Amit, a 32-year-old lawyer, began investing in the stock market two months ago, trading through IBI, an investment house that serves small investors. His firm had given him a big annual bonus and his friends urged him to play the market in order to get the best possible returns on his investment.
“If I had put it in a savings account, I would have lost money. A short-term deposit also pays low interest,” he said. “Another option was a provident fund, but I saw that the returns weren’t especially high. I saw that friends trading in the market were getting higher returns, even in blue chip stocks like Facebook, Google and Netflix.”
Amit hasn’t been the only young Israeli to make the same calculation. According to the Tel Aviv Stock Exchange, last year saw a 44% increase to 141,000 in the number of new trading accounts opened at banks and brokerage houses. Some of the new accounts were in fact investors moving from banks to investment houses, but even the banks saw a net increase.
A lot of the first-time players are young people trading on apps similar to the U.S. Robinhood platform, which has been at the center of a controversy over its role in the rise and fall of speculative stocks, particularly GameStop.They are part of a global phenomenon that has been underway since the onset of the coronavirus pandemic.
One thing that spurred the phenomenon in Israel and globally was Wall Street’s reaching new highs last March just as lockdowns were leaving people with more free time at home. More recently, the feeling that the worst of the pandemic is over and the new highs recorded in stocks have accelerated the trend.
“In the last few months we’ve opened more new accounts than at the peak of the coronavirus,” said Osher Tubul, CEO of Meitav Dash Trade, which provides brokerage services to small investors. “In November 2020 we posted a record, in December we broke it and I think that in January we broke that record.”
Other investment houses report similar increases. At Pepper, the digital banking arm of Bank Leumi, the number of users signing up for its Pepper Invest app has been growing quickly over the past year. The app lets users trade major stocks and exchange-traded funds in the United States.
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“The coronavirus has spurred growing numbers of new stock market investors because people have more free time and are looking for alternative sources of income. Everything by us has doubled – the number of customers, rates of usage and the size of the portfolio,” said Michal Kissos Hertzog, Pepper’s CEO.
She’s convinced it’s not a fleeting phenomenon. “Technology has enabled everyone to play the market and build a diversified portfolio of any size, something that was impossible in the past. It’s here to stay,” she said.
At Bank Hapoalim, the number of users for its investment app – most of them under age 35 – has jumped 120%, and the number of trades has grown by more than 200%. Hapoalim’s trading website has seen growth, too, albeit more modest.
Most of the growth has been by investors playing the U.S. market. Tubul said that at his firm the ratio of investment in Israel and overseas had previously been about 50-50; today, however, about 75% of the holdings are American.
Investors traditionally prefer shares in companies they know, which for Israelis means companies like Teva Pharmaceuticals and Bezeq. But today U.S. companies like Google and Amazon are just as familiar to them.
Tubul said the most popular shares among his clients are Tesla, the Chinese automaker NIO, Apple, Amazon, Alibaba, Nvidia, Microsoft, Facebook, Pfizer, Moderna, Google, Intel as well as the Israeli companies Fiverr and SolarEdge.
“We’ve seen a flood of initial public offerings globally and in Israel, and each time there’s been massive demand. Since its IPO, Playtika [an Israeli maker of mobile games] has attracted a lot of investor attention,” Tubul said.
At IBI, besides the electric-car makers Tesla and NIO, cryptocurrency stocks, such as Marathon and Grayscale have been popular as are the high-tech battery makers QuantumScape and Israel’s Foresight. Shares that were being snapped up by Robinhood traders – Gamestop and cinema owner AMC – have also been popular with Israelis, IBI said.
Israel has its own equivalents to Reddit, where small investors share tips online. Although they haven’t quite had the outsized influence their American counterparts enjoy, a few stocks on the TASE have risen well beyond any conventional valuation would assign them, said one market source who asked not to be identified.
“There are shares that have risen hundreds of percent in a few months, even though nothing happened at the company or any disclosure that would justify it. The minute that small investors begin snapping up a stock without knowing what they’re buying and replace institutional investors, that’s the beginning of the end,” said the source.
“No one can ever say how far a bubble like that can be inflated, but eventually it has to burst,” he said. “Those starting to play the market now think they know what they’re doing, but they don’t. I began investing in 2000 and at the beginning I made money, but the bubble burst and I lost a lot. The same thing is going to happen now, just on a bigger scale, because back then there was no Whatsapp or Telegram, just online discussion forums.”
Chaya, from Kfar Sava, isn’t typical of the small investors now piling into the market. At 66, she is well above the average age of 32 for the new clients signing up at Meitav Dash Trade. She has been playing the market full time since 2006. But like the new breed of investors she is active in Whatsapp groups.
The new players are known as halatnikim, the Hebrew term for people on unpaid leave. What they have in common, she said, is that they joined during the coronavirus, have a lot of free time and are looking for ways to supplement their unemployment benefits.
“You can identify them by the questions they ask. For example, only after putting his money into the market does he start asking what a stop-loss order is or what’s a short. You see it’s someone who doesn’t understand the market at all and that he began investing only because he was told that it’s the way to make money,” said Chaya.
Know the vocabulary
She herself began investing after leaving her job and began looking for something to do. “I started going to lectures on the capital market and decided that instead of sitting in an office and working for a boss, I’ll stay at home. If I lose money, I lose it for myself,” she said.
Since then, however, she has been able to support herself from her market profits. She advises new investors to first learn the vocabulary of the market and to experiment with apps that let you play the market virtually before you put down real money.
“In Whatsapp groups, for instance, after one person posts something about a stock, the herd jumps in and within two minutes the share can rise. I’ve also at times followed tips like that, but not blindly.”
While there are reckless young investors who rush into stocks without understanding much about them or the dynamics of the market, there are also quite a few investors who delve deeper.
“If you view these new investors as an army of children who don’t understand the capital market, you’re doing them an injustice,” said Pepper’s Kissos Hertzog. “These are knowledgeable people — they just use different tools, like online discussion forums and algorithms.
“We’ve seen online forums where they discuss subjects like technical analysis of stocks that you can invest through us, and the discussion was intelligent. We’ve seen shares being bought due to concrete development – when Pfizer announced its [COVID] vaccine, for example, or when Tesla entered the S&P 100 index, people responded to what was happening. We also see that users’ portfolios are diversified with stocks and ETFs – they’re not just buying a single share,” she said.
“People who haven’t played the market in the past start by trading small amounts and fractional shares and move on to whole shares,” said Kissos Hertzog. “We’re planning to develop applications for other markets, including the Israeli market, but it depends on Israeli regulations.”
The average age of a Pepper Invest user is 26, and the amounts he or she invests are relatively small. Unlike the brokerage houses, Pepper doesn’t require individual investors to have portfolios in the tens of thousands of shekels.
Amit said that although he began playing the market on the advice of friends, he’s taking his investing seriously. “I listen to podcasts, read articles in the U.S. media, because that’s where I’m investing. I’ve signed up for instructional websites and have joined Facebook groups,” he said.
“I’ve downloaded all the apps I can that follow the market and follow them all the time. I also check the recommendations of different analysts and the target prices they’ve set.”
He is aware of the risks he’s taking. “You need nerves of steel to see the red on your screen and not sell when a stock is falling, but I know that’s the biggest mistake of them all – to sell on declines …. Whoever invests in real estate is also taking a risk. You have to find tenants and, if you don’t, you’re losing 5,000 shekels [$1,520] a month. That’s no different from losing in stocks,” Amit reasons.
He mostly invests in shares and waits for them to rise 10% to 15% before selling. “With Facebook, I made a mistake because I bought it low and it rose 20%. I didn’t sell because I was waiting for it to hit the analysts’ target price and now it’s falling. My profits have been erased,” he said. He admitted that the 50,000 shekels he’s invested so far hasn’t made much of a return, but he remains optimistic.
Nadav Baruch, age 27 from Mazkeret Batya, invests in U.S. stocks through Meitav Dash and sees himself as a long-term investor. “I violate my rule from time to time, but anyone who invests short term is taking a gamble,” he explained. “I believe my stocks will bring me a return of 1,000% over the next decade, so it would be stupid of me to sell them.”
After considering the idea for several years, Baruch began paying the market last August. “I did the first trade I did with a friend who uses the same platform I do. I invested just $4,000 and made a profit. That’s when I decided to invest time in learning about the market. My investments are now bringing in $4,000 a month.”
Baruch said he carefully researches the companies he wants to invest in. “Using common sense and data, even small investors can assess a company,” he said. “Most investors act on information they’ve heard – it’s a pity they don’t do the analysis,” he said.So far, the strategy has worked: His portfolio has grown to 100,000 shekels after returning 75%. But, Baruch said he’s not ready to sell. “I can’t go out and be with friends, so why should I use my money now? If I put it into the market, it will be worth a lot more. It’s the only way I know of reaching my dream of financial independence.”