One of the most amazing things to happen to Israel and Israelis over the past generation was that they become rich without lifting a finger, a result of the shekel having become one of the world’s strongest currencies. In the past decade the shekel appreciated nearly 10% against the dollar. The effect on our lives has been enormous.
When this yield is examined from an investment perspective, it becomes clear that the shekel more than made up for the weakness of other investment options in Israel. Globally, and particularly in the United States, stock markets posted record gains over the past decade and are trading at record highs.
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Following are the seven biggest investment stories of the decade between 2009 and 2019.
1. The past decade was the era of the Israeli shekel. The only other currency to outperform it was the Thai baht, which appreciated by 10.4% against the dollar, to the shekel’s 9.2%. Other currencies, with the exception of the Swiss franc, struggled to show gains against the dollar.
The next-strongest currencies – if you discount such bit players as Guatemala, Iceland and Brunei – were the Taiwan dollar (a gain of 4.9%), the Swiss franc (3.5%) and the Singapore dollar (2.7%). The result is that based on exchange rates alone, Israelis are 40% wealthier than their peers in Britain and 10% more than those in America. Over the last 20 years, those gains have been 50% against the pound sterling and 20% against the dollar. It’s no wonder Israelis haven’t taken to street protests – we’re a world financial power.
2. Among traditional investment categories, the second decade of the 21st century belongs to the stock market. But not all stock markets. The S&P 500 index rose 243% over the past decade including dividends and 180% without, or 11% a year.
The MSCI World Index, a broad global equity index that represents large and mid-cap equity performance across all 23 developed markets, rose 94% and 179% when you add in dividends. The U.S. stock market outperformed other developed markets, and developed markets outperformed emerging markets. The last gained just 38%, including dividends, over the past decade. In Israel, the local market returned 55% over the decade and 60% in dollar terms.
The stock markets’ gains were the bond markets’ losses, even though the central banks of Japan, the United States and the euro zone created demand in the trillions of dollars for government and corporate bonds. The Barclays Global Bond Index, which includes government and corporate debt, rose 27% in the decade – less than one-third the rise for equities. Barclay’s U.S. Bond Index rose 44%.
In Israel, by contrast, the bond and stock indexes had about the same return, even though there was no central bank buying.
The sustained rally in U.S. share prices created several corporate giants by market cap. At the start of the decade the combined market capitalization of all publicly traded companies in the U.S. equaled 92% of gross domestic product, according to the U.S. Federal Reserve. By the end of the decade, they were worth 150% of GDP.
The rally was to a large degree made possible by share buybacks and dividend payouts, meaning that market cap was not necessarily an accurate reflection of company value. The market has been characterized by growing concentration. The combined value of Apple shares, is greater than that of all the big U.S. energy companies put together. The five biggest internet companies have a combined market cap bigger than the German economy, and two of them are worth more than the entire German stock market.
3. The stock market isn’t monolithic, of course. There’s Netflix and there’s Teva Pharmaceuticals. In the case of Netflix, the hype surrounding the streaming service enabled it to post a return on its share of 3,894%, the sixth-highest in the market. The 3,000% club, of nine companies whose shares rose more than 3,000% in the decade, represent a wide range of sectors. Patrick Industries, a maker of components and building products for the recreational vehicle, manufactured housing and marine industries, which rose 4,485%. But in an aging word, health care was unsurprisingly a leader. But Domino’s Pizza’s 3,987% rise bested Netflix, maybe due to combined demand for binge viewing and binge eating.
4. This year was the year of the exchange-traded fund, passive funds whose portfolios are based on various share indexes, without any active stock-picking by their managers). The process of pushing out stock pickers began after the 2008-09 financial crisis. As of August, the combined assets of ETFs passed those of active funds – $ 4.3 trillion under management, compared with $ 4.2 trillion in active funds.
The concept of passive investing was born in the 1970s, led by the now-legendary Vanguard funds. The result has been a sharp drop in the fees and commissions involved in investing. More than that, research has shown that passive investing does no worse than active investing and sometimes even outperforms it.
5. Every car owner uses it, but almost no one knows what it is. Palladium isn’t the name of a concert hall, but a gray-colored metal whose price has soared 350% over the last decade, compared with 38% for the Reuters commodities price index. The 30% drop in oil over the last 10 years was the biggest move in the commodities market. By contrast, gold rose by about the same amount.
Palladium trades at about $1,800 an ounce, more than gold and platinum, by virtue of the fact that it is used in catalytic converters to reduce auto emissions. It’s found mainly in Russia and South Africa where it is mined together with platinum and nickel.
6. The computers were mining and the investors were making money: In the past decade, investing in bitcoin and an estimated 4,800 other cryptocurrencies was undeniably tempting. Bitocin was the first and most famous of the bunch, ad anyone who invested in it before 2017 earned tens of thousands of percent. Since then it has been a story of heart-attack-inducing volatility and that’s because its fatal flaw is a critical lack of liquidity. Many investors failed to cash out of bitcoin successfully and today are holding a currency that can’t even be used to pay their grocery bills.
7. Home prices in Israel climbed 70% over the past decade, according to the Central Bureau of Statistics. If you add in the strengthening of the shekel, you get a return of 76%, versus a 49% increase in the Case-Shiller index of home prices in the U.S. In the U.K. home prices rose 4%.
Compared to the return on stocks, these gains look pretty paltry, but when you take into account the low financial costs and the option of renting your property, it has been an attractive investment. In real terms, home prices in India have risen 80% as of the end of 2018, according to The Economist magazine. In Canada, they rose 50%, in China 40% and in Germany 24%.
The real estate aura
Real estate has an aura that other investments don’t, for both logical and less logical reasons. In a survey conducted by Bankrate, a consumer financial services company based in New York, 31% of investors said they preferred real estate as their investment of choice for the next decade. That compared with 2% for stocks, 18% preferring to hold cash; 12% gold and other metals; 7% bonds and 4% digital currencies.
The U.S.-China trade war, market volatility and fears about a recession in the U.S. all are contributing to anxiety over the stock market as does concern that shares are dangerously overvalued. The stock market has been rising so quickly for so long that Shiller’s CAPE (Cyclically Adjusted PE Ratio) index, which measures whether the market is undervalued or overvalued, in 2019 reached its highest since 1929. Of curse, in 1929 the world’s central banks hadn’t been pushing interest rates to record lows, but the fear remains that another Black Friday is looming.
Last month Morgan Stanley published a gloomy forecast for the stock market over the next 10 years. “We expect U.S. stocks and U.S. Treasurys to see [returns of] 4.9% and 2.8% each year, respectively, over the next decade, driving expected returns for a traditional 60/40 equity/bond U.S. dollar portfolio close to a century low,” it said. Those returns don’t sound terrible, unless you consider what investors became accustomed to over the previous decade.
And what about real estate? When there’s a bear market in the U.S. home prices rise, except for once, in 2007. Even then, the housing prices fell less sharply than stocks. And the bonus is that real estate prices are a lot less volatile than stocks.
This text is part of a special roundup of the past decade by Haaretz. Over the next 10 days, 10 writers will reflect on the past 10 years|
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