Taking Stock / Welcome Back, Yair

Well, hello, Yair Fudim, how are you? We haven't heard from you in quite some time. You slipped off the radar screen in the last few years, so we were delighted to see you quoted in the papers this week, mainly your forecasts for the market and IPOs in 2004. For us, Yair, you aren't just the guru of the initial public offerings arena, you're also the groundhog of the stock market - when your picture pops up in the papers, we feel the market madness approaching.

First of all, you may be right. The way things look now, 2004 may well be a cheery year on the IPO market in general, and on the Tel Aviv Stock Exchange in particular. Given the low interest rates, the U.S. loan guarantees and the high times on Nasdaq, we wouldn't rule out the possibility of the merrymaking extending through to 2005. Unlike you, we don't want to take the risk of predicting as much, but we can understand your view.

So much for the compliments. We have a few questions too, with your permission.

1. You kept using the word "distribution" of shares. Why distribution, Yair? Merriam-Webster offers 15 definitions, generally variations on the theme of its first example: "a) the act or process of distributing, b) apportionment by a court of the personal property of an intestate. There's also distribution in the context of frequency or probability distribution, too, "an arrangement of statistical data that exhibits the frequency of the occurrence of the values of a variable".

You however seem to mean the act whereby managers and substantial shareholders in publicly traded companies sell securities to retirees and savers for cash. Don't get us wrong, we always thought shares were a legitimate form of investment for retirees, investors and savers, but why do you insist on calling it "distribution", instead of "sales by interested parties", if you feel it's all perfectly legit?

2. You're telling us, Yair, that you don't understand why sales by interested parties are frowned upon, and when they do sell, everybody assumes they're selling too highly.

You're right, Yair, selling by interested parties is part of the stock market game. But you tell us, as a person working the market for 20 years now. Of all those "distributions" you remember in the Tel Aviv arena, in how many cases did the seller profit, and in how many the investors and pensioners? If you don't remember, we're willing to pick up the gauntlet and check the major "distributions" of the 1990s.

What needs?

3. Say, Yair, when you say "We're in day to day touch with the institutional investors in order to fulfill their needs," what do you mean? What are their "needs"? To buy shares from interested parties after stocks have gained 50 or 100 percent? Or to generate enough yield over time for us, their customers, to compensate for the risk?

See, Yair, if it's the latter you meant, then we don't understand how you're helping them, because the performance of the provident funds, the mutuals and the major insurance companies have presented over the last ten years are pretty miserable.

One of the reasons is their penchant for buying expensive shares being "distributed", or floated, even though decades of experience teaches that it's better to buy on the secondary market, not at IPOs. Apropos, when you say "institutionals", you surely remember the euphemisms, like "distribution," refer to people managing other people's money.

4. When you tell us, Yair, that the institutionals today are far more careful, and carry out analyses and have formal investment committees, and they can't be sold the same crap they were sold ten years ago" - to whom are you referring? Who was that selling crap ten years back?

Could it be that it's more or less the same people selling shares today, who were selling garbage back then? Or is there some chemical process that transforms a "distribution" into "crap" after ten years?

As for the "analyses", do you read many of them? Do you manage your private portfolio using "analyses"? Are you referring to the kind of analyses that were so popular on Wall Street back in 2000?

5. Do tell, Yair, do you recognize this? It's a share that has generated a real negative yield of 60 percent from 1993. No? Here's a hint - it's a company whose owners carried out "distributions" from time to time, to institutionals. If we're not mistaken the first such "distribution" was in 1993, when they sold shares to Bank Hapoalim mutual funds.

Who is it? Leader Holdings & Investments, of course! The company you've been leading for the last ten years. And when you say "the public is beginning to understand that investment in shares is a form of savings, not only a speculative act," are you including shares like Leader's?

6. Say, Yair, how do your statements like "we won't take just any company public", and "it's time to stop treating broker like a dirty word, we have professional integrity too" sit with the 100 junk companies that Leader, Leumi & Co, IBI and the other underwriting pack took public in 1993 and 1994? You must know that about a third of them went broke, a third produced negative yields, and only a handful justified the risk.

Are we to learn that 1993 and 1994 were simply ruled by a two-year bout of temporary insanity, ne'er to return? Or is the whole business based on our short memories?

7. Don't get us wrong, Yair. If we had a company to take public, or some great paper to "distribute" in today's red-hot market, you'd be one of the first three people we'd call. If somebody has what to sell, you're the man to package and market it.

But Yair, really, since we're the ones winding up with those securities in our pension funds, surely you do understand we'd rather forgo advice of the kind you're distributing these days.