Israel's biggest companies, and is little compensation for the higher risk compared with risk-free yields.

Keep that lesson in mind when watching the resurgence of the Tel-Tech-15 stocks, which is the high-tech arm of the Yeter. The Tel-Tech-15 index rose 120 percent in 2003, and gained another 13 percent in the first trading week of this year. It has companies like AudioCodes (Nasdaq: AUDC), which is still losing money and is trading at 20 times its sales.

High-tech is an exciting dream, but then a lot of investors thought the easy profits were to be found in the smallcap, less well-known stocks back in the early 1990s too. And they were wrong. It transpired that the bigger, more established companies with a proven history of management, sales and profits posted much higher returns. There is no reason to assume that things will be different in the next 14 years.